If you become involved in a negotiation over a package to settle a dismissal, the new cap may help you to focus the parties on a realistic settlement figure.
From 29th July 2013, a cap has been set on the compensatory award in unfair dismissal cases – but not all cases will be covered. The new cap is whichever is the lower of:
- 52 weeks gross pay of the claimant or
- £74,200
Focusing on a Realistic Sum
The compensatory award can quickly mount up as it includes losses such as pension entitlement, immediate loss of wages and future loss of earnings. If an individual is earning say £15,000 per annum, the cap would mean his compensatory award would be limited to his basic annual salary. This could help to ensure discussions are more constructive.
However, you should bear in mind that compensation for a claim also includes a basic award which is calculated in a similar way to redundancy. If the individual has say 8 years service and was aged over 41 throughout that service, he may also be awarded £3,462 for the basic award.
Hence the maximum would be circa £18,462 but in settlement discussions the final amount may be less to take account of the saved expenses of the fee for entering a claim and then presenting that claim in a tribunal. On the other hand an employer may believe that the hassle and time involved in preparing a case would be worth paying for a quick settlement.
Many unfair dismissal claims result in relatively low compensation awards. The median award in recent published figures was circa £5,000.
In considering a sum for discussion, bear in mind that a weeks pay for the 52 weeks cap is based on gross earnings and does not take account of pension contributions, discretionary bonuses and benefits-in-kind.
Cases not Covered by the New Cap on Compensatory Awards
The cap does not apply if a dismissal is unfair and related to the following reasons:
- a protected disclosure (whistle blowing)
- health and safety
- unlawful discrimination.
Further References:
See our article on Settlement Agreements
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