News In Focus

Employment tribunal claims could face lower cap

14 September 2012

A new, lower cap on employment tribunal claims, and support for ending employment through settlement agreements, are among a package of measures announced today by Business Secretary Vince Cable.

The UK Government aims to give firms, particularly small businesses, more flexibility and confidence in managing their workforce and to reduce the level of regulation.

Among the proposals are:

• reducing the compensation cap for unfair dismissal claims, currently £72,300, to 12 months' pay with a new, reduced, upper limit. This is the subject of a consultation opening today, which runs until 23 November;
• part of the same consultation, how the settlement agreement process will work in practice: a template letter and guidance have been devised and Acas has also agreed to provide a new code of practice;
• further streamlining of employment tribunals, following on from Mr Justice Underhill’s review, with a further consultation over the same 10 week period on how judges could dismiss weak cases more easily and reduce the number of preliminary hearings.

Mr Cable also announced that the Government, having considered submissions from business, will not be taking forward the proposal in the Beecroft report for no-fault dismissal. However it will work with Acas to make the guidance to their code of practice on discipline and grievance more accessible, especially for small businesses.

There will also be a consultation later in the year on how to make the TUPE rules, which govern the transfer of staff to a new employer, more efficient.

Mr Cable said: “Our starting point is that Britain already has very flexible labour markets. That is why well over 1,000,000n new private sector jobs have been created in the last two years, even when the economy has been flatlining.

“But we acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements."

Ed Stacey, partner at PwC Legal, commented: “It is likely that the combination of increased fees for launching claims and the proposed reduction in awards for unfair dismissal claims will lead to a reduction in some of the low merit and low value claims. However, there is a risk that it will also incite employees to bolt on claims that remain uncapped, such as claims for discrimination or whistleblowing.”