Member Article

12th month pay cap for unfair dismissal claimants

The Minister for Employment Relations and Consumer Affairs has suggested a 12th month pay cap for claimants of unfair dismissal.

Jo Swinson hopes the move will provide greater clarity for employers, and comes as part of the Government’s response to ‘Ending the Employment Relationship Consultation.’

The changes also include a consultation on proposals to reduce Transfer of Undertakings (Protection of Employment) or TUPE burdens on business.

Neil Carberry, CBI Director of Employment and Skills said: “Delays in the current tribunal system are the single biggest confidence killer for firms wanting to grow. No one wants disputes to end in tribunals, particularly small businesses, so the system needs to promote early settlement more actively.

“The current cap on unfair dismissal payouts is many times higher than the average sums awarded, giving workers unrealistic and inflated expectations of what a claim is worth. It’s right that the new cap is linked more explicitly to an employee’s earnings. This will give businesses clarity about the potential costs and will scrap the perverse incentive for workers not to settle in the hope of getting a higher award.”

On TUPE reform, Mr Carberry added: “It’s right that workers should be protected when they transfer to a new employer but the current rules are needlessly prescriptive, unclear and go far beyond EU requirements.

“We’ve long argued for a radical simplification to avoid situations where staff do the same job but have completely different pay, leave, working hours and pensions. Such complexity dampens business innovation and growth, which we can ill afford when the economy is struggling.”

The Government’s response also includes a decision to make it easier for small businesses to enter into settlement agreements with underperforming employees.

It will work with Acas to build guidelines for employers on the procedures to follow before entering a settlement agreement.

Mike Emmott, employee relations adviser at the CIPD, commented: “Our members have expressed concerns that a quick and easy route to terminating employment might undermine good management practice, which is for the employer to look for alternative ways of resolving issues with the employee before deciding to set about ending the relationship.

“If employers were to see settlement agreements as an attractive substitute for the sometimes protracted process of discussing ways of improving performance, it would do little to improve workplace relationships.

“The CIPD has therefore urged the Government to require an employer to engage in some formal process before making a settlement offer, in order to avoid an employee learning that he or she is at imminent risk of losing their job without warning and without having the opportunity to do anything about it.”

Alexander Ehmann, Head of Regulation at the Institute of Directors, said: “Business will welcome the 12 months’ pay cap for unfair dismissal claims as evidence of progress towards a more balanced system. But they will be disappointed that the Government has refused to reduce the overall cap from its current unnecessarily high level of £72,000.

“Two-thirds of businesses who responded to the consultation felt the cap was too high. Most successful claimants receive less than £5,000 in compensation, and leaving the cap so much bigger than this only helps to create unrealistic expectations, and encourage tribunal cases which could be sorted out more quickly and easily before that stage.”

Unions criticised the move, suggesting it would deter victims from pursuing genuine claims.

TUC General Secretary Frances O’Grady said: “People who have been unfairly dismissed have had their rights breached and deserve compensation that reflects their loss of earnings and length of service.

“This arbitrary 12-month cap fails to do that and ignores the fact that losing a job, particularly in today’s harsh economic climate, is a major blow.

“The Government has already made it harder for people to pursue unfair dismissal claims – by increasing the qualifying period from to two years and introducing fees for employment tribunals – now it wants to prevent people who’ve been wronged from getting fair compensation.

“Weakening the TUPE legislation which currently protects employees who are transferred from one employer to another – often from the public to the private sector – will make it easier for companies to employ staff on lower rates of pay and worse terms and conditions.”

This was posted in Bdaily's Members' News section by Tom Keighley .