Cable to cap unfair dismissal payouts

  • 14 September 2012
  • From the section Business
  • comments
Media captionVince Cable: "Small companies want the confidence to hire, but we don't want fear in the workforce"

Business Secretary Vince Cable has proposed a cut in how much workers can claim for unfair dismissal at employment tribunals.

He will consult on plans to cut the limit on compensation payouts to a maximum of 12 months' salary.

He also wants to bring in settlement agreements, in which staff agree to leave without being able to go to a tribunal, but get a pay-off in return.

Proposals to make it easier simply to fire workers will not be made law.

The suggested changes come on top of others made in April, which limited unfair dismissal claims to workers who had been in a job for two years, rather than one as before.

'Reduced burden'

Mr Cable said: "Our starting point is that Britain already has very flexible labour markets.

"But we acknowledge that more can be done to help small companies by reducing the burden of employment tribunals, which we are reforming, and moving to less confrontational dispute resolutions through settlement agreements."

Sarah Veale from the TUC told the BBC that the proposals were still wrong.

"The clue is in the term 'unfair dismissal'," she said.

"If people have been unfairly dismissed, this means the employer has done something wrong and it's right that the tribunal should then decide what sort of compensation the person deserves," she said.

But John Walker, of the Federation of Small Businesses, welcomed the altered proposals.

"Too many small firms don't take on staff because they fear being taken to an employment tribunal," he said.

"Other firms fear facing an expensive and lengthy dismissal process," he added.

Media captionShadow Business Secretary, Chuka Umunna: Cable is 'watering down the rights at work'

The current limit on a tribunal claim for unfair dismissal is £72,300, but very few successful claimants are awarded sums anywhere near that.

The average successful claim leads to an award of £9,000, according to the Chartered Institute of Personnel and Development (CIPD).

"It is not clear how much of an impact the reduction in the limits to payouts for unfair dismissal will have," said Mike Emmott of the CIPD.

"Furthermore, employers need to be aware that this cap will not apply to claims brought against them in discrimination cases, where the cap on payouts is unlimited."

Settlement agreements

The original suggestion for a new "no-fault dismissal" regulation was controversial among Liberal Democrats.

Mr Cable himself opposed it, while the idea had the backing of many Conservative MPs and business groups such as the British Chambers of Commerce.

The recommendations were first made in a report, commissioned by Prime Minister David Cameron and compiled by venture capitalist Adrian Beecroft.

The Liberal Democrat minister said the government instead supports making it quicker and easier to dismiss staff by using a new settlement agreement.

This would act as an alternative to going to an employment tribunal, which can be costly and time-consuming, and, according to businesses, make bosses less inclined to hire new people.

The general secretary of the RMT union, Bob Crow, said: "Once again this is Vince Cable and the ConDem government siding with the bosses against the workers and sending out a message that rogue employers can fire staff unfairly in the knowledge that any compensation will be peanuts. "

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