This proposal follows Labour’s shift in policy concerning “day-one” unfair dismissal protection, which would now only apply after six months of service, down from an initially proposed immediate entitlement. These developments have sparked both support from unions and reservations from business leaders, highlighting the ongoing tension between protecting workers and supporting employers in a competitive business environment.
A Major Overhaul of Compensation Limits
Currently, workers who are unfairly dismissed can claim compensation for lost earnings, with the amount capped at the lower of £118,233 or 52 weeks’ salary. However, under the latest proposal, the cap would be removed entirely, allowing workers to claim unlimited compensation for financial loss.
This is a significant change from the existing rules, which were set to prevent excessive compensation claims. Labour’s new stance is aimed at offering greater protection for employees, particularly those in senior roles or older workers who may face prolonged unemployment after being dismissed. According to Labour’s proposals, removing the cap would ensure that all employees, regardless of their previous earnings, can be fully compensated for the financial impact of unfair dismissal.
While unions have praised this move as a win for workers’ rights, business groups have voiced concerns about its potential consequences. High-earning workers, such as senior executives or professionals in industries like finance, could benefit the most from unlimited compensation. However, this could lead to more costly and complex legal battles for employers, especially in cases involving high-value claims.
Dan Pollard, a partner at law firm Charles Russell Speechlys, warned that such a move would make the UK less attractive for businesses seeking to base operations here. He described the proposal as “bonkers,” suggesting it would increase the legal risks and costs for employers, particularly in senior-level disputes.
Strain on Employment Tribunals and Business Practices
The potential removal of the compensation cap raises concerns about the strain it could place on the already overburdened employment tribunal system. Currently, tribunal cases can take up to two years to resolve, and if compensation claims increase in value, it could lead to longer wait times and greater complexity in handling cases.
According to Darren Newman, an employment law consultant, the focus of tribunals would shift from relatively straightforward claims to more complex, high-value cases. This could delay proceedings for other workers and increase the backlog of cases.
Furthermore, businesses may adopt more cautious approaches to dismissals in light of the potential financial risks. The fear of facing expensive legal battles could lead employers to spend more time ensuring they follow proper procedures before terminating employees. This could, in turn, result in employers opting for voluntary severance schemes to avoid the risks of costly tribunal claims.
Employers may also become more reluctant to hire employees who might later prove difficult to dismiss. The possibility of facing unlimited compensation claims could make businesses more risk-averse, particularly in industries where senior positions are more common. While the changes could be seen as a victory for workers, they may also lead to unintended consequences, such as fewer job opportunities or longer probationary periods.
As the Employment Rights Bill progresses through Parliament, the issue of unlimited compensation for unfair dismissal remains a key sticking point. While trade unions continue to push for stronger protections for workers, the business community is grappling with the potential costs of such significant changes.
