Cable unveils plan to cut compensation payment limit for unfair dismissal

The Government has proposed a reduction in the compensation cap for unfair dismissal claims as part of a package of employment reforms.

A consultation paper issued today sets out two proposals to lower the cap, which is currently set at £72,300: a cap of 12 months’ pay or a reduced upper limit.

The Department for Business, Innovation and Skills (BIS) has also issued consultation papers on promoting settlement agreements and further streamlining of employment tribunals.

The settlement agreements consultation includes a template letter and guidance for employers and employees on how to reach agreement. Acas will also produce a new code of practice for settlement agreements.

The overhaul of the tribunal system would allow judges to dismiss weak cases more easily and reduce the number of preliminary hearings.

In other announcements, BIS published a summary of responses to the call for evidence on changes to TUPE. This contains a commitment to consult on issues raised by business by the end of 2012.

As expected, the Department also confirmed that it would not be taking forward the controversial proposals for compensated no fault dismissal contained in the Beecroft Report.

It will however work with Acas to make the guidance to their code of practice on discipline and grievance more accessible, especially for small businesses.

Business Secretary Vince Cable said "We have been looking across the range of employment laws with a view to making it easier for firms to hire staff while protecting basic labour rights.
Our starting point is that Britain already has very flexible labour markets.

“But 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."

Previous Government reforms introduced in April include extending the period for eligibility for unfair dismissal from one to two years.

Responding to today’s announcements, the TUC warned that the proposals would make it easier for bad employers to mistreat their staff.

General Secretary Brendan Barber said: “We are pleased that Adrian Beecroft's proposal to allow employers to fire employees at whim has been ignored. This would have would have set workers' rights back decades and created huge insecurity in workplaces throughout the country.

“However, reducing payouts for unfair dismissals will let bad employers off lightly and deter victims from pursuing genuine cases. This will feel like another slap in the face following the government's decision to bring in fees for employment tribunals.”

The Chartered Institute of Personnel & Development also welcomed the demise of the proposals for compensated no-fault dismissal. It warned that other measures should not be used to undermine the principle of mutual trust and confidence.

Mike Emmott, employee relations adviser at the CIPD, questioned whether the change in the cap for unfair dismissal claims would have much impact.

“The average award for unfair dismissal in 2010-11 was about £9,000, well below the average earnings of most people,” he said. “Furthermore, employers need to be aware that this cap will not apply to claims brought against them in discrimination cases, where the cap on payouts is unlimited.”

Emmott also warned that settlement agreements should not be used as a first port of call by employers simply because an employee’s face did not fit.

“Employers need to understand that there is no substitute for good performance management practices and settlement agreements will do nothing to protect them from discrimination and constructive dismissal claims if they act improperly,” he said.

The CIPD said it also supported a reduction in the minimum time for redundancy consultations from 90 days to 30.

“An employer’s ability to respond swiftly to changing market requirements is a key element of the UK’s flexible labour market,” Emmott said.

“Furthermore, employees themselves may sometimes prefer a shorter period of consultation, when it is clear that redundancies cannot be avoided, as this may help to minimise periods of uncertainty surrounding their future.”