The new cap on unfair dismissal compensation: what retailers need to know


The current government has been busy implementing a significant number of wide-ranging measures to reform employment law and the employment tribunal service.

The rationale for these changes is, according to the government, because “over the last two decades a steady flow of new employment regulation has added complexity and, to a degree, undermined the overall efficiency of the labour market”. As part of the government‘s plans, it has introduced a new cap on the compensatory award for unfair dismissal which is now in force and applies to dismissals with an effective date of termination on or after 29 July 2013. Laura Farnsworth, partner at Lewis Silkin LLP, explains how retailers are likely to be affected by the changes.

“The compensatory award is now capped at the lower of 52 weeks‘ (gross) actual pay and the statutory cap which is prescribed annually (currently £74,200). On the face of it, this development will be welcome news for retailers,” she said. “It will reduce their potential financial exposure to unfair dismissal claims, since claimants who are (or expect to be) out of work for considerably longer than 12 months will have their compensation capped at 12 months‘ gross salary – regardless of how long it actually takes them to find another job.”

Fransworth added: “However, retailers should nonetheless be aware of the risk that claimants may seek out alternative methods to avoid the statutory cap on compensation by issuing more complex claims. For example, an employee may seek to bring a discrimination claim where there is no limit on the financial compensation that can be awarded.

“Alternatively, an employee may argue that their dismissal is automatically unfair (for example, because it is for reasons connected to whistleblowing or pregnancy) so that the statutory cap for ordinary unfair dismissal does not apply.”


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