Implications of Unfair Dismissal Law Changes

Unfair dismissal can be ruinous for those concerned, which is why a tribunal system exists in the UK to compensate people who have been unfairly sacked or made redundant. The government aims to ensure that workers’ rights are maintained to a relatively high standard, but it also wants to stimulate the economy by affording companies greater freedom to offload underperforming employees.

Recent changes to employment law are intended to benefit employers and employees equally, but do the measures go far enough? Are they even necessary? One point that government ministers have appeared to circumnavigate in their quest for a more productive workforce is that of entitlements for unfair dismissal, which have increased in 2012 as they have almost every year since 1999. How might this latest increase to unfair dismissal compensation affect companies, their staff and employment solicitors?

Employment Relations Act 1999 (ERA)

Section 34 of the ERA provides for various ways in which compensatory awards are calculated. Before the ERA came into force, the maximum entitlement for unfair dismissal (excluding cases involving discrimination) was set at £18,600, which included a £12,000 compensatory award and £6,600 basic award (30 weeks’ pay capped at £220 per week). Since the 25th October 1999, the award has risen in line with inflation.

Based on the Retail Price Index (RPI), compensatory awards have risen as follows: £12,000 to £50,000 (1999-2000); no change (2000-2001); £50,000-£51,700 (2001-2002); £51,700-£52,600 (2002-2003); £52,600-£53,500 (2003-2004); £53,500-£55,000 (2004-2005); £55,000-£56,800 (2005-2006); £56,800-£58,400 (2006-2007); £58,400-£60,600 (2007-2008); £60,600-£63,000 (2008-2009); £63,000-£66,200 (2009-2010); £66,200-£65,300 (2010-2011); and £65,300-£68,400 (2011-2012). The latest change has seen the compensatory award for 2012-2013 rise from £68,400 to £72,300.

Injury to Feelings

The case of Dunnachie and Kingston upon Hull City Council 2004 shaped the nature and composition of compensatory awards today. In the case, the Court of Appeal ruled that compensation can be awarded for injury to feelings caused by unfair dismissal. The court awarded Mr Dunnachie £123,328.28 in compensation on the basis that he had been constructively dismissed after being bullied by his employer. The figure of £123,328.28 was reduced to £51,700 in line with the statutory maximum.

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The significance of the Dunnachie case ought not to be underestimated because it potentially enables and perhaps even encourages unfair dismissal claimants to inflate their awards by including an element of injury to feelings. As the compensatory limit has increased to £72,300 (excluding the basic award), employers are at risk of being severely punished by emotionally injured claimants.

The problem is significantly worse in unfair dismissal cases involving discrimination (sexual, gender, age, religion, etc.), which could give rise to potentially unlimited claims for compensation. If claimants are able to seek unlimited damages, companies might be exposed to financial ruin, which would defeat the principal goal of the government to stimulate the economy.


Though employers are negatively affected by the compensatory award, it ought to be remembered that claimants who are awarded damages are the victims in cases of unfair dismissal, which can severely impact on claimants’ ability to make a living in the future. The compensatory award rises each year with inflation because that is the only fair measure by which damages can be set and it should be noted that compensation will not always reach the maximum.

Government ministers sought to improve conditions for employers by affording them greater freedom to dismiss underperforming workers. Rising levels of compensation, however, have not been addressed by the government, exposing many employers to financial risk. Unfairly dismissed workers, meanwhile, continue to enjoy the benefits of ever-increasing compensatory awards. Many would argue this is only fair in the circumstances.

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