The Government has confirmed that the cap on the compensatory element of an unfair dismissal award at tribunal will be lowered to a maximum 52 weeks’ pay from 29th July 2013.

This means that the most that an employee can be awarded at tribunal for an unfair dismissal claim will be their yearly salary. This will again be subject to an overall cap so if an employee’s yearly salary is more than £74,200, then that is the most they can be awarded is £74,200 (this figure is reviewed and generally increased each year).

Unfair dismissal compensation is divided into two parts – basic award and compensatory award. The basic award is calculated according to a formula using age and length of service so is a fixed amount. The compensatory award, which recompenses loss of earnings (past and future), pension loss etc is decided upon by the tribunal but cannot be, in almost all cases, more than £74,200.

The Government felt that the high figure of £74,200 over-inflated claimants’ ideas of how much money they could win at tribunal and consequently increased the number of claimants trying their luck. To make claimants more realistic about their potential success, the Government wanted to introduce a cap. It was decided that 52 weeks’ pay was an appropriate cap.  This will, of course, be added to the basic award which is currently a maximum of £13,500.

The cap will not apply where the unfair dismissal claim relates to the employee making a protected disclosure (otherwise known as whistleblowing), or health and safety reasons.

Claims for discrimination will remain uncapped – it is only unfair dismissal claims that will be capped in this way.

Claims that are currently underway and already in the tribunal system will not be subject to the 52 week cap, regardless of when the hearing is held. It is only where the employee’s ‘effective date of termination’ is after 29th July 2013. 

By Nicola Mullineux