An employer’s ability to pay is “irrelevant”!

The new outlook for an employee

In a recent case of Mrs Y Jin v Tao Herbs & Acupuncture Limited, the Employment Appeals Tribunal (“EAT”) considered in its judgement an employers ability to pay an award made by an Employment Tribunal.  In the current financial climate, where businesses find themselves struggling to keep afloat, it was argued in this case that it was not just or equitable to impose such a substantial award.  Further to this, it is commonly argued by employers that they are simply unable to pay such awards or may even be forced into insolvency by doing so.

However, the EAT states, with no equivocation, that the employer's ability to pay is not a relevant consideration when calculating the level of an unfair dismissal compensatory award.  The prime consideration for any Employment Tribunal in calculating such awards should be the, “loss suffered by the Claimant attributable to the actions of the employer,” and giving weight to any potential argument that a business may enter insolvency because of this award is not the correct approach when assessing the quantum.   The Tribunal emphasised that this particular type of award is known as a ‘statutory tort’ which eliminates the employer’s ability to pay as a consideration. An employee should be compensated regardless and should not themselves be punished for a company’s poor financial state.

Looking into the crystal ball for Employers

As an employer looking on this judgement, they may think this approach is overly harsh or even draconian.  However, there is already debate among both academics and practitioners about how long this judgement will stay in force.  There is such sparse case law on this matter that this judgement has become an important clarification, but there is still room for manoeuvre and development.  One potential angle considered is that section 123 of the Employment Rights Act 1996 should be read so an Employment Tribunal is to not just consider the complainant but what affect any substantial award may have on other employees and members of the workforce.  It may be fair to give a substantial award against an employer for wrongful dismissal, but if such a penalty is too harsh, then other innocent employees may also suffer.

However, for the moment at least, Employment Tribunals have clear guidance: an employer’s ability to pay is simply an irrelevant consideration.