The Coalition government's 'Red Tape' scheme to enliven the economy by encouraging businesses to grow and employ new staff has reached a controversial milestone this summer. On 6 August 2013, The Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013 (SI2013/1949) was published. This Order came into force on 29 July 2013 and changes the upper 'compensatory award' limit for unfair dismissal to either 52 week's pay or £74,200, whichever is lower.
Ironically, this change has come into force at the same time as the EU officially emerges from the post-credit crunch recession, with industry sectors on the continent, especially in France and Germany, and the housing market in the UK, showing green shoots of recovery to mirror our long-awaited balmy English summer.
So what is the significance of this change? The main area of change relates to the option of 52 week's pay as the upper compensatory award limit, that is unless 52 week's pay is more than £74,200. Thus, for an employee on a yearly salary of less than £74,200, this yearly salary amount will be the maximum that they can be awarded at an Employment Tribunal for unfair dismissal (along with a possible 'basic award' of up to £13,500). Considering that the average 52 week salary in the UK is £26,000, this greatly limits what an employee can be awarded and this will be especially marked in serious cases of unfair dismissal where such low awards could be deemed unjust.
Interestingly, in February 2013, the upper compensatory award limit of £72,300 was increased to its current limit of £74,200. However, with the new rule in force to choose the lower of the new increased rate or 52 week's pay, such an increase to £74,200 is merely academic and those of a more sceptical nature may even assume that this small increase is to justify that most unfair dismissal claims will fall into the 52 week's pay award category. Indeed, such a meagre increase to the maximum compensatory award is no relief for those on a salary of less than £74,200.
This change adds to further recent 'Red Tape' policy measures such as the qualifying period for bringing an unfair dismissal claim to increase from one year to two year's employment for those starting employment post 6 April 2012. Moreover, from 29 July 2013 Employment Tribunals will now charge fees for each claimant. The combination of Tribunal fees and lower awards means that prospective claimants for unfair dismissal may be priced out of using lawyers to represent them at Tribunals. This is exacerbated by the fact that, traditionally, legal costs cannot be recovered in an Employment Tribunal. Such prospective claimants may be forced to act as litigants-in-person which may in turn affect their chances of success.
Businesses will also be aware of the maximum compensatory award an employee could be awarded at an Employment Tribunal for unfair dismissal if their yearly salary is less than £74,200. This could prompt employers to make lower offers in settlement negotiations. This in turn will help businesses reduce litigation costs and exposure.
For employees, they may need to find grounds for discrimination to add to their unfair dismissal claims in order to secure higher awards, or alternatively claim only for discrimination against their employers. Either way, this narrows their options for a solution through litigation, sometimes the only option available.
There is no doubt that these new changes should aid the growth of businesses by controlling litigation risk and costs regarding unfair dismissal. Whether justice for employees who have suffered unfair dismissal is affected for the worse is yet to be seen. Like our record-breaking English summer, it was much anticipated and hoped-for but was inevitably punctured with some unsettling downpours.
