Many might view dismissal as a ritual humiliation and seek reparations for perceived psychological damages, and so it feels natural to assume that, if a dismissal is subsequently found to be unfair, any compensation will duly reflect any personal distress caused. However, as a recent appeal found, this is seldom the case, serving as a clear reminder that an unfair dismissal award addresses actual financial loss and not injured feelings.

An unfair dismissal award has two components – the first is a "basic award", determined based on age, pay and length of service. Beyond this, there is a "compensatory award" covering any actual financial loss from the dismissal, including any lost wages and benefits until new employment is found, subject to a statutory cap.

However, any upset, anxiety or loss of self-esteem cannot be awarded as part of an unfair dismissal claim after Dunnachie v Kingston-upon-Hull City Council in 2004. The latest test case covers an individual who worked briefly as a barista in 2023. After returning from a holiday, he was abruptly dismissed, leading him to bring claims of unlawful wage deductions and unfair dismissal (although he lacked the prerequisite two years' service necessary for an ordinary claim). The tribunal decided to award him a five-figure sum for injury to feelings as part of his compensation.

However, the employer appealed and successfully argued that Dunnachie does not permit an injury-to-feelings award in an unfair dismissal case, as the lower tribunal had no discretion to award compensation for distress under such provisions.

In fact, such distress only factors into specific claims where an employee is subjected to discrimination, harassment, victimisation, or a whistleblowing detriment, irrespective of whether it eventually results in dismissal. Injury to feelings can be compensated in discrimination cases in alignment with established "Vento" bands, and such awards may be substantial. The dividing line in Dunnachie is, however, specific to the unfair dismissal regime. If there is genuine mistreatment beyond the dismissal itself, this is a separate claim and should be pleaded from the start, rather than being layered into an ongoing unfair dismissal case, where it cannot be compensated.

For employers, the upshot is that awards for injured feelings are not part of an unfair dismissal settlement, and so your organisation’s exposure is limited to the claimant's proven financial loss up to the cap. Naturally, avoiding any unnecessary grievances or deviations from employment law and the organisation’s own playbook is essential to forestalling any substantial discrimination or detriment claim, as much larger sums may be awarded.