The order in which deductions must be made from compensation for unfair dismissal is of great significance if more than one deduction is to be made and one of them is a cash amount and one or more of any others is a percentage (eg on account of the chances of getting new work).

To take a simple example, if the starting point for calculation of an award is £10,000 but the employee was 40 per cent to blame and had already received £5,500 compensation the order in which 40 per cent and the £5,500 are deducted will make a big difference to the final result. On these numbers the final award would be either £500 or £2,700, a difference of over 500 per cent, depending on the order in which the deductions are made. Those who are used to maths and/or computer programming will appreciate that in arithmetic and in Boolean logic certainty is provided in analgous circumstances by using brackets - sadly the draftsman of the relevant legislation has not used that simple

If the 40 per cent comes off first there will be £6,000 left from which to deduct the cash (£5,500) already received by the employee. The cash award will be £500. If the order of deduction is reversed, the £10,000 would be reduced by cash already received and the 40 per cent contributory fault deduction would be applied to the £4,500 balance, resulting in a cash award of £2,700 instead of £500.

The problem is compounded if there is a statutory limit to the amount a Tribunal can award (eg unfair dismissal awards are restricted by statute whereas sex discrimination awards are not - see Maximum and minimum tribunal awards/statutory limits ).

The Court of Appeal considered this question in depth in Ministry of Defence v Wheeler 1998 ICR 242, CA and Digital Equipment Co Ltd v Clements CA 1998 ICR 258, CA.

These two cases establish the general rule that any percentage reduction must come AFTER any cash deductions but BEFORE any statutory limit (cap) is applied; and that in redundancy cases only the provisions of ERA 1996 s.123(7) require special rules to be applied if the employer paid more than the statutory minimum as redundancy pay (see below).