The cap on the unfair dismissal award will be the lower of £74,200 or one year’s gross pay with effect from 29 July 2013 (we knew this was happening sometime this month, but now the commencement date is confirmed). This will give both parties a more realistic expectation of what level of award they might get if the Claimant is successful in an unfair dismissal claim and so help with settlement discussions as well as risk assessment of potential liability. The new cap will apply where the effective date of termination is after 29 July 2013.
Claimants do not have automatic entitlement to the maximum cap if successful – it is just a cap of the maximum compensation they may receive if they suffer a full years’ loss of earnings, having evidenced that they have sufficiently mitigated their loss and where the Tribunal considers it just and equitable. The cap applies in addition to the basic award which is unchanged and follows the statutory calculation based on weekly gross pay, age and service.
It will be interesting to see how this change, together with the introduction of tribunal fees – also coming into effect on 29 July 2013 – will affect the number of low value tribunal claims. Someone earning £10,000 pa will know that their claim may only be worth that much, as a maximum (and could be worth much less), but they will have to pay £1200 tribunal fees in respect of the issue and hearing fees. For those Claimants, the financial incentive to litigate is less. The law of unintended consequences means that the result could be more claims asserting discrimination or a complaint of automatic unfair dismissal (such as dismissal related to whistleblowing) where there is no cap on the compensation that can be awarded (but where, statistically, the prospects of success are poor).
