It may not be the juiciest of employment law topics, but it certainly is something we all need to know – what are the current compensation limits in respect of claims which an employee can bring against his or her employer?

Of course the compensation limits affect a company’s potential financial liability and for that reason it will need to have an awareness of the current figures. The figures will also affect a company’s strategy in conducting settlement discussions with employees. A company will want to pitch any settlement offer at a level which the employee will consider sufficiently high when viewed in light of the maximum sum that he or she could be awarded, so as to ensure that the employee is deterred from bringing a claim, but sufficiently low so as not to over-compensate the employee and to keep the company’s expenditure to a necessary minimum.  An employee will want to know the maximum he or she could be awarded by a Tribunal, so that he or she can use this as leverage to be offered a higher settlement sum in any settlement discussions he or she may have with his or her employer.

New compensation limits are due to come in to force this Spring. The new figures apply where the matter which is the subject of the employee’s claim takes place on or after 6 April 2015. Where the matter which is the subject matter of the claim falls before 6 April 2015, the old limits will still apply, irrespective of the date on which a claim is brought or compensation is awarded.

The key changes are:

  • The limit on the amount of a week’s pay for the purposes of calculating statutory redundancy payments and the basic award for unfair dismissal (as well as other awards) will increase from £464 to £475.
  • The maximum compensatory award for unfair dismissal will increase from £76,574 to £78,335, subject to the cap of one year’s salary on the compensatory award for unfair dismissal.

If you are wondering why the limits go up and up each year, the answer is because of the retail prices index. 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 various limits by the percentage of the increase or decrease. Between September 2013 and September 2014 there was an increase of 2.3%, and that is why we have these revised limits.