A new limit on the compensatory award for unfair dismissal claims is due to come into force on 29 July (subject to approval by Parliament). The new limit will be the lower of:

  1. the current cap (£74,200); and
  2. one year’s gross pay.

The new cap will only apply to dismissals which take place after 29 July.

For the purposes of calculating a year’s gross pay, pension contributions, benefits-in-kind and discretionary bonuses will be excluded. Also, the calculation should be based on actual pay; the statutory cap on a week’s pay (currently £450) will not apply. The introduction of the cap will not affect the calculation of the unfair dismissal Basic Award (this is calculated in a similar way to a statutory redundancy pay calculation, based on the claimant’s age and length of service).

Recent government surveys have suggested that, historically, only 5% of all unfair dismissal claimants recovered compensation in excess of 12 months’ loss. The government has referred to this statistic to support its view that very few individuals will be disadvantaged by the introduction of the cap. However, the introduction of the cap could potentially result in claimants looking for alternative ways to frame their allegations in order to create the opportunity to recover uncapped damages, e.g. by adding a claim for whistle-blowing or discrimination.