When will the reduced cap on the compensatory award for unfair dismissal come into force?

by Laurie Anstis on July 8, 2013

Some time in July, the Unfair Dismissal (Variation of the Limit of Compensatory Award) Order 2013 will come into force.

This will reduce the cap on the compensatory award for unfair dismissal to the lower of £72,400 and 52 weeks’ pay for the employee in question.

Calculating a week’s pay isn’t always straightforward, but it’s easy to see that for someone on average earnings the cap will substantially decrease the limit on the compensatory award for unfair dismissal.

The new limit will apply where the “effective date of termination” is after the date when the Order comes into force (Art 4). Dismissals before then will continue to be subject to the old limit. That begs the question of when the Order will come into force.

We know it will be some time in July, because BIS said so in their indicative timetable – but unlike with the new tribunal rules and fees there is no definite date in July. It might be considered convenient to have the new Order come into force at the same time as the new tribunal rules and fees, but rules and particularly fees depend on when a claim is lodged, not when a dismissal takes effect – so there is no need for them necessarily to come into force at the same time.

According to the draft Order itself (Art 1) it will come into force the day after it is made. This seems to suggest it could come into effect very suddenly.

Since it is subject to the “affirmative procedure” it is not made unless and until it has been approved by resolution of each House of Parliament. As of today, the only reference I have been able to find to the order in the calendar of Parliamentary business is that it will be considered by the House of Lords Grand Committee on 15 July 2013 – so that narrows the window for its implementation to between 16  and 31 July. The House of Commons will have to approve the order before it enters recess on 18 July, but the House of Lords continues sitting until 30 July.

So sometime between 16 and 31 July the cap on compensation for unfair dismissal will be subject to substantial change – but no-one yet knows when.

It might be that there is sense in keeping the date obscure to minimise the opportunity for employers or employees to take advantage of the situation – but it is also likely to lead to some odd results.

It seems possible that an employer could send out a dismissal letter by second class post (or conversely an employee could send a resignation letter in the context of a constructive dismissal) with no way for them (or their advisors) to know that between sending the letter and it taking effect on receipt the compensatory award in respect of that dismissal would substantially decrease.

Does anyone have any further information on when the change is expected to come into force, or any insights into the Parliamentary procedure?

[Update 9 July 2013: The business timetable for the Commons General Committee now shows the Order as being discussed at 5pm today.]

[Update 12 July 2013: This written ministerial statement says that the reduced cap is intended to come into effect on 29 July.]