Can Employment Tribunal Compensation be limited by a Contract?

Can Employment Tribunal Compensation be limited by a Contract?The Employment Appeal Tribunal has recently held that a clause in a contract of employment, which purports to limit the level of compensation an employee may receive on termination of employment does not create a cap on compensation which an Employment Tribunal can award.

In the case of SPI Spirits (UK) Ltd v Zabelin, the contract of employment contained a clause which sought to limit financial liability on termination of employment to £270,000. Following his dismissal, the Claimant pursued claims in respect of detriment and automatic unfair dismissal consequent to making protected disclosures. The Employment Tribunal found in the Claimant’s favour, however the Respondent argued that it would be just and equitable for the Claimant’s compensation to be limited to the £270,000 contractual cap. The Respondent also argued that the Claimant should not be entitled to any uplift for failure to follow the ACAS Code of Practice as his grievance did not contain any protected disclosures, which were later made verbally. The Tribunal disagreed and awarded the Claimant compensation in excess of £1 million, including applying a 20 percent uplift in compensation.

The Respondent appealed and the case was referred to the Employment Appeal Tribunal who found that, by reference to s.203 Employment Rights Act 1996, any attempt to limit liability for statutory employment claims within a contract will not be effective, regardless of whether or not the clause was freely negotiated. The Employment Appeal Tribunal noted, in particular, that there is no statutory cap on whistleblowing claims.

In relation to the uplift in compensation, the Employment Appeal Tribunal found that the fact that the grievance did not refer to the protected disclosures was irrelevant as the grievance was made in writing, and the proper procedure should have been followed. In any event, the uplift was in respect of the failures to follow the disciplinary process on terminating the Claimant’s employment, and therefore, arguments relating to the grievance were not relevant.

This case serves as a timely reminder that attempts to limit liability for employment tribunal claims within the contract of employment will not be valid and should not be relied upon either to limit liability or to negate poor conduct on terminating an employee’s contract of employment.

If you need further guidance relating to the inclusion of appropriate termination clauses in employment contracts, feel free to contact our solicitors for legal advice.

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