Cap set for unfair dismissal payouts

Compensation awards will be restricted to a 12-month cap in all unfair dismissal cases when new legislation comes into force later this year, the Government has ruled. The limit in the value of compensation, currently at £72,000, will remain unchanged according to Employment Relations Minister Jo Swinson, but she said the new 12-month cap would set a clear maximum liability in unfair dismissal cases. She said she wanted to “support both businesses and employees when a working relationship breaks down”, and confirmed that the new rule, to be applied in the summer, would be accompanied by a new code of practice setting out exactly what constitutes improper behaviour. With only one in 350 claimants currently receiving awards larger than their salaries and the average being £5,000, the minister said it was important to “tackle unrealistic expectations” on compensation in tribunals that cost time and stress as well as money. The Confederation of British Industry’s director of employment and skills Neil Carberry wants to promote quick early settlements in unfair dismissal cases. He thinks delays are sapping the confidence of firms. “No one wants disputes to end in tribunals, particularly small businesses,” Mr Carberry said. Erica Humphrey, Solicitor at IBB Solicitors comments:

“The Government confirmed yesterday that, as of Summer 2013, a claimant will not be able to achieve a compensatory award of more than 12 months’ pay (or £72,300 if less than 12 months’ pay) if successful in a claim for unfair dismissal. The Government hopes that introduction of a lower cap will give claimants a more realistic idea about what they can achieve if successful. It is hoped that this change will encourage early settlement of employment disputes so as to alleviate businesses of the cost and time incurred in defending claims in the Employment Tribunal. The figures for 2010/11 confirmed that the average compensatory award was £4,591 and that 90% of awards were less than £20,000. The average earnings in the UK are just under £26,000. Therefore, even with the compensatory award being limited to 12 months’ pay, this limit still far exceeds the average award being made by the Employment Tribunals. It is yet to be seen whether the new cap will have the impact the Government hopes or is this simply replacing one unrealistic expectation with another? More importantly, the Government made a number of other announcements yesterday which are likely to have a greater impact on businesses. The Government intends to introduce a standard form of ‘Settlement Agreement’ to replace the use of Compromise Agreements. Coupled with this, the Government will work with Acas to roll out a Code of Practice to provide guidance to businesses on how they can tackle those difficult conversations without fear of an Employment Tribunal claim. It is too early at this stage to say whether the introduction of Settlement Agreements will assist businesses with tackling tricky employment issues – the devil is going to be in the detail which is, as yet, unknown. TUPE is also being scrutinised by the Government – a consultation document released yesterday asks for responses on several proposals to overhaul TUPE – most significantly, repeal of the application of TUPE to service provision changes. Watch this space for the responses to the consultation document and the Government’s response. Employment law is clearly still high on the Government’s hit list – changes are inevitable and employers must ensure that they stay on top of the proposals as the changes will have a direct impact on every day HR issues.”

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