Out-Law News 1 min. read

Unfair dismissal compensation cap falls


The maximum amount that an Employment Tribunal can award in compensation for unfair dismissal has fallen for what is believed to be the first time.

The maximum award falls from £66,200 to £65,300 to reflect a fall of 1.4% in the retail price index (RPI) from September 2008 to September 2009. The compensation caps are linked to the RPI.

"Under section 34 of the Employment Relations Act 1999, if the retail prices index for September of a year is higher or lower than the index for the previous September, the Secretary of State is required to change the limits, by Order, by the amounts of the increase or decrease," said the explanatory note to the Statutory Instrument changing the caps. "The revised amounts made by this Order reflect the decrease of 1.4% in the index from September 2008 to September 2009."

Employment law expert Ben Doherty of Pinsent Masons, the law firm behind OUT-LAW.COM, said that the fall will be welcomed by business.

"Some companies take the view that employment law is designed more for employees than employers," he said. "While I don't necessarily agree with that, this reduction may be seen as good news by some of those employers."

Doherty said that the fall, though, is not something that will reduce compensation orders by a similar proportion.

"Employment Tribunals' approach is to look at the losses to an employee caused by an employer's behaviour," he said. So if someone earning £30,000 a year is unfairly dismissed and is deemed to have lost a year's salary that will not be reduced to reflect the reduction in the cap, he said.

"It will only affect those whose compensation awards are at or higher than the cap," he said.

The changes will take effect from 1st February 2010.

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