Business lobby did not agree to scrapping compensation limit

A week is a long time when it comes to the Employment Rights Bill. Rob Moss rounds up 'What just happened?' -  after the government tabled an amendment to scrap the compensation limits for unfair dismissal.

Until Thursday last week, the Employment Rights Bill looked destined to continue to ping to the House of Lords only to pong back to the Commons, risking that the Bill would never become the Employment Rights Act, at least not in 2025.

But has a deal been done? It appears so. The Employment Rights Bill returns to the Commons on Monday 8 December and then, unusually, it is back in the Lords just two days later, suggesting that peers may be ready to nod it through. The drawn-out table tennis match between the two houses thus far has typically involved a two-week gap between each ping and pong.

Business ministers decided to break the impasse by holding talks with trade unions and six business associations: the CIPD, CBI, REC, BCC, FSB and Small Business Britain.

Then came the announcement that the proposed day-one rights on unfair dismissal had been ditched, along with any associated "initial period of employment" or statutory probationary period. Instead, the qualifying period for protection from unfair dismissal would start after six months in a job. Simple.

The business groups appeared happy(ish). Sources suggested to Personnel Today that the deadlock in the Lords could be broken if the business lobby were on board with the change, and now they were.

But then came the sting in the tail. The government press release said: "To further strengthen these protections, the government has committed to ensure that the unfair dismissal qualifying period can only be varied by primary legislation and that the compensation cap will be lifted." 

The compensation cap lifted? What did that last bit mean? It could mean abolished, or it could mean increased. And which cap were the government referring to? There are two compensation limits, and tribunals apply whichever is lower of £118k, or 52 weeks' pay.

This morning, tabling its amendments to the Employment Rights Bill, the government has made clear it intends to scrap both the limits, the cash limit and the 52-week limit.

Some employment lawyers have described the decision as "bonkers" and the implication, particularly for high earners, is that dismissals will be more complex and potentially more expensive for employers.

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), was one of the people on the employers' side of the meeting with ministers and union representatives.

Speaking to Personnel Today, he said there was consensus on the employers' side of the room.

"On our side, we were very clear that the 52-week limit would have to go. On the cash limit, we anticipated a conversation to follow, rather than a swift move to get rid, and as you can see from the legal side, there are complexities to just getting rid."

He added: "But I do think that, ultimately, the big win here is the six-month qualifying period.

"We hope that the Bill proceeds, because we want the six-month qualifying period. But let's be clear, no business organisation is a fan of the wider Bill."

It is still possible for peers to vote against the amendment, which remains problematic for some.

Kate Shoesmith, director of policy and insights at the British Chambers of Commerce (BCC), said: "Reviewing the cap system, to ensure it is fit for purpose in today's employment landscape, is a sensible move. However, removing the cap entirely would be hugely damaging.

"Having caps ensures everyone, employers and employees alike, have clear parameters and can plan accordingly. Removing payout limits would disincentivise resolving disputes early. It would also pile more pressure on an already stretched tribunal system."

'Price in' the cost

Mike Clancy, general secretary of the Prospect trade union, said: "Lifting the cap on compensation was a critical trade union negotiating objective in the agreement on unfair dismissal reached with business last week, which is now reflected in these amendments.

"To claim this compensation, a worker must show real losses, and the vast majority of claims come nowhere near to these caps.

"However, the caps have allowed some employers to 'price in' the cost of claims when deciding to fire people, and lifting them is an essential part of deterring unfair practices.

"Unions and business groups are clear that the deadlock must now end and parliament should now pass this amended Bill into law before Christmas."

But employment law consultant Darren Newman, speaking to Personnel Today, described the idea that abolishing the caps is acceptable because unfair dismissal awards rarely reach either of the two limits as a "complete red herring".

"Imagine a scenario where you're about to sack a hedge fund manager who earns £500k a year. You're never going to get an unfair dismissal under the current law. What you do is just give him £120k. You never get to a point where the tribunal is going to award compensation.

"Tribunals rarely award compensation. Most of the cases will settle. Most of the cases where there's a finding in tribunal will settle."

He continued: "What they're not taking into account is all the very highly paid people who get dismissed with no regard to fairness at all, because the employer is already bunging them £100k.

"As soon as you take [the compensatory cap] away, then suddenly an employer has got to be very careful about sacking its chief executive, because its chief executive can now go to the employment tribunal and claim unfair dismissal."

Consultation?

Could the government launch a consultation on scrapping the compensation limit? Consultations were, after all, held in 1999 and 2013 when the limit was altered by previous governments.

Newman said: "If the Bill gets through, there's nothing to consult. This is a straightforward abolition of a compensation limit. There's nothing to have a consultation about."

As the Employment Rights Bill continues its journey next week, we will learn whether a deal has been done. Peers could still stand firm on other measures, such as guaranteed hours for workers on zero-hours contracts.

But it appears that, with unfair dismissal apparently sorted, even with the abolishing of compensatory caps, the Bill may receive Royal Assent before Christmas.

Caspar Glyn KC, chair of the Employment Lawyers' Association, said: "The changes, if they become law, will in our view, predominantly affect those who are highly paid. The risks for employers and the jeopardy involved in getting it wrong have increased."