Working Theory

by Michael Reed


I do employment law for the Free Representation Unit.


michael at


Toss the cap

25 January 2013

In their response to the Ending the employment relationship consultation the government has announced that the intend to keep the current high cap (now at £72,300) and introduce an additional low cap of one year of the claimant’s earnings.

I have a couple of problems with this.

Capping compensation is just wrong

In general, UK law follows a simple approach to awarding damages to people who have been harmed by the unlawful action of others. It tries to award enough money to offset the damage done; no more and no less.1

This seems to me to be basically fair. People should not do unlawful things. If they do, and thereby harm other people, they should be responsible for the consequences.

I’ve never seen why employment should be different in this way, compared with something like driving a car or manufacturing a baby toy.

Dismissing people unfairly is, generally speaking, a low risk way of breaking the law. In general, it’s hard to cause a lot of financial loss. We can see this from the relatively low awards made by employment tribunals.2

It is quite possible, however, to cause someone a great deal of financial loss by dismissing them unfairly. For example, by dismissing them in such a way that they find it very difficult to get another job for some time, or by throwing them out of a generous pension scheme, or just because they were on a high salary to begin with.

Again, there doesn’t seem to me to be much difference between this and, say, trip and slip negligence. If you have a badly repaired, dangerous path, the chances are that no one will actually get hurt. If they do get hurt, it will probably be minor and cheap. But, you run the risk that someone will fall badly, get hurt badly and the subsequent personal injury claim may then be very expensive.

Employing people is a serious business and dismissing them unfairly is serious too.

Imagine you’ve been working as the senior bookkeeper for a medium-sized company for 20 years, earning £25k annually. You’re married, with a house (mortgaged) and both children in school. You’re lucky enough to have started on a final salary pension scheme, which you’re counting on for retirement. One of the managers at the firm embezzles a lot of money. You weren’t involved and weren’t to blame. Your manager doesn’t care. Without any investigation or consideration of two decades of service, he sacks you on the spot.

By any standards this is a major financial blow, from which you’ll probably never recover fully. It’s going to be very hard to get work as a bookkeeper again, regardless of the rights and wrongs of the situation. You’ll almost certainly never get another job with a similar pension scheme. You’re quickly going to be in trouble with your mortgage. If you’re lucky, you’ll be able to find a less well paid job fairly soon. But you’re in your late forties with few marketable skills beyond bookkeeping, which you probably can’t use, and the economy is pretty bad. So you’ll need to be lucky.

Taking into account a period of unemployment, reduced earnings for the remainder of your career and the loss of pension, your financial loss is going to be over £72,300. When you’ve done nothing wrong and your employer has, why should the financial burden fall on you?

Once the cap is reduced to a year’s earnings, you’ll be capped at £25k – which means you can’t recover anything like the amount of damage done to you. Again, it’s your employer who’s acted badly, but you’re the one who is going to have a harder retirement and risk losing your house.

If perceptions don’t match reality, why change reality?

The major justification for the introduction of a lower cap is that people’s perceptions of the value of tribunal awards are at odds with reality. I tend to agree that perceptions are adrift; many claimants and respondents seem to think awards are higher than they are.

But the idea that, if people are confused about the law, we should change it, seems insane.

If people don’t understand the current situation, how will changing it help? If we’ve established that their perceptions don’t match reality, why do we think that changing reality will change their perceptions?

If people have got the wrong idea about how much claimants are awarded in unfair dismissal claims, the way of dealing with that is with education, training and advice. Not by limiting people’s rights, in the dubious hope that there will be some sort of trickle down affect on their understanding of the law.

  1. This is a gross simplification and therefore terribly inaccurate, but I think it captures the general approach. 

  2. Employment Tribunal and EAT Statistics 

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