Each year the limits on compensation that can be awarded by the Employment Tribunal in successful unfair dismissal (and some other) claims rise in line with inflation. The key limits that will apply for dismissals taking place on or after 1 February 2013 are as follows:

  • The limit on a week's pay will rise from £430 to £450 (making the maximum basic award or redundancy payment £13,500);
  • The limit on the unfair dismissal compensatory award will rise from £72,300 to £74,200.

However, the Government is currently considering whether to reduce the cap on the unfair dismissal compensatory award. The Enterprise and Regulatory Reform Bill contains a clause that would allow the limit to be fixed at a level somewhere between one and three times annual median earnings (ie somewhere between approximately £26,000 and £78,000). The Government may also introduce an "individual" cap of 52 weeks' pay, which would mean that an employee could not recover more than a year's pay in unfair dismissal compensation (excluding the basic award), even if the overall limit on compensation was higher.

So, even though unfair dismissal compensation limits will increase in February 2013, there seems a fair chance that the limits will come back down again sooner rather than later.