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Deducting state benefits from unfair dismissal compensation

Posted by TonyBrownEmploymentSolicitor on May 27, 2013

When calculating a claimant’s loss resulting from his/her unfair dismissal, a tribunal will not deduct receipt of Job Seeker’s Allowance and Income Support because both are subject to the rule relating to ‘recoupment’. In effect, recoupment requires the employer to deduct from the compensation award the amount received by the claimant in respect of the relevant benefits and paying that sum back to the Government rather than to the claimant.

However, recoupment applies only to Job Seeker’s Allowance and Income Support. The treatment of other state benefits is less clear so the ruling of the EAT in the next case offers valuable guidance. 

In that case, the EAT upheld a tribunal’s ruling that recoupment did not apply to Incapacity Benefit received by the claimant and, to avoid the claimant receiving more in compensation than the loss he had sustained in consequence of his dismissal, the amount of Incapacity Benefit received by him had to be deducted in the calculation of his compensation award. 

As the EAT put it: ‘’The concept of justice and equity does not lead to recovery of a greater sum than the actual loss suffered, and neither by way of penalising an employer for an unfair industrial practice nor by way of adopting some broad brush just and equitable approach is there any basis in our judgment for treating a loss which has not occurred as having occurred.” 


This case concerned Incapacity Benefit. There are, of course, other state benefits, such as housing benefit, which may possibly only have been received as a result of a claimant losing his job. Recoupment would not apply and it is not clear whether a tribunal would reduce the claimant’s compensation by the amount of the benefits received by analogy with the reasoning in the above case.

If you would like advice about how the issues in this note apply to your situation, please contact Tony Brown on 01225 740097 or by e mailing him at

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