Business Secretary Vince Cable has proposed to cut how much workers can claim for unfair dismissal at employment tribunals.
Cable will consult on plans to cut the limit on compensation payouts to a maximum of 12 months’ salary.
The Business Secretary also plans to introduce settlement agreements, where staff agree to leave without going to a tribunal, but instead receive a pay-off.
Cable says: “We acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements."
In response to Cable’s proposals, Michael Ball, Employment Partner at top 50 national law firm, Gateley, says: “Government plans to reduce the cap on unfair dismissal payments from £72,300, is unnecessary tinkering with something that politicians simply don’t understand. It is difficult to see how it will deliver a realistic benefit to employers and it has limited impact on most employees.
"The reality is that most unfair dismissal claims are worth substantially less than the capped maximum under the current system. Therefore, this change will have no impact on the vast majority of potential unfair dismissal claims.”
Adam Grant, Senior Associate in the Employment team at City Law firm Wedlake Bell, adds: “The plan to cap unfair dismissal payments sends a clear message that the Government is trying to improve employer confidence in managing its workforce in an economically efficient way.”
“Hopefully, the move will lower inflated employee expectations of settlement in litigation. Whilst the plan may reduce exposure in instances of unfair dismissal it may make employees think more creatively when bringing claims. Compensation for claims of discrimination and whistle blowing are not capped. If there is the slightest hint that these issues may have some legs, this may encourage an employee to expand the scope of their claims, even if it just to use as a negotiating tactic."
Similarly, PwC warns that reducing the upper limit on compensation payouts for unfair dismissal could increase discrimination and whistle-blowing claims.
Ed Stacey, Partner at PwC Legal, says: “It is likely that the combination of increased fees for launching claims and the proposed reduction in awards for unfair dismissal claims will lead to a reduction in some of the low merit and low value claims. However, there is a risk that it will also incite employees to bolt on claims that remain uncapped such as claims for discrimination or whistle-blowing.”