Unfair dismissal awards now capped at one year’s salary

 

During the summer of 2013 the Government introduced a raft of new employment law measures aimed at reducing the number of claims brought before the Employment Tribunal and repairing employer confidence in a bid to help the recovering economy.

One of the new measures is a cap on unfair dismissal awards of £74,200 or 52 weeks’ pay, whichever is lower.

The details of the cap

The previous cap on unfair dismissal claims was £72,300. This has been increased to £74,200 but the only time a claimant will receive this amount is if it is equivalent to a year’s salary or they earn more than that figure.

This means people with an annual salary of above £74,200 will not be able to recover a full year’s wage should they win an unfair dismissal claim at an Employment Tribunal.

Why introduce the cap?

The Government introduced the new cap as the Employment Tribunal is an expensive service to run and they want to reduce the burden on the Tribunal by decreasing the number of claims brought before it.

They aim to do this by discouraging those claimants with unsubstantial claims from coming before the Tribunal. They believe the new cap will do this as previously claimants had unrealistic expectations about the amount of money they would be awarded if their claim was successful.

According to BIS, only one in 350 unfair dismissal claims actually result in the Tribunal awarding a claimant more than their annual salary. The typical payout for an unfair dismissal claim is closer to £5,000.

By introducing the new cap, the Government aims to manage claimants’ expectations and stop them from being encouraged to seek unrealistic awards. In addition, it hopes the new cap will encourage settlement of claims instead of claimants pursuing litigation in the hope of being awarded the previous maximum award of £72,300.

Does the cap apply to everything?

It must be noted that the new cap only applies to routine unfair dismissal claims; it does not apply to health and safety claims, discrimination claims or protected disclosure claims (whistleblowing).

Some employment law solicitors believe that this will lead to dismissed employees, especially those earning more than £74,200 per year, looking closely at their ‘protected characteristics’, such as race, gender and age, to see if they can bring an unlawful discrimination claim, as there is no cap on the award a Tribunal can award for these claims.

Could it increase litigation?

In addition, some employment solicitors believe the Employment Tribunal will see an increase in the amount of litigation to determine what is meant by 52 weeks’ pay.

The calculation of a ‘week’s pay’ is contained in the Employment Rights Act 1996. It is the remuneration payable for the normal number of hours worked in a week under the employment contract. If the hours worked in a week varies, it is the average remuneration paid in the 12 weeks prior to dismissal. Disputes may arise over the definition of remuneration, for example does it include benefits, overtime or bonuses?

It is perhaps too soon to tell if the new cap, along with the other employment law measures introduced by the Government, have had the desired effect in reducing the number of employment claims being brought before the Employment Tribunal.

However, the new changes are expected to reduce the expectations of claimants as awards will be limited to their annual salary and this in turn may discourage some from making a claim at all. Others may be encouraged to settle as a result of the cap and this would have the effect of reducing the burden on the Employment Tribunal service.

Potential claimants are advised to consult an employment law solicitor if they believe they have an unfair dismissal claim. An employment law solicitor will be able to advise them on the award they could expect to receive if their claim was successful.

If you want to talk to someone about unfair dismissal, call us on 0800 1777 162 or fill in a web-form, and we will be able to help you take the next step.

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