Cap on unfair dismissal compensatory award

A statutory instrument has been laid before Parliament that will impose a new cap on the compensatory award in unfair dismissal claims. 

There are two main elements to the compensation that a successful claimant will be awarded in an unfair dismissal claim.  The first is a basic award, calculated on the basis of the Claimant’s age, length of service and weekly salary.

The second element, the compensatory award, is based on a claimant’s actual loss of earnings, with the aim of compensating the claimant for the period of time that a claimant is out of work.  An employment tribunal has the discretion to make a compensatory award of such amount as the tribunal considers just and equitable in all the circumstances.  Currently, a Tribunal can order compensation for the length of time that it considers it just to do so, albeit that this element of compensation is capped at £72,300. 

The new statutory instrument will limit the compensatory award in unfair dismissal cases to the lower of £74,200 or 52 weeks’ pay.  This is likely to have little impact on higher earners, but for those individuals earning significantly less than the cap, this could amount to a substantial reduction in compensation. 

It is not yet clear when this provision is likely to come into effect, but it is expected that this will be some time in July.  The provision will apply to all dismissals occurring after the date that it comes into force.

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