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New cap on unfair dismissal award comes into force on 29 July 2013

Jo Swinson, Parliamentary Under-Secretary of State for Employment Relations and Consumer Affairs, has now announced the commencement date for the new cap on compensatory awards for unfair dismissal will be 29 July 2013.

Currently, in an ordinary unfair dismissal claim, a claimant is entitled to a basic award, which is calculated based on length of service and weekly earnings, and a compensatory award, which is whatever figure the judge considers to be just and equitable in the circumstances. The compensatory award takes into account the actual loss suffered by the claimant, and is currently subject to a limit of £74,200.

However, in January, the Government announced that they planned to introduce an additional limit of one year’s gross salary. For dismissals from 29 July 2013 onwards, the compensatory award will be capped at the lower of the two figures.

This cap will be a welcome change for employers. In reality, in 2011/2012, the median award in an unfair dismissal claim was only £4560. In the majority of unfair dismissal claims, the new cap is therefore unlikely to have any real effect on the level of compensation awarded.

However, the current headline limit of £74,200 is said to have often discouraged employees from settling claims. It is hoped that the new cap will help to give employees more realistic expectations about the level of any award they might receive, as well as giving employers greater certainty about the extent of their liability. This could potentially lead to a reduction in employers’ costs in defending unfair dismissal claims.

Meanwhile, compensation for discrimination claims under the Equality Act 2010 remains unlimited. It remains to be seen whether we will see an increase in claimants seeking to argue that they have been subjected to discrimination, in an attempt to avoid the new cap.

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