Eversheds comment: UK tribunal payment for unfair dismissal

In response to news that UK tribunal payment limits for unfair dismissal will increase, Simon Rice-Birchall, Partner at global law firm, Eversheds, comments:

“The limit on the amount of a compensatory award increases in relation to any dismissal which takes effect from today to £74,200 from £72,300. The limit on a week’s pay increases from £430 to £450.

“But there are more changes to come which may impact on this increase. The Government has recently announced that it will cap unfair dismissal compensation at 12 months’ pay or at a new, reduced, upper limit (whichever is lowest), a change which will be welcomed by employers. This proposal is not about actual levels of compensation paid to claimants at tribunal, it is all about the Government addressing employer concerns that the current high cap gives some employees unrealistic expectations when deciding to pursue a tribunal claim. This, in turn, feeds a fear among employers, particularly small employers, and provides a disincentive for some to take on new workers.

“In practice, the cap on compensatory awards is very rarely applied, with a median award last year of only £4,600, reflecting median earnings of about £26,000. As such, any change to the cap will leave the level of compensation awarded to lower-paid claimants largely unchanged. However, some commentators have argued that lowering the cap will cause more claimants to pursue discrimination claims, because discrimination awards are uncapped. This suggests a rise in vexatious discrimination claims, given that legitimate claims will always be made, regardless of any unfair dismissal cap. As such, employers will be looking to the Government to ensure that the upcoming tribunal reform will include a stronger approach to weeding out such vexatious claims to address this concern.”