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Employment lawyers have voiced concern after reports that the Government is considering scrapping the cap on compensation for unfair dismissal claims.
The current limit - one year’s pay or £118,223 (whichever is lower) - could be removed entirely, allowing successful claimants to seek unlimited financial awards. Combined with the proposed reduction of the qualifying period for unfair-dismissal rights from two years to six months, specialists say the change would dramatically raise employers’ exposure.
Here’s how leading employment-law practitioners are reacting, and what HR leaders may soon need to prepare for.
Warning over higher-value claims & rising complexity
Ben Smith, Associate at Littler, said that “entirely removing the cap on compensation would be a surprising move at this late stage.” He warned that “removing the caps entirely also making it more difficult for unfair dismissal claims to be resolved without litigation, if potential claimants have unrealistic expectations of compensation the tribunal might award.”
He added that if the cap and qualifying-period reforms both go ahead, “dismissals will be more complex and potentially more expensive for employers. This is particularly the case for high earners who will now have more motivation to pursue unfair dismissal claims If there are significant amounts of lost salary or bonuses on the line. An influx in such high-value claims would only add to tribunal backlogs.”
Dan Pollard, Partner in the Employment team at Charles Russell Speechlys, described the development in even starker terms. “[The] development is frankly bonkers,” he said, noting that the current cap allows most claims to be “bought out” for £118,223 or less. Without it, he warned, “employers will have no choice but to embark upon an extremely time-consuming and bureaucratic process.”
Pollard said that, in practice, “poorly performing bosses [may be] able to hold employers to ransom” and argued that unless the change is implemented overnight, “it has the potential to create a bloodbath as employers seek to exit underperforming senior staff ahead of time.” He also suggested it “would undoubtedly make the UK a significantly less attractive place to base staff within Europe.”
He added that “given that the measure favours higher paid workers, it is not clear why either the unions or employers would think this a good idea,” suggesting that “the government is ‘rolling the pitch’ ahead of a significant hike to the current £118K limit.”
Calls for clarity as lawyers warn of a “seismic change”
Liz Stevens, Professional Support Lawyer in the employment team at Birketts LLP, said the current situation appeared to be the result of heavy political negotiation. She noted that “there has obviously been a great deal of negotiating with stakeholders going on behind the scenes to break the parliamentary deadlock on day one unfair dismissal rights, resulting in the decision to compromise on a six-month qualifying period. It appears that changes to the calculation of compensation may have been used as a tactical bargaining chip by the government.”
She added that last week’s Government wording caused uncertainty because “the reference to the compensation cap being ‘lifted’ … was the cause of a great deal of confusion, with many commentators concluding that it meant a removal of the 52 weeks’ pay cap but retaining the statutory maximum (currently £118,223).
“ Instead, it is now being reported that unfair dismissal compensation will be unlimited, with no statutory maximum, in the same way as already applies to whistleblowing and discrimination claims.”
Stevens warned that, if confirmed, “it will be a seismic change to the current rules applying to the calculation of compensation for unfair dismissal, with higher earners and those towards the end of their careers potentially being the ones to benefit most.”
She also cautioned that “we need confirmation from the Government on their intentions for changing compensation for unfair dismissal – and this may still prove a significant sticking point in the progress of the Bill.”
