Unfair Dismissal Award Limit May Be Removed - GBH Law

In the latest news on the Employment Rights Bill, the Government has signalled a major shift in the law on unfair dismissal compensation, indicating that the limit on compensatory awards – which is currently the lower of a year’s salary or £118,223 –  may be scrapped altogether. This follows the decision to step back from plans to introduce unfair dismissal protection from the first day of employment and instead require a six month qualifying period that we shared last week.

Removing the statutory cap would bring unfair dismissal awards closer in line with the uncapped awards available in discrimination and whistleblowing claims. While many awards currently fall well below the current cap, the removal of the cap would still represent a significant change in risk for employers.

The implications could be wide-ranging. Employers may become more cautious about dismissing employees because the financial exposure would be harder to predict. We may also see an increase in voluntary severance arrangements as organisations look for more controlled and commercially certain routes to bring employment to an end. Some businesses may even take a more careful approach to recruitment decisions where the potential cost of future disputes becomes harder to quantify.

We will provide further updates as the draft legislation progresses. If you would like tailored advice on how these changes may affect your organisation please contact our Employment team.