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New cap on compensatory awards for unfair dismissal claims

Posted on 18th January 2013
Briefing note

This is a significant announcement made yesterday by government, as part of its response to the Ending the Employment Relationship consultation.

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A 12 months' pay cap on compensatory awards for unfair dismissal claims is to be introduced. There will still be an overall cap of £74,200 which will apply when 12 months' pay is greater.
The key motive behind this change is to help "adjust unrealistic perceptions" employees (apparently) have about the value of their claims. It is hoped that settlements can then be reached more quickly based on realistic levels of tribunal awards.

A few points to note:

  • These changes are subject to approval by Parliament and if passed will take place in summer 2013.
  • A week's pay will be calculated under existing provisions contained in the Employment Rights Act 1996. This means pension contributions and fringe benefits will not be included.
  • Government acknowledges that for some claimants this new cap will result in less compensation especially if future loss runs for more than 12 months. This is often an issue for the older employees, or those with a disability. Overall, government concluded there will not be a disproportionate impact on claimants.
  • The new cap will not apply to any breach of contract claims, including notice pay.
  • The change is also intended to simplify the calculation of the compensatory award to help secure earlier resolution of disputes.
As full details are published we will publish these in a later hrlegalnews article.
It remains to be seen if this change will achieve the desired outcome as stated by Jo Swinson MP, Minister for Employment Relations and Consumer Affairs, of reducing the time taken to settle claims as a result of the new cap providing "employers and employees with greater clarity on the maximum level of an award based on an individual's circumstances, which more closely reflects the reality of how awards are decided by employment tribunals."

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