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Increase in the cost of tribunal awards for unfair dismissal and in redundancy cost

The Issue

The amounts both of the basic award and of the compensatory award made by Employment Tribunals to employees unfairly dismissed are each subject to an arbitrary cap.

The basic award is calculated using the lower of the employee’s actual week’s pay or a capped sum of a week’s pay for each full year of service (with a maximum of 20 years).  Statutory redundancy pay is calculated similarly (also with a maximum of 20 years). In each case an additional age-based multiplier of 1.5 is used for employees aged 41 or over.

The compensatory award is the lower of net income and benefit loss or a fixed amount altered annually.  (Other awards are also subject to minimum amounts.

The statutory caps on Employment Tribunal awards increase on 1 February 2009.  These apply to unfair dismissals effective from 1 February 2009.  Statutory redundancy payments for redundancies from 1 February 2009 also increase.

Compensation awards in discrimination or whistle-blowing dismissal claims remain uncapped.

The Consequences

For dismissals effective on or after 1 February 2009:

  • the cap on the compensatory award for unfair dismissal rises to £66,200;
  • the cap on the maximum amount of “a week’s pay” (used to calculate a statutory redundancy payment and the basic award for unfair dismissal) rises to £350; and
  • the minimum basic award for some automatically unfair dismissals (e.g. based on health and safety, working time or trade union membership) rises to £4,700.

The maximum compensatory award of £66,200 is inclusive of any percentage increase (of up to 50%) for an employer’s failure to follow the statutory dismissal procedure. 

The statutory dismissal and grievance procedures will be repealed on 6 April 2009 and replaced by an ACAS Code of Practice.  The maximum 50% award increase will then no longer apply but, instead, tribunals will be able to increase or reduce compensation awarded by up to 25% if (without good reason) this Code was not followed.  Redundancy dismissals will be excluded from the Code and the uplift, but will still require fair process.

The Solution

To avoid employment tribunal claims and the potential cost of an award of this increased compensation, businesses should:

  • adopt and follow fair dismissal, disciplinary and grievance procedures, until 6 April 2009 compliant with the statutory dismissal procedures and from 6 April 2009 adhering to the ACAS Code (where applicable) and/or to fair process;
  • adopt an equal opportunities policy to reduce the risk of liability in discrimination claims;
  • communicate such policies effectively to all staff, provide training in their operation and audit their fair operation;
  • train managers in conducting disciplinary and grievance procedures and in the new ACAS Code of Practice in readiness for the change in April 2009.

Other statutory changes on the horizon increasing staff cost from April 2009 …

  • The standard rates of statutory maternity, paternity and adoption pay rise from £117.18 to £123.06 per week for payment weeks starting on or after 5 April 2009.
  • The standard rate of statutory sick pay rises from £75.40 to £79.15 per week for payment weeks starting on or after 5 April 2009.
  • The minimum statutory holiday entitlement of 4.8 weeks (i.e. 24 days) will rise to 5.6 weeks on 1 April 2009 (i.e. 28 days).  This minimum includes bank holidays.


Information in this e-alert is a guide only. We recommend that you seek professional advice before taking or refraining from any action. No liability accepted by the firm for any action taken or not taken as a result of this publication.