In unfair dismissal cases, compensation awarded by employment tribunals will usually consist of:

  • a basic award, which is calculated using a formula based on the employee’s age, length of service and weekly pay, and
  • a compensatory award, of such amount as the tribunal considers ‘just and equitable’ in all the circumstances.

Where employees are made redundant, those with over two years’ continuous service are entitled to a statutory redundancy payment which, like the basic award, is calculated according to age, length of service and weekly pay.

The compensatory award is subject to a cap which, since February 2007, has been £60,600. A week’s pay for the purposes of calculating the basic award and the statutory redundancy payment has been capped at £310 for the same period.

New legislation

The Employment Rights (Increase of Limits) Order 2007, which came into force on 1 February 2008, increases the limit for compensatory awards for unfair dismissal from £60,600 to £63,000. The cap on a week’s pay is also increased from £310 to £330.

Effect on employers

The new limits will apply to dismissals where the effective date of termination falls on or after 1 February 2008. Employers should therefore ensure that they take these increased amounts into account when calculating redundancy and severance payments for employees who are dismissed on or after that date.