After you make a successful claim for unfair dismissal and/or discrimination, the Employment Tribunal (ET) will assess the amount of compensation you are to receive. This compensation will include the ‘compensatory award’, which is calculated according to what you have lost as a result of being dismissed and/or discriminated against. A key component of your loss can be the loss of pension rights if you benefited from a pension scheme as part of your employment.

The recent decision of the Court of Appeal in Griffin has clarified how the court should calculate pension loss awards.

Ms Griffin brought a successful claim against Plymouth Hospital for constructive unfair dismissal and disability discrimination. The Tribunal found that the Trust had made wholly inadequate efforts to enable her to return to work on a part-time basis following a diagnosis of systemic lupus erythematosus (LSE) and she was awarded compensation amounting to just over £105, 500. After an appeal, this was increased to £166,000. Believing that this award was too low, Ms Griffin took her case to the Court of Appeal.

The Court of Appeal upheld the Employment Appeal Tribunal’s finding that Ms Griffin’s future loss of earning should be limited to 12 years because it was likely she would obtain further employment at the same salary within that period.

However, the Court of Appeal disagreed with the way in which Ms Griffin’s award for loss of pension rights was calculated and remitted the case back to the Tribunal.

Ms Griffin had the benefit of a NHS final salary pension. In such a situation there are two ways of calculating the compensation she should receive:

  1. The simplified approach which award Ms Griffin only the contributions which would have been made by the employer (had she not been dismissed) in the period likely to elapse before new employment ws found; and
  2. The substantial loss approach, which would look at Ms Griffin’s whole pension loss up until retirement and which would award compensation replicating the benefits of a final salary pension scheme.

These approaches and instructions on when to use them come from Guidance produced by Her Majesty’s Court and Tribunal Service. It is not binding – but acts as guidelines to assist the Tribunal when assessing compensation, attempt to ensure uniformity and fairness in the process.

Compensation using the second approach is more substantial and favourable to the claimant: the award was calculated in this claim by Ms Griffin to be worth £90K plus, compared with just over £30K by the Trust under the simplified approach. However, the ET chose the former to assess Ms Griffin’s award on the basis that whilst she had worked for the Trust for a considerable amount of time (nearly 10 years), the substantial loss approach is only suitable for those nearing retirement. The Court of Appeal felt this was an error. The real question was whether she was likely to stay with the Trust until retirement. . Older Claimants were not the only category of Claimant of who this might be true.

The key to this case is the particular facts of Ms Griffin’s situation, namely:

  • She was in a specialised profession and there would be no other employer for her in the Plymouth area;
  • She had been with the Trust for nearly 10 years already despite being only 34; and
  • Given her recent diagnosis she was unlikely to embark on finding a different job outside of the Trust.

The conclusion was that Ms Griffin was likely to have stayed with the Trust until retirement, had it not been for the discrimination and unfair dismissal she suffered. The Court of Appeal also held that the ET had erred in thinking that the simplified approach was approach was appropriate because it the Claimant was likely to find another job. The key question was not whether she was likely to find another job but whether she was likely to find a job with a final salary pension scheme. The ET was not entitled to reject the unanimous and unsurprising evidence that final salary pension schemes are hard to find these days. This is important conclusion of wide application

Therefore, the suitable approach was the substantial loss approach, which is much more favourable to her.

It must be noted, however, that compensation for unfair dismissal is capped at £76,574 or one year’s salary whichever is lower. This includes any sums awarded for loss of pension rights. Therefore normally you will not get the full pension loss entitlement unless you are successful in a claim for discrimination or whistleblowing (where there is no cap), like Ms Griffin was. On a pure unfair dismissal claim, the effective of this cap can be significant.

For example, suppose you have worked for the NHS for 20 years and have a final salary pension of 1/80th of the final year’s salary per year of service plus a lump sum of 3 years pension. You are dismissed at 45 when your annual salary was £60,000 and you were planning to retire at 65. You are deemed unlikely to find further pensionable employment, meaning the substantial loss approach should be used. Your estimated loss of pension rights would be £274, 050 without consideration of the amount you are entitled to in lost earnings. The sum of your loss of pension rights award and loss of earnings awarded is capped at £76, 574 – a huge loss when pension rights alone are valued at over £200K.

In the Griffin case, the Court did, however, conclude that the Guidance with the Tribunal uses to ascertain with approach to use when calculating pension rights was out-dated and in urgent need of an update. Any clarification would be welcomed to ensure a more uniform and up-to-date approach to assessment by the Tribunal and prevent the need for repeated appeals. For now the key is whether you would have remained in employment with the respondent until retirement and you should be aware if you have a pure unfair dismissal claim the statutory cap on compensation is likely to have a significant impact on their award.