Unfair dismissal settlements and compensation
A practical guide to unfair dismissal in the UK and to negotiating an unfair dismissal settlement agreement payout with your employers.
This practical guide is written by our specialist employment solicitors who are experts at winning claims for employees. Read more about Monaco Solicitors here
It’s aimed at you if you’re an employee, have recently been unfairly sacked by your employer and are no longer in their employment.
What is unfair dismissal?
Unfair dismissal is a term used in employment law when you get dismissed (in other words, sacked) from your employment without good reason.
It can also refer to instances where you get dismissed and your employer has failed to follow their own formal disciplinary and/or dismissal processes.
It is your right as an employee not to be unfairly dismissed and there are laws to protect you against this. You can also seek compensation from your employer for such bad treatment.
You usually need to have worked continuously for your employer for at least two years before you can make a compensation claim for unfair dismissal, although there are some exceptions, as outlined below.
Unfair versus constructive dismissal
Unfair dismissal is sometimes confused with constructive dismissal, which is where you feel forced to leave your employment because you can’t any longer cope with the way your employer (or your colleagues) are ill-treating you.
As a result, you resign and leave, rather than get dismissed. See our guide here.
Who can claim unfair dismissal?
You have to be an employee who has been dismissed before you can make a claim. An employee is an individual carrying out work under a contract of employment.
You don’t count as an employee and therefore can’t make a claim, if you are:
- an agency worker or classed as a ‘worker’
- a police officer or in the armed forces
- a registered dock worker
- working overseas or for a foreign government
You can also check your employment status on the gov.uk website.
What are unfair dismissal settlement agreements?
Employers often offer settlement agreements to settle a potentially unfair dismissal compensation claim: in the agreement, they offer you a sum of money so that they do not have to follow a formal dismissal procedure.
Try to resist the temptation simply to take the first offer, and instead tell your employer that you’ll get back to them after a week or so.
This gives you time to find out more about your rights in your particular circumstances and – if you need it – to get some proper expert advice.
Fair vs unfair dismissal
There are several ways of ascertaining whether your dismissal was fair or not and therefore if you have grounds for a related claim against your employer.
For starters, you usually need to be employed continuously for at least two years with your employer in order to bring a claim. See more on this below.
For the moment, let’s assume that you have your two years’ service and you would like to know if you’ve been fairly dismissed.
What was the reason given for dismissing you?
Firstly, you need to look at the reason given for sacking you. There are five potentially fair reasons:
For instance, where you are found to be not capable of doing your job – sometimes also referred to as ‘Performance’. (See our guide on Performance improvement procedures and plans.)
For example, where your conduct is found to be unacceptable for reasons such as poor attendance, ignoring important instructions, deception or dishonesty.
Where the redundancy is for genuine business reasons. (See our Redundancy guide.)
An example would be where you need specific skills and/or qualifications to do your job legally, but it turns out you don’t actually have them.
5. Some other substantial reason
This is basically a ‘catch-all’ reason where none of the above applies, such as:
- dismissing and then re-employing you to try to get you to accept a new contract/terms and conditions;
- dismissing you because of a personality clash which means you can’t work with a colleague;
- safeguarding issues concerning children or other vulnerable people but where your employer doesn’t have grounds for dismissing you for misconduct.
If the reason given to you was not one of the above, the chances are that you were unfairly dismissed. For example, if you were dismissed because you are friends with the old CEO who has been fired, this is not a fair reason.
What was the procedure used for dismissing you?
If you have been given a potentially fair reason for having your employment terminated, the next thing to look at is the procedure.
If a fair procedure was not followed, then you may still have grounds for an unfair dismissal claim.
However, if this was the case, any compensation could be reduced to reflect the possibility that you would have been dismissed even if the correct procedure had been followed.
Exactly what is a fair procedure varies depending on the size and administrative resources of your employer. The bigger the company, the more hoops they usually have to jump through.
As a guideline: in a capability/performance dismissal, you should be given:
- warnings and chances to improve
- a fair hearing, with the opportunity to bring a colleague
- a right of appeal to a higher level of management (or a different manager if it is a small employer). See our appeals guide for how to appeal a decision.
Do you need 2 years’ service for unfair dismissal?
Before you have the two years’ continuous service mentioned earlier, there is usually no requirement for your employer to follow a formal procedure when they sack you.
Put simply, providing they give appropriate notice, an employer can dismiss you without giving a reason. They don’t have to mention your performance, a company restructure or any reason at all, although often they do give a reason anyway.
What if you get fired just before 2 years are up?
If you get fired after, say, 23 months, and your employer does not give you your one month’s notice, unfortunately, all you can do is bring a claim for your one month’s notice.
It is however often possible to obtain some kind of compensation in these situations with some negotiating, regardless of the legalities of the situation.
The closer the termination date is to the two years’ service, the stronger your argument would be.
Let’s assume you are dismissed after 1 week before the 24-month mark, without notice, in circumstances other than for gross misconduct.
In those circumstances, the employment tribunal can add the one-week statutory notice, giving the minimum two years’ service needed for an unfair dismissal claim. (See also our guide on notice periods.
What unfair dismissal claims don’t need 2 years’ service?
Two years’ continuous employment is generally needed to be able to bring an unfair dismissal claim.
However, if you’re dismissed because of discrimination or one of what are called “automatically unfair” reasons, there is no qualifying period.
There are over 60 automatically unfair reasons which include the following:
For example, if you get dismissed because you are afraid of contracting a disease such as coronavirus in the workplace and so refuse to attend; you object to unsafe machinery handling practices and other such hazards.
But only if the employer was aware the employee was pregnant.
- Asserting a statutory right
For example, if you complain to your employer about any of your statutory rights, such as unpaid wages, withheld holiday entitlement
- Trade union membership or non-membership
- Dismissal in connection with the national minimum wage
- Employee refuses to exceed the 48-hour working week
For example, if you get dismissed because you have complained to higher management or to external authorities about illegal work practices. (See our whistleblowing guide.)
In automatically unfair dismissal cases, not only is there no minimum employment requirement, but there is also no upper limit on the amount of damages the employment tribunal can award.
You normally need to be employed for at least two years in order to bring a claim for unfair dismissal.
When you are unfairly dismissed the time limits are very strict – you only have 3 months less one day to bring a claim in the employment tribunal.
This does not get extended by any grievance process.
If you win a claim then your unfair dismissal compensation payout will reflect how much money you lost by being out of a job.
So, if you were only out of a job for 2 weeks, you will get very little compensation.
How to prove that the dismissal reason was not the real reason?
This is always tricky: you may have been given a fair reason, and the procedure was fair.
However, you may still have grounds for an unfair dismissal claim if you know that there was an underlying reason and that you have been put through a ‘sham’ exercise.
This argument should be used with some caution: employment tribunals are part of the establishment and are not readily persuaded by conspiracy theorists.
But still, if you can prove that there was a different reason for your dismissal than the one given to you, then you may be successful in your claim, even though on the face of it the process seemed fair.
What unfair dismissal compensation could I get?
In order to assess what compensation you could get in your settlement, it is worth looking at what an employment tribunal would award in a case of unfair dismissal.
Doing this can help you to work out what a reasonable settlement agreement value would be in your circumstances.
There are two elements to such an award: a compensatory award and a basic award:
The compensatory award
This payout is usually the larger of the two elements and is awarded by a tribunal to compensate you for losses you have sustained as a result of your employer’s unfair actions.
The maximum ‘compensatory’ award in the tribunal for unfair dismissal is one year’s salary, or £105,707, whichever is lower (from 6 April 2023).
However, you have a duty to mitigate your loss, which means that if you get a new job straight away on the same or more money, you won’t be entitled to any compensatory award at all.
The basic award
The other element of unfair dismissal compensation is a ‘basic award’. This is similar to statutory redundancy pay – and is:
- 1.5 weeks’ pay per year of service from age 41
- 1 week’s pay for each year of service if you are aged 22 – 40
- 0.5 week’s pay for each year served if you are under 22 years
The award is based on your gross weekly pay when you were dismissed up to a maximum of £643 (whichever is lower) per year of service.
This is unlikely to amount to much unless you’ve been with your employer for a long time and the payout is capped at a maximum of £19,290. (All figures from 6 April 2023.)
Often it’s better to try to remain employed rather than quit or be fired, that way you can leverage a higher settlement payout from your employer because they will effectively pay you to leave.
Average UK payout for unfair dismissal claims
There are two ways of thinking about average payouts for unfair dismissal claims:
- Claims settled directly with your employer;
- Claims settled by an employment tribunal,
as outlined below.
Average payout for claims settled directly with your employer
Our extensive experience indicates that employees usually end up better off (both mentally and financially) if they can negotiate a settlement agreement and associated compensation directly with their employer.
You may also be able to negotiate over such payments as holiday pay, bonuses and commission and share options. There are also extras that don’t have a direct monetary value such as an employment reference in the form you want.
You cannot negotiate over any award made to you by an employment tribunal.
Average compensation for claims settled by an employment tribunal
The Ministry of Justice publishes annual statistics for awards made by employment tribunals for a wide range of claims, including unfair dismissal.
For an unfair dismissal compensation awarded by a tribunal, the median award in 2021 – 2022 was £7,650, and the average award was £13,541.
For more, see the government’s Employment Tribunal and Employment Appeals Tribunal Annual Tables in this gov.uk publication.
Comment on average payouts for unfair dismissal
It does not take a great mathematician to work out that anyone earning more than about £25,000 per annum would be likely to end up better off by negotiating a settlement agreement payout, rather than having to accept an employment tribunal award.
How can I claim for unfair dismissal?
At Monaco Solicitors, we want to make sure you have all the support and resources you need to successfully resolve your unfair dismissal case. Whether you’re looking for help with negotiating a settlement agreement, taking your claim to an employment tribunal, or just want to explore your legal options on our website, we’re here for you.
If you decide to take action, remember that there are strict time limits for making unfair dismissal claims.
If you’d like our help, just click the button below to get started.
1. What is a reasonable settlement offer for unfair dismissal?
A reasonable settlement offer for unfair dismissal will depend on the individual circumstances of the case. Factors such as length of service, age, prospects of securing alternative employment, and the type of dismissal could all be taken into account when determining a fair amount.
Generally speaking, successful claims can result in compensation payments ranging from several months to several years’ salary depending on the severity of the circumstances.
It is important to bear in mind, however, that unfair dismissal claims are highly complex and an experienced legal adviser should be consulted when negotiating a settlement offer. Ultimately, each case will be determined by its own merits and no two settlement offers will be alike.
2. What is the average payout for unfair dismissal?
An unfair dismissal can take the form of 1.5 weeks’ wages per year served after age 41, one week’s wage if between 22-40 years old, and half that amount for those under the age of 22 – providing them with much-needed financial support in these difficult times.
3. How do you negotiate unfair dismissal?
Negotiating an unfair dismissal claim requires careful preparation and effective communication.
To increase your chances of success, you should consider spending time to research and understand the legal elements of your unfair dismissal claim. This will help you to assess the strength of your own case and identify any potential weaknesses.
Next, gather evidence that demonstrates that you were unfairly dismissed. This could include emails, witness statements, or performance reviews.
Determine your desired outcome before entering into negotiations with your employer. This could include financial compensation, reinstatement to your former position, or a reference.
4. When should a settlement agreement be paid?
Once the parties have reached an agreement about the financial and non-financial elements of the settlement, it’s important to agree when payment should be made.
Settlement agreement financial payments are usually paid within 1 to 3 weeks of signing. However, this can vary from case to case depending on whether some payments have to be made through payroll and if so, what date that takes place on. You and your employer may also agree that payment should be made on different dates if that would suit your employer and your circumstances better.
Our related guides
- Unfair dismissal & ill-treatment due to health & safety issues at work
- Constructive dismissal: A guide for employees
- Settlement agreements, compromise agreements and how much should I get?
- Redundancy: a guide for employees
- Grievances at work
- Appeals by employees
- Performance improvement procedures and plans (PIPs) at work