In University of Sunderland v Drossou, the Employment Appeal Tribunal (EAT) held that the long-standing practice of excluding employer pension contributions from the calculation of a week's pay under the Employment Rights Act 1996 (ERA) is incorrect.
Ms Drossou, a senior lecturer, brought a successful claim of unfair dismissal against the University of Sunderland. The University failed to comply with the Employment Tribunal's ruling to reinstate Ms Drossou and was therefore ordered to pay compensation instead. The Tribunal held that the University's pension contributions should be taken into account when calculating Ms Drossou's maximum compensatory award of 52 weeks' pay. This conflicts with an Employment Tribunal decision dating from 1989 which established that employer pension contributions could be excluded from the calculation on the basis that they are not received directly by the employee but paid into the pension fund.
On appeal, the EAT agreed with the Tribunal's reasoning. The ERA provides that for an employee with normal working hours, a week's pay is 'the amount which is payable by the employer under the contract of employment' (section 221(2) ERA 1996). The EAT confirmed that this wording means that the amount payable by the employer does not have to be payable directly to the employee.
Unless this decision is successfully appealed by the University, employers should note that it will increase the potential compensation for claims which are calculated by reference to a week's pay as set out in section 221(2) ERA, including unfair dismissal, statutory redundancy, protective awards and TUPE. It will be particularly significant for payments or remedies where the value of a week's pay is uncapped, and where the employer contributes to a defined benefit pension scheme with a high employer pension contribution rate.
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