Tuesday 22 November 2011

Compensatory Award – Statutory Cap

[Thanks to Ed McFarlane of Deminos HR for preparing this case summary]

At what stage should an employment tribunal 'gross-up' a Compensatory Award for Unfair Dismissal to allow for taxation when the statutory cap applies?

'Grossing-up' occurs before the cap is applied, says the EAT (HHJ Peter Clark presiding) in Hardie Grant London Ltd v Aspden.

The Claimant won her constructive dismissal claim. Since tax was due on her Compensatory Award over £30,000, the tribunal 'grossed-up' the Compensatory Award to allow for tax, after it had applied the statutory cap (at the time £65,300). The tribunal awarded £87,166.67, on the basis that the Award in the Claimant's hands after tax would be at the cap.

The EAT held that this was the wrong approach, although a Compensatory Award is based on the loss of net earnings, and 'grossing-up' ensures that the Claimant receives net lost earnings from the taxable element of the award, grossing-up occurs before the cap is applied. The EAT reduced the Compensatory Award to the then cap of £65,300.

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