The Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013

From 29th July 2013 unfair dismissal claims will be subject to a new cap

This is now ‘old news’ as new limits have been published each year since. Check our other news for the current rates.

On 6th August 2013 the Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013 has been published. This was widely publicised before that date and, in fact, confirmed that the law had been changed from 29th July 2013. The change is that the upper limit for most types of unfair dismissal claims has been limited to 52 weeks’ pay or £74,200, whichever is the lower. The figure of £72,200 is the existing maximum award for normal unfair dismissal claims.

The change applies to any dismissals which take place on or after 29 July 2013. Earlier we described this change as applying to ‘normal’ unfair dismissal claims. The reason we said this is that there are a few types of unfair dismissal claims that do not have a maximum award limit. These are dismissals for whistleblowing or ones related to certain health and safety reasons. Unlimited awards are possible in such cases, however, as before, all awards for unfair dismissal are based on actual and estimated future loss along with smaller amounts to compensate for expenses incurred in finding alternative employment or retraining and a fixed amount to compensate for the fact the ex-employee has lost his or her continuous service and therefore must ‘start again’ with a new employer. This fixed amount relates to the fact that having the right to claim unfair dismissal as a result of having sufficient service must be a valuable right. On that basis, the tribunals compensate an ex-employee who wins their unfair dismissal claims for this ‘loss of statutory rights’ by awarding a small fixed amount of about 1 week’s pay.

The new cap is based on ‘a week’s pay’. This is to be calculated in accordance with the existing rules for such calculations contained in sections 221-226 of the Employment Rights Act 1996. Those rules are reasonably straightforward except when dealing with commission issues, as the question of whether commission counts towards the total of a week’s pay is complicated. For many employees, particularly in the software and banking industries, commission is a very large part of their overall remuneration. As such, we can expect that the detail of sections 221-226 of the Employment Rights Act 1996 will have to be considered very carefully in employment tribunals as they wrestle with the question of whether the maximum award they make should include commission. Of course, this question isn’t going to be so relevant to very highly paid employees as they are going to hit the maximum unfair dismissal cap anyway on their basic salary alone. It is clear that pension contributions, benefits-in-kind and discretionary bonuses are excluded from the definition of a week’s pay. This fact has caused some commentators to point out that public sector workers will suffer especially from the new cap on awards as the value of pension contributions can be around 30 to 35% of their basic salary.

Ex-employees bringing unfair dismissal claims will still have to produce statements of loss in the normal way but if affected by the cap will have to limit their claims to 52 weeks’ pay or £74,200 whichever is the lower. This change is one of a number of employment law changes introduced recently by the coalition government which are designed to reduce the impact of employment law on employers. Whether it has any impact given that the average award in tribunal is still very low remains to be seen.