Today's blog concerns another important reform which will be effective from 29 July 2013 - the change to the level of the compensatory award which can be made by an Employment Tribunal for unfair dismissal.

At present the cap on the compensatory award is £74,200.

For any dismissal which takes effect on or after 29 July the cap on the compensatory award will be the lower of £74,200 or 52 weeks' pay. A week's pay will be based on the claimant's annual gross salary prior to their dismissal and will not include pension contributions, benefits-in-kind or discretionary bonuses.

The Government's aim here is to manage employees' expectations of likely compensation and encourage earlier resolution of disputes. It is also designed to provide employers with more certainty over the cost of any unfair dismissal claim.

It is relatively rare for awards in excess of 12 months' pay to be awarded by Employment Tribunals in any event. As such this change is unlikely to make a significant difference in practice in terms of Employment Tribunal awards.

According to the latest statistics published by the Tribunals Service, for the period 1 April 2011 to 31 March 2012, the median unfair dismissal award was £4,560 and the average award was £9,133.

Where it may make more of a difference is in respect of the very significant number of employment disputes that are settled privately. At present it is possible for the claimant to put forward an argument during negotiations that they would be awarded in excess of 12 months. This will no longer be possible in most cases moving forward.

Bear in mind though that the statutory cap will still not apply to dismissals for whistleblowing or for certain health & safety reasons. In addition, there is still no limit on the amount that can be awarded in discrimination claims. This may result in claimants attempting to argue that one or more of these states of affairs exist so that the cap does not apply.