Financial Compensation in Unfair Dismissal Cases-What You Should Know

financial loss unfair dismissal

Are you involved in an unfair dismissal case?

Are you confused about the amount of financial compensation that can be awarded?

Unfair dismissal legislation provides for 3 types of remedies for the successful employee:

  1. reinstatement to the position he held before the dismissal
  2. re-engagement involves the employee being given the same position or an alternative role
  3. compensation.

Compensation in Unfair Dismissal Cases

Compensation is the most common remedy.

Under unfair dismissal legislation the maximum award is 104 weeks (2 years) remuneration.

Remuneration is not just basic salary. It also includes allowances in the nature of pay and benefits in lieu of or in addition to pay.

Remuneration, therefore, includes share options, VHI benefits, employer’s contribution to the pension scheme, company car, bonuses, commissions, and any other benefit provided to the employee.

Compensation can only be paid, though, on the basis of the actual loss incurred. Therefore, if an employee gets an equivalent job 3 months after dismissal his actual loss will be 3 months’ salary.

This compensation needs to be distinguished from damages that a person would be entitled to in, for example, a personal injury claim.

However, future loss can also be taken into account, as set out in section 7 of the Unfair Dismissals act, 1977:

financial loss”, in relation to the dismissal of an employee, includes any actual loss and any estimated prospective loss of income attributable to the dismissal and the value of any loss or diminution, attributable to the dismissal, of the rights of the employee under the Redundancy Payments Acts, 1967 to 1973, or in relation to superannuation;

Assessment of Loss

Employees have a duty to mitigate their loss; this means that they must try to get new employment as quickly as possible.

An employee in an unfair dismissal claim will have to show the efforts she made in trying to get a new job. If you are an employee, ensure that you retain all application letters/emails and responses from employers.

Compensation can be reduced or not awarded if you have not made efforts to reduce your loss.

If you are not able to work for medical reasons you may not be entitled to compensation as your loss will be nil.

However, the Unfair Dismissals (Amendment) Act, 1993 provides that an employee may be awarded up to 4 weeks’ remuneration where he has obtained a new job and has incurred no financial loss.

Social welfare payments received are not taken into account when calculating the employee’s financial loss. (See section 6 Unfair Dismissals (Amendment) Act, 1993)

The financial loss is based on net, not gross figures, as the gross figure is not a loss to the employee.


All payments relating to the termination of employment are subject to taxation. This includes payments as part of a settlement agreement, or an ex gratia payment, or an award from the Workplace Relations Commission, or other employment related body/tribunal, or civil Courts.

The employee is entitled to

  1. a basic tax exemption on each occasion of the termination of his employment and
  2. a rebate for each full year of service.

The employee also has an additional allowance once every 10 years. She also gets further tax relief in respect of termination payments.

If you are an employee you should speak to an accountant or obtain specialist tax advice about the taxation of termination payments. You can also check out what the Revenue Commissioners have to say.