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Costs and Compensation

The financial side of an Employment Tribunal claim.

With the abolition of Employment Tribunal fees it has now become less costly to initiate claims in the Employment Tribunal.

Unlike the civil courts such as the county court, costs orders are the exception as opposed to the rule, leaving claimants with little risk in bringing claims against their employer. That is not to say that spurious claims or claimant’s who do not act reasonably in pursuing their claims will go unpunished as Employment Judges will use their discretion where there has been a clear breach of these principles.

Where claims are successful, often the desired outcome for a claimant is to be financially compensated for the way they have been treated. There are set rules in relation to the way Employment Tribunals calculate compensation, which vary depending on the claim brought. For example in most unfair dismissal claims there is a statutory cap on the compensation that can be awarded, whereas for discrimination claims there is no cap on the damages that claimants can be awarded.


Unless a party is unrepresented, it is usually the case that in Employment Tribunal proceedings both parties will incur legal costs in preparing their case. Unlike in the civil court system there is no presumption that the losing party will pay the winning parties’ costs, and costs orders are the “exception” rather than the rule. It therefore makes it all the more important to consider matters on a commercial basis and whether a settlement might be a more cost effective way of resolving a dispute.

There are some circumstances where the Employment Tribunal may award costs to a party. Costs will include legal fees and also expenses such as travel costs. Under Rule 75 of the Employment Tribunal Rules of Procedure 2013 (the “Rules”) the Employment Tribunal can make an order for one party to make payment to another payment the costs incurred while legally represented (it is important to note that the costs must actually have been incurred), any Tribunal fee paid, witnesses’ expenses in attending a hearing.

The Employment Tribunal has a wide discretion to award costs and any award will be made in order to compensate the receiving party as opposed to punishing the paying party. The Tribunal may make a costs order under the provisions of section 76 of the Rules where it considers that:

  1. A party has acted acted vexatiously, abusively, disruptively or otherwise unreasonably in either the bringing of the proceedings (or part) or the way that the proceedings (or part) have been conducted; or
  2. any claim or response had no reasonable prospect of success.

Examples of circumstances in which there is a high chance of an Employment Tribunal making a costs order against a party could be where a party lies as part of the evidence or their claim is found to clearly have no basis.

If a party wishes to apply to the Employment Tribunal for an order for costs it can either do so during the course proceedings or at the end. If an application for costs is made at the conclusion of the claim, under Rule 77 of the Rules it should be submitted to the Tribunal within 28 days from the date the final judgment is sent to the parties. The other party will then have the opportunity to respond to the application before a decision is made whether to award costs.

Under Rule 84 of the Rules when making a costs and the amount of the order the Employment Tribunal may take into account the paying party’s ability to pay.


In the early stages of a Employment Tribunal proceedings the claimant will be asked to produce a Schedule of Loss to set out the compensation they are seeking and the basis on which it is calculated.

Unfair dismissal claims

When determining the amount of compensation an Employment Tribunal will often make a “Basic Award” and a “Compensatory Award”.

Basic Award

This is calculated using a formula based on the provisions of section 119 Employment Rights Act (“ERA”) 1996. The formula is based on an employee’s age, their weekly pay (subject to a cap), and the number of complete years they have been employed by the respondent (subject to a cap of 20 years).

The calculation is similar to the calculation of a redundancy payment and for cases where a redundancy payment has been made no basic award is made. Under section 122(2) ERA 1996 the Employment Tribunal has the discretion to reduce a basic award if the claimant’s conduct before dismissal was such that it would be just and equitable to reduce it.

Compensatory Award

The compensatory award is intended to compensate the claimant in relation to the loss they have suffered, including any losses they are likely to continue to suffer after the Tribunal hearing.

The relevant principle on which the Tribunal will make an award is what is just and equitable in the circumstances in accordance with section 123 ERA 1996. Awards are not designed to be punitive.

The case of Norton Tool v Tewson [1972] ICR further developed principles that should be considered when determining the level of compensatory award:

  • Immediate loss of wages.
  • Manner of dismissal.
  • Future loss of wages.
  • Loss of protection in respect of unfair dismissal or dismissal by reason of redundancy.
  • Loss of pension rights.

The calculation of future loss must by definition be speculative. The Employment Tribunal will take into account a number of factors such as whether the claimant has secured another role, the efforts made to do so, and if so the level of remuneration they will receive. If the claimant is unwell or unlikely to continue working in the near future due to retirement the Tribunal will also take this in account.

There is a statutory cap for ordinary unfair dismissal claims which increases each year.

Reductions to Compensatory award:

There may be circumstances where the level of compensatory award may be reduced. In circumstances where there is found to be ”contributory fault” on the part of the claimant.  For example, if they are found to have caused or contributed to their dismissal a reduction may be made to any compensatory award by an amount the Employment Tribunal considers to be just and equitable.

The case of Polkey v AE Dayton Services Ltd [1987] IRLR 503 is authority for the principle that the compensatory award may be reduced where it is found the a claimant would have been dismissed in any event and the respondent’s procedural failings are therefore not material for the purposes of determining compensation. When considering the reduction to be made the court will consider what would be just and equitable in the circumstances.


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