Unions criticise proposal to cut compensation for unfair dismissals

As part of its review of employment law in the UK, the coalition government announced plans in September 2012 to consult on measures to reform the employment tribunal system and on changes to tribunal awards. The proposals include a reduction in the maximum amount a worker can receive if they win an unfair dismissal case, as well as the wider use of settlement agreements. The reaction from employers was mixed, and trade unions have roundly condemned the proposed changes.


The Conservative-Liberal Democrat coalition government in the UK has outlined areas in which it is to consult on proposed changes to employment law. The changes form part of a deregulatory drive by the government which it hopes will reduce the burden on business and stimulate economic growth. As part of the review, it plans to make changes to the employment tribunal system.

New proposals

Reform of the employment tribunal system and of employment law has been a priority for the Conservative-Liberal Democrat coalition government since it took office in May 2010 (UK1005019I). Business Secretary Vince Cable said that in reforming employment law he was trying to strike a balance between protecting employees and helping employers to create jobs. He said:

...we don’t want people to feel insecure, but at the same time small companies have got to feel confident that if they take somebody on they’re not going to get caught up in a very elaborate, legalistic, time-consuming tribunal system.

The latest proposals cover five key areas:

  • reducing the maximum compensation for unfair dismissal;
  • extension of settlement agreements;
  • tackling non-payment of awards in tribunal cases;
  • changes to Transfer of Undertakings Protection of Employees (TUPE) legislation;
  • shelving of ‘no fault’ dismissals (UK1111019I) in favour of additional guidance from the Advisory, Conciliation and Arbitration Service (ACAS).

Consultations to begin

A consultation paper called Ending the employment relationship (303Kb PDF) is seeking views on bringing down the limit on compensation that workers can receive if they are unfairly dismissed. The limit currently stands at GBP 72,300 (€91,287 as of 14 November 2012), with the average tribunal award for unfair dismissal being GBP 9,000 (€11,254) in 2010–2011, according to the Chartered Institute of Personnel and Development (CIPD).

The same consultation outlines proposals to extend the use of settlement agreements (UK1206019I) which will be the subject of an ACAS code of practice. Settlement agreements should make it easier for employers to get rid of a worker, as long as the worker agrees to the terms of the dismissal. It has been suggested that model settlement agreements would be drafted by ACAS for employers to use without having to seek legal advice.

A second consultation is under way in relation to the employment tribunal rules of procedure. This seeks to address the problem of non-payment of tribunal awards. This issue was highlighted in a Ministry of Justice research document (634Kb PDF) in 2009, revealing that 31% of claimants did not receive any of the money awarded to them at employment tribunals.

The government also responded to evidence on the effectiveness of TUPE regulations, and plans to consult on a range of areas before the end of the year. Areas that have been identified as falling within the scope of the consultation include:

  • the sharing of liability between the two employers involved in a transfer;
  • proposals to give the new employer access to information on staff earlier in the course of a transfer;
  • repeal of protection for employees where an outsourced service changes from one provider to a new one.

The government dropped previously reported proposals for compensated no fault dismissals for micro businesses following its consultation (UK1206019I, UK1111019I). It has identified the need for greater assistance for small firms in applying the Code of Practice on Disciplinary and Grievance procedures.

Social partner views

The employers’ organisation, the Confederation of British Industry (CBI), welcomed the suggested changes to employment law. Its Chief Policy Director, Katja Hall, said in a press release:

The Government has identified the right issues to address – unclogging time-consuming employment tribunals, encouraging early fair settlement of disputes and reform to TUPE and redundancy rules that heap red tape onto business.

The Chartered Institute of Personnel and Development (CIPD) gave the proposed changes a more cautious welcome. Its Adviser on Employee Relations, Mike Emmott, said:

The idea that businesses should be able to manage the performance of their employees effectively, without fearing extortionate costs and a time consuming process, is a good one. However, the proposed reforms must not undermine the principle of mutual trust and confidence that lies at the heart of positive and productive employment relations.

Trade unions were highly critical of the proposals. While they welcomed the government’s decision to shelve no fault dismissals, the reduction in compensation for unfairly dismissed workers was condemned by many. Trades Union Congress (TUC) General Secretary Brendan Barber said:

Reducing payouts for unfair dismissals will let bad employers off lightly and deter victims from pursuing genuine cases... Making it easier for bad employers to get away with misconduct is not the way to kick start our economy and will not create a single new job.

Sophie Gamwell, IRRU, University of Warwick

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