Cable announces plans to cap unfair dismissal awards

Vince Cable has today announced plans to cut the current cap of £72,300 on compensation awards for unfair dismissal.

Under the proposals the cap would be the lower of 12 months’ salary or an unspecified cap somewhere between the full-time annual median earning of £25,882 and three times that amount.

At the same time, Cable announced that the government has abandoned a separate scheme, recommended by the Beecroft report, which would exempt micro-businesses from the unfair dismissal process completely and introduce ‘compensated no fault dismissal’.

Officials at the Department of Business Innovation and Skills (BIS) said in a separate paper on no fault dismissal that there were “mixed views amongst stakeholders” including businesses.

They said key concerns were that the change would not give employees peace of mind because of the risk of dismissal claims and could lead to difficulty in recruitment and retention for micro businesses.

“Given these risks, the government believes that there are better ways to improve employer confidence.

“Our measures on settlement agreements, in particular, will give businesses greater confidence to agree negotiated and consensual separations with employees, without the risk that offers of settlement will be used against them in an unfair dismissal claim.

“Furthermore, where settlement is agreed, the employer is able to agree a waiver of all potential claims (including discrimination claims) with an employee and thereby ensure that they will not face an employment tribunal.”

Officials said this offered more certainty to employers than the proposal for no fault dismissal and had the advantage that it did not require the creation of “a new, parallel, dismissal process”.

Ronnie Fox, principal of City employment law specialists Fox, said: “The combination of a reduced compensation cap and the introduction of a fee of up to £1,200 for lodging a claim in the tribunal is likely to reduce the number of tribunal claims – a key government objective – by weeding out weak and vexatious claims limited to unfair dismissal.

“However, the true extent and impact of this proposal will only become evident once the new cap is revealed.”

Fox went on: “There is currently no cap on the tribunal’s ability to award compensation for unlawful discrimination or whistleblowing - and no suggestion of any change.

“A likely outcome is an increase in the number of such allegations, especially as the proposals on settlement agreements and protected conversations do not apply to unlawful discrimination and whistleblowing.

“Many employers will think that these proposals point in the right direction but just do not go far enough.”

Business Secretary Vince Cable said today: “Our starting point is that Britain already has very flexible labour markets. That is why well over one million new private sector jobs have been created in the last two years, even when the economy has been flatlining.

“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.”