If you are being offered a Settlement Agreement or being treated badly at work and you want to negotiate an exit, you need to understand all of your options before calculating compensation.  It is very important for you to understand how an employment tribunal would calculate your compensation if you were to win a case against your employer, as that is what your employer will be thinking about when considering settlement.

This guide sets out the key principles of compensation for the most common types of employment related claims and is not a substitute for taking full legal advice on your specific situation.


Calculating compensation in employment tribunal claims is generally based on two things:


This includes any actual financial loss (including loss of earnings, pension and other financial benefits) you suffer as a result of the dismissal or discrimination. Apart from in particularly bad cases of discrimination, it is intended to put you in the position you would have been in had your employer not acted unlawfully, rather than specifically to “punish” the employer.  No matter how unfairly you are treated, if you find new employment quickly that pays the same or better than your old job your claim is unlikely to be worth much money unless you have been in your job for a long time.

You can find more information on the Citizens Advice website as well as below:

If you have lost your job and you win your claim, a tribunal will compare all of the financial benefits you would have received had you stayed in your previous job (including net salary, overtime, bonuses, commission, private medical cover, pension etc) with what you now earn if you have found a new job or, if you are unemployed, what you could earn in the future.

The tribunal will look at the position by the time of the hearing of your case, and if appropriate will consider compensating you for ongoing losses after the hearing.

The compensation you are awarded will depend on whether you have found another job, how much you are paid, or if you are unemployed when you are likely to find new employment.  Your financial losses may therefore be quite limited if you are able to start a new job relatively quickly and which pays the same or more than you earned in your previous employment.  If you find another job that pays less, or claim benefits, or have income protection insurance that pays out, compensation will be discounted by the value of these sources of replacement income.

A tribunal would also consider, for example, how long you were likely to stay in your old job if the dismissal or discrimination had not taken place.  You should therefore be prepared for your employer to argue either that you would have left your job or would have been dismissed sooner rather than later, for example if a redundancy situation arose shortly after your dismissal.

Further reductions can be made to reflect anything unreasonable you did which contributed to the employer’s decision to dismiss (in some cases by up to 100%), or if you failed without good reason to comply with the ACAS Code on disciplinary and grievance procedures – where they apply (up to a maximum of 25%).

Compensation may also be increased by up to 25% to reflect any unreasonable failure by the employer to comply with the ACAS Code.

However, in most cases there are maximum limits on the compensation you can recover for loss of earnings following unfair dismissal.  You cannot recover more than a year’s salary and if you are a high earner there is an overall limit which may be substantially less than a year’s pay.

To claim any kind of loss of earnings, you also need to “mitigate your loss” (try to limit your financial losses by replacing your income) by looking for another job and you should keep records of the steps you have taken or have clear medical evidence supplied by a doctor or other medical professional if you are too unwell to look for work.  If you don’t have good evidence to explain why you haven’t been able to find another job, you may see a reduction in compensation.

If you find another job following your dismissal, you will need to build up at least two years’ continuous service before you will be able to claim protection from unfair dismissal or a statutory redundancy payment.  A tribunal may therefore make a further award following a successful unfair dismissal claim to recognise and compensate you for this.  There is no set figure, but awards usually start at around £350.

If you are still employed and experienced financial loss (for example, you have lost out on an opportunity for promotion as a result of discrimination) a tribunal would calculate compensation based on the difference between your existing net pay and what you would have earned in the more senior role.  Again, a tribunal may reduce the award if there was a chance that you may not have been promoted in any event.

Compensation for discrimination during employment is not taxable.

This is can be claimed by employees who have been unfairly dismissed after at least two years’ employment. A basic award is equivalent to a statutory redundancy payment, to recognise the essential unfairness of the situation.  You can calculate this here:

The basic award can also be reduced if you contributed to your dismissal in some way.

You may also make separate claims for your notice pay if you did not work your notice and claim payment for any accrued holiday.  Tax and national insurance are always deducted from notice and holiday pay.


This type of compensation is only available in discrimination (and some whistleblowing claims).  It aims to compensate for the distress and upset you suffer as a result of being discriminated against.  It is calculated based on previously decided cases and you can find more information here:

No matter how upset you feel by your treatment at work, if it’s not discrimination then you cannot be compensated for this by the employment tribunal.

Points to consider

  • Working out the compensation you might be awarded under the headings above should give you the maximum value of your claim. Unless your situation is very unusual, your employer is unlikely to settle a case for its maximum value.


  • No matter how strong you think the claim is, there is always risk and uncertainty in litigation. If you attend a full hearing of your claim you will have to give evidence which involves being cross-examined.  This is very often done by a professional barrister whose job it is to trip you up, confuse you, make you uncomfortable and generally discredit your evidence and make it look weak (it’s nothing personal!).


  • Witnesses you are relying on may not turn up, or may not say what you expected them to say.


  • Witnesses for the other party may perform unexpectedly well, or the employment tribunal may focus on points that you didn’t think were particularly important.


  • Bearing all this in mind, an early settlement for a certain sum of money that will tide you over for the time you think it will take you to get a new job may start to look attractive, even if it’s some way off the “maximum” you might achieve if everything goes right on the day.


  • You also need to bear in mind that even the most straightforward unfair dismissal case is likely to take a year to come to a full hearing. Discrimination cases generally involving more witnesses, perhaps medical evidence and with complex legal issues to be determined at different stages in the case can take 18-24 months to get to a full hearing, and that hearing might last a minimum of 3 days.


  • If you decide to instruct a solicitor or barrister to assist you, that can take some of the stress out of the situation, but will cost money either up front by paying fees as you go through the process, or if you are successful and have agreed that a percentage (%) of your compensation will go to them. Generally speaking, an employment tribunal award of compensation will not include anything for costs, so anything you spend will not be recoverable.  For this reason, you should check before starting a claim whether you have Legal Expenses Insurance, perhaps with a car or house contents insurance policy, which may cover some or all of the legal costs of an employment tribunal claim.


  • Many people do represent themselves in the employment tribunal but it’s a stressful and time-consuming role. If you want to be able to focus on finding or starting a new job rather than organising documents and writing a witness statement, again settlement may start to look like a reasonable alternative.


  • Finally, a record is published of all public decisions of the employment tribunal. Even if you settle your case and it doesn’t proceed to a final hearing, there will be a record that you started a claim and withdrew it.  If you pursue a claim to a final hearing there will be a record of whether you won or lost, and potentially the full written judgment of the tribunal will be accessible at the click of a mouse.  Although you may well be pleased about this if you were to win your case, it is worth considering how you would feel if a judgment was critical of you.  Whilst the fact that you brought a claim to enforce your employment rights should not have any impact on a recruitment decision by a potential future employer, it’s worth remembering that this information is easily accessible to the general public:


If you are not sure what help you need

If you are not sure what your rights are, or what is the best course of action, don’t worry.  Book a free phone call with us and we will talk through your options and you can decide where to go from there.