Tribunals are entitled to “gross-up” compensatory awards in cases of unfair dismissal to allow for tax when the statutory cap applies. In Hardie Grant London Ltd v Aspden, the Employment Appeal Tribunal (EAT) said Tribunals must do the “grossing-up” before they apply the cap, not afterwards.
Ms Aspden was appointed to the post of managing director of Hardie Grant London Ltd in March 2009. In spring 2010, she was inadvertently copied into an e-mail from her boss to someone else, which questioned her leadership abilities and which led her to believe she was going to be dismissed.
Although her boss tried to reassure her in a subsequent telephone conversation that was not the case, she e-mailed her resignation to him shortly afterwards, saying that his e-mail had destroyed all trust and confidence between them.
She claimed constructive dismissal.
And the Tribunal agreed with her.
It noted that “although employees should be broad-shouldered enough to listen to criticism without walking out, this was not criticism which was being given and to which the Claimant could listen; this was an e-mail from the CEO of her employer, which appeared to her, not unreasonably, to express doubts over her leadership ability, and evidence that he was going to be dealing with it at the earliest opportunity."
It awarded her just over £87,000 in compensation, which was over the statutory cap of £65,300 in force at the time. As she would have to pay tax on anything over £30,000 (the maximum tax-free termination payment figure), the Tribunal 'grossed-up' her award to allow for tax after it had applied the statutory cap so that she actually received the capped amount after tax.
The company appealed both decisions - that it was liable for the breach of contract and the amount awarded to her.
The EAT dismissed the liability appeal, saying that the Tribunal, having identified that this was an issue of trust and confidence, made an objective assessment of how a reasonable employee would view the circumstances in which Ms Aspden found herself.
However, it allowed the appeal against the amount awarded to her, saying that the Tribunal was wrong to apply the statutory cap and then gross up that figure to allow for the tax that Ms Aspden would have to pay.
Instead, it held that when calculating loss of earnings following an unfair dismissal, the calculation should be based on her net earnings - that is, her earnings after tax. When the loss exceeds £30,000, as here, it said that it was permissible for Tribunals to ensure that the claimant received the appropriate net loss figure, but they have to gross up the figure before they apply the cap, not afterwards.