Government proposes lifting cap on unfair dismissal compensation, allowing unlimited payouts
The government has revealed plans to lift the cap on compensation for successful unfair dismissal claims, potentially allowing workers to receive unlimited payouts. The announcement was made by the Department for Business and Trade (DBT) yesterday, which also confirmed significant changes to the Employment Rights Bill.
The move comes after consultations with trade unions and business representatives who influenced the revision of the bill. Originally, the government had proposed that employees could bring claims for unfair dismissal from the first day of their employment. However, following feedback this proposal has been revised and the qualifying period for bringing a claim will now be six months down from the current 24 months. The one-day protection against discrimination will remain unchanged.
The government also revealed plans to lift the existing compensation cap for unfair dismissal claims. Currently, claimants who are dismissed on or after 6 April 2024 are limited to receiving a maximum of one year’s gross salary with a cap of £118,223. For dismissals in the previous 12 months, the limit is set at £115,115. It is not yet clear whether lifting the cap would mean removing any restrictions on compensation entirely, as is the case for discrimination or whistleblowing claims or simply removing the one-year caveat.
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The proposal to lift the cap has sparked debate with concerns that it could lead to higher compensation payouts for senior executives who may be more likely to bring claims due to their high salaries. During previous consultations on employment rights, the government expressed concerns that the compensation cap, which had been seen as too high, could lead to unrealistic expectations on both sides: employees expecting large payouts and employers reluctant to hire due to fear of high liabilities.
According to government officials, the aim of lifting the cap is to ensure fairness in the compensation process and provide a greater sense of justice for employees who have been unfairly dismissed. The DBT stated that the changes would be designed to protect employees while balancing the concerns of businesses, ensuring that the process is not unduly burdensome for employers.
While the reforms are expected to pass through the House of Lords without significant opposition, there is no clear timeline for when the changes will take effect. This marks a significant shift in employment law and could alter the landscape for workers bringing unfair dismissal claims.
The government also made clear that future changes to the qualifying period for unfair dismissal claims could only be made through primary legislation, making it harder for future administrations to reverse these adjustments. This, according to the DBT, is a step toward greater stability and fairness in employment rights law.