How should the ACAS uplift be applied in high value discrimination cases?

By Jo Seery, Professional Support Lawyer

Background

Professor Sheikholeslami was employed by the University of Edinburgh as Chair of Chemical Process Engineering. Following a prolonged period of sickness absence, her employment was terminated in April 2012. She subsequently brought a series of claims including unfair dismissal, disability discrimination, victimisation and failure to make reasonable adjustments. Over more than a decade of litigation, involving several Employment Tribunal judgments and various appeals to the Employment Appeal Tribunal (EAT), a number of her claims had been upheld, and she was awarded substantial compensation.

Earlier remedy judgments had applied the maximum 25% Acas uplift to certain elements of compensation after findings that the university had failed to follow the Acas Code of Practice in relation to dismissal and grievance procedures. However, after a further successful appeal by Professor Sheikholeslami and remission of key remedy issues, a newly constituted tribunal reassessed compensation and increased the overall award to more than £1.7 million. When reconsidering remedy, however, the tribunal:

• reduced the Acas uplift to 2.5% and
• declined to gross up certain elements of the award for tax, instead recording an undertaking from the university to indemnify Professor Sheikholeslami against any tax liability should it arise.

Professor Sheikholeslami appealed both aspects of the decision. 

Outcome

The EAT dismissed the appeal and upheld the tribunal’s approach.

In the course of its judgment, the EAT confirmed that tribunals must take account of the overall value of an award when determining the appropriate Acas uplift – the wording in the relevant legislation is that a tribunal may apply an uplift ‘if it considers it just and equitable in all the circumstances to do so’ and Acas uplifts may have compensatory and punitive aspects. While the university’s failures to follow the Acas Code were serious, the tribunal was entitled to conclude that a lower percentage uplift remained appropriate in circumstances where the compensation award had increased dramatically and look at the overall size of the award. The resulting Acas uplift at 2.5% was still worth around £30,000 despite the reduced percentage. Had the Acas uplift been applied at 25% on the new award, the university had calculated it at in excess of £330,000.

The EAT also upheld the tribunal’s decision not to gross up disputed elements of the award for tax. Applying the principles in British Transport Commission v Gourley, the tribunal had accepted that Professor Sheikholeslami should not be left worse off because of tax consequences. However, given uncertainty over the eventual tax treatment of different elements of what was a complex discrimination and unfair dismissal award, the tribunal was entitled to adopt a pragmatic solution. The university had undertaken to indemnify the claimant against any tax liability, and the tribunal left open the possibility of future applications back to the tribunal should HMRC later determine that tax was payable.

Comments / Key takeaways

The EAT’s decision reinforces existing authority that the overall size of the award is a relevant factor when determining the appropriate percentage of an Acas uplift. A lower percentage may still produce a substantial financial sanction where compensation is high. 

The case also highlights the wide discretion available to tribunals when addressing tax issues. Although tribunals will often gross up awards where tax consequences are clear, they are not required to do so where the position is uncertain. In complex discrimination and dismissal cases, different elements of an award may attract different tax treatment, particularly where questions arise about whether payments are connected to termination of employment or fall within statutory exemptions relating to disability. 

Perhaps most strikingly, the judgment underlines the extraordinary length and complexity that employment litigation can sometimes reach. More than fourteen years after proceedings began, the EAT observed that only part of the compensation had been paid despite findings of unfair dismissal and disability discrimination.