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Government limits unfair dismissal awards to a year’s salary

Overall cap remains unchanged

21 January 2013

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The government is to limit unfair dismissal awards to a year’s salary, employment relations minister Jo Swinson has said. She said the government had decided not to abolish the overall cap of £72,300.

Swinson said the government would not set guideline awards for settlement agreements (formerly referred to as compromise agreements) but had asked Acas to include template letters in its statutory code of practice.

The changes take the form of amendments to the Enterprise and Regulatory Reform Bill, currently before parliament.

“Employment tribunals are costly for everyone, in terms of money but also time and stress,” Swinson said.

“We need to tackle unrealistic expectations about the levels of compensation awards, especially when only one in 350 people who make a claim for unfair dismissal receive an award of more than their own salary, and the average award is less than £5,000.”

James Davies (pictured), partner at Lewis Silkin, said the new limit on unfair dismissal awards would only affect those who sued for long-term financial losses.

“It is consistent with a general erosion in employment rights, all aimed at making it more difficult for people to challenge unfair dismissals," he said.

Davies said that the planned introduction of tribunal fees later this year and the doubling of the period in employment before claims could be brought from one year to two, which happened last year but would take time to make an impact, were more significant.

“Fees could deter people from bringing genuine claims and, if there are exemptions, could impose unnecessary administrative burdens on employers.”

Under the EER bill, settlement offers would be confidential, and could not be used in later unfair dismissal claims unless the employer had acted improperly.

“Employers, legal representatives and trade unions all told us that a clear definition of ‘improper behaviour’ is critical,” a spokesman for BIS said.

“We have asked that the Acas Code set out an explanation of this test, taking into account specific comments received. An Acas Code itself would be the subject of a public consultation.”

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Tribunals & Courts