The government has announced a plan to cap employment tribunal awards in unfair dismissal cases at 12 months’ salary. This is good news for businesses who will have now a better opportunity to assess their risk when dealing with potential claim situations.
This change will also help employers when they are trying to negotiate compromise agreements (soon to be called “settlement agreements”) with employees.
The current model means that employees can have a completely unrealistic idea as to how much they would be likely to be awarded in an employment tribunal.
As a result of this, currently, it can be very difficult to enter into discussions with an employee around a suitable compensation figure for a compromise agreement as they believe they would get much more through an employment tribunal win.
It’s worth noting the following statistics:
- Only 1 in 350 who make a claim for unfair dismissal receive more than their annual salary as an award.
- The average award in an unfair dismissal case is £5,000.
In the future, this is limited to 12 months’ salary so if an individual earns £26,500 (the current average annual salary), this would be the most they will be awarded.
Further, the current cap on compensation awards for unfair dismissal cases is £72,300 and this upper limit will remain in place. So, if an individual earns £100,000 per annum, the maximum they could be awarded would be £72,300.
From summer 2013, there are also to be fees introduced in order for an employee (or ex-employee) to bring a claim. The maximum fee payable will be £1,200.
It’s hoped that by introducing this barrier along with capping the award amount there will be a reduction in spurious claims.