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Janine Milne

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News: Capping unfair dismissal payments is “soundbite politics”

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The Government’s announcement that unfair dismissal awards will be capped at a maximum of one year’s salary has met with a mixed response.

 
Martin Patt, associate at law firm Lester Aldridge LLP warned that the announcement appeared to be “soundbite politics”. He pointed out that the average award for a straightforward unfair dismissal claim was only about £5,000, a long way from the maximum £72,300 limit for such awards. Fewer than 5% of claimants received a full year’s salary from a tribunal.
 
Under the new ruling, someone who earns £30,000 can only be awarded up to £30,000 rather than the £72,300 limit. 
 
“Although they sound far-reaching, the practical effect of these changes for employers will be very small indeed,” said Patt.
 
Changes to the tribunal awards were part of a raft of measures announced by the Government designed to make it easier to get rid of poor-performing or negligent staff and lessen the threat of a costly tribunal. Employers will now be able to pay off these under-performers under a “settlement agreement”, which legally protects them from that employee seeking a tribunal at a later date. 
 
But Patt described these settlement agreements as “similarly underwhelming”. In practice, he believed that employers may still be vulnerable as they will not be protected from employees making unlawful discrimination claims.
 
“An employee can still allege before a tribunal that a settlement offer was put forward only because the claimant was on maternity leave, of an ethnic minority, because of their sexual orientation etc. In our experience it is rare that the offer of what is currently termed a “compromise agreement” severely prejudices an employer in an unfair dismissal case, without the taint of discrimination, in any event,” said Patt.
 
But the CBI’s director of employment and skills Neil Carberry welcomed the changes to the tribunal system, particularly for small businesses.
 
“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,” he said in a statement.
 
“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.”
 
According to the CBI, there were 46,300 unfair dismissal claims in 2011 to 2012 averaging £5,000. The average UK salary is £26,500;
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