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How Does Compensation Work?

Updated on October 9, 2018
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Kate has over eight years of experience as an employment and personal injury legal executive. She runs LawCat, a legal explanations website.

In my day-to-day life as a Legal Executive I help clients get a fair amount of compensation for physical injuries caused by another’s negligence, injuries caused by the negligence of medical professionals, and unfair or discriminating treatment by employers against their employees. I generally enjoy my work, as while money will never be able to ‘fix’ a negligent situation aka it will never be able to take you back in time and stop the negligence from occurring, it can make life more manageable in the aftermath.

A good example is the clients whose lives have been undeniably changed due to negligence to the point where living in their old homes without any modifications is a genuine trial, compensation can help make your home liveable again. Compensation, when properly managed, can be a force for good and in the UK, there are strict rules governing how compensation is calculated and assessed.

I am aware that unless you work in the legal profession it can be difficult to even be aware of these rules’ existence, let alone be familiar with them. So, I am never surprised when client’s have unrealistic expectations regarding compensation. This article is designed to combat these expectations, by explaining the ways in which compensation is calculated, thus providing a basic understanding that will help put unrealistic expectations in perspective.

Compensation Misconceptions

When beginning a claim one of the early questions I ask is what the client expects to get out of the claim, the majority have no idea, let alone a figure in mind. However, there are those who arrive knowing exactly what they want and regally these are the individuals with unrealistic expectations.

A good example of what I am talking about is as follows: -

Client: I want X amount for every month of pain I have been put through.

Legal Executive: OK, but why X amount? What has brought you to that figure?

Client: Well, they are a big company they can afford it.

Legal Executive: That doesn’t answer my question, what has made you think your situation is worth that amount financially?

Client: Well, I know someone who knows someone else who got X amount for much less than what I went through, so I figured I would get more, doesn’t hurt to go high right?

Yes, it does hurt to go to high.

Beware legal dramas, documentaries and tabloid stories. These are all designed to capture an audience, they are not always based in fact and those that are, are usually extreme situations. The story reported in paper A, B and C was reported to sell papers not to give you a realistic view of a common case, it was reported because it was exceptional. Also reporting in any form tends to give you half of the story, they’ll tell you that someone got a six-figure sum for an injury, but they won’t tell you how that sum was reached, in the UK I can guarantee that the sum was reached by following the standard procedure. There is more going on behind the scenes than most realize.

Also, the attitude of “It doesn’t hurt to go high.” and “The worst that can happen is they say no,” is very dangerous. There are consequences of making overly high offers that are very unlikely to be accepted. There is more at risk than simply trying your luck. Going in to high can put you at serious risk of having to pay the other sides costs.

The whole point of any Litigation Rules is to encourage early settlement of legal matters and reduce legal costs. If you are seen to not be engaging in this seriously, by making unrealistic offers, the Courts can and will take a very dim view.

But it’s a No Win No Fee, right?” yes, if your claim is unsuccessful you will not pay your own legal fees. But if you have made overly high offers that have no real chance of being accepted then the Courts can make a costs order against you and you can find yourself being responsible for the Defendant’s costs. Your No Win No Fee is with your own legal team not the Defendants.

In a nutshell, you cannot pluck a figure from thin air, and you cannot base your amount on what someone else received. In the UK there are strict rules which govern how compensation is calculated and so every single penny you claim must be justified under those rules. A judge will want to see how you reached your figure and trust me when I say a Judge wont be happy with “They’re a big company they can afford it,” the wealth of the Defendant is irrelevant, what matters is you and how this event has affected you and whether or not you have been able to justify a figure based on that.

Personal Injury & Clinical Negligence

When bringing a claim for personal injury and clinical negligence your compensation will be divided into two sections, legal professionals call these your General Damages and your Special Damages.

General damages is the compensation you receive for your pain, suffering and any loss of amenity. It is calculated by looking at two sources. The first is the Judicial Studies board Guidelines, these guidelines give a bracket, a range that your compensation will fit into.

Example: a broken arm that healed well and without surgery would fall into the bracket for less serious fractures and would be worth between £4,350-£12,600.

Once a bracket has been allocated to the injury the second Source is reviewed. This is case law; your legal team will review cases where the Claimant suffered an injury like yours with similar treatment and recovery period. The case won’t be identical, but it will be close enough that a comparison can be drawn. Once the case law has been found the compensation award will be adjusted for inflation and this will give you and your legal team a good rough figure that you can use as a starting point for your negotiations with the Defendant.

The Special Damages cover your out of pocket expenses, such as medications, travel, time spent by friends and family helping you. You should keep as many of the receipts as possible as you will have to prove each and every loss or run the risk of not being able to include it. If you are claiming for time of friends and family in assisting you with self-care, household chores etc then you will likely need statements from them to support this. You will also need to provide a detailed breakdown of what they did, how many hours a day this took and for how long e.g.: six hours a day for three weeks, going down to three hours a day for two weeks then down to two hours a day for four weeks. It is natural that as you recover you will need less and less help and assistance from friends and family so the hours they helped should decrease over time.

Once you have a figure for your General and Special Damages you and your legal team will have a starting point to begin your negotiations with the Defendant. Keep in mind that this is a negotiation and you will probably have to reduce your figure a little to achieve settlement. Keep in mind that going to Court is always a risk, a lot depends on the strength of your medical evidence and your Schedule of Special Damages and your witness evidence. There is a lot that can happen during a trial that can make a strong case suddenly weaker and a weak case suddenly stronger. There is no guarantee that you will leave the trial with anything, early settlement is a way to avoid that risk entirely.

Employment Claims

Like Personal injury and Clinical Negligence Employment law has a strict procedure in place to govern how much compensation can be claimed. This change depending on what kind of claim you are bringing, unfair dismissal, constructive dismissal, discrimination etc.

For unfair dismissal and constructive dismissal, you will be able to claim what is called your Basic Award which is worked out based on your age, length of service and gross weekly wage. You will also be able to claim for your loss of earnings while you look for another job, however you cannot claim this indefinably and the Employment Tribunal will usually limit this to about three months or so loss of earnings. Lastly you can claim for Loss of employment rights usually £300.00

In discrimination claims you can claim for injury to feelings. This is divided into three bands, the lower band £900 - £8,600; the middle band £8,600 - £25,700; and the higher band £25,700 - £42,900.

The lower band applies to ‘less serious cases’ where the act of discrimination is a one-off or isolated occurrence. The middle band applies to more serious cases that do not fall within the higher band. The higher band applies to the most serious cases, for example, where there has been a lengthy campaign of discrimination and/or harassment. It is up to you to be able to prove which band your claim falls into and the Tribunal will require detailed evidence to prove the seriousness of the case. You will need to provide detailed evidence of what was said or done, how it was said or done, whether this happened in public or private. You will need to demonstrate the impact of the discrimination, and if possible provide medical evidence of the effect the discrimination has had on you.

Once again case law should be reviewed to see if similar cases exist and if, so they should be used as guidelines when considering compensation.


As you will note putting a figure on compensation is not as easy as it may first appear. Figures cannot be plucked out of the air or from tabloids or news stories. There are strict procedures in place for calculation compensation and limiting compensation. You must justify the amount you are claiming, and the amount must be reasonable. If you do not engage in the process by making offers too high, then you run the risk of being hit with a costs order for all or part of the Defendants legal fees.


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