Unfair Dismissal and Compensatory Award Changes

The government has announced the latest increases to the figures for calculating the basic award and the compensatory award in claims for unfair dismissal. With effect from the 1st February 2013, the current limit of £72,300 for a compensatory award will be increased to £74,200 and the maximum weekly amount that can be used for calculating the basic award will be increased from £430 per week to £450 per week. Thus the maximum total award in a “normal” unfair dismissal case will therefore be £87,700 (i.e. £74,200 compensatory award plus 30 x £450 for the maximum basic award).

However the government has been consulting on the issue as to whether or not it is appropriate to keep the maximum awards at this level. Awards have been steadily increasing at a rate slightly higher than the rate of inflation since 25th October 1999 when the limits were raised from £18,600 (i.e. £12,000 plus 30 x £220 for the maximum basic award) to £56,600 (i.e. £50,000 plus 30 x £220).

The outcome of this consultation is that it now appears likely that legislation will be introduced which will limit the amount that tribunals can award to the lesser of the current limits and twelve months salary. It is said that the current limits have been giving many claimants unrealistic expectations of what they might achieve if they were to pursue their claim to the Tribunal. In reality median awards for unfair dismissal are much lower. In the year to 31st March 2012 the median award for unfair dismissal claims was just £4,560 and the average award just £9,133. The new limit is not yet in force but it will be interesting to see whether it makes any difference to the number of cases which proceed to a hearing.