The Times, City AM and the Daily Mail quote Dan Pollard on government plans to remove the cap on unfair dismissal claims

Businesses could now face unlimited compensation for unfair dismissal claims following Labour's U-turn on ‘day one’ rights last week. The UK government agreed in November to drop its pledge of ‘day one’ rights in exchange for rights over six months, an amendment proposed by the Lords.

It has now been reported that Ministers also want to U-turn on the £118,000 compensation limit for unfair dismissal. Currently, workers can be awarded either their annual salary or up to £118,233, whichever is lower but reportedly, according to some government sources, most awards are far below the cap.

Commenting on the proposed changed, Dan Pollard, Partner in our Employment team, explains in The Times, City AM and the Daily Mail:

"Today’s development is frankly bonkers. One of the sensible features of the current scheme is the ability to “buy out” most unfair dismissal claims for £118,223 (or 12 months’ pay if lower). With the cap removed, employers will have no choice but to embark upon an extremely time-consuming and bureaucratic process.

"What could this mean in practice? One example is poorly performing bosses being able to hold employers to ransom. Unless introduced overnight it has the potential to create a bloodbath as employers seek to exit underperforming senior staff ahead of time. Today’s change would undoubtedly make the UK a significantly less attractive place to base staff within Europe.

"In general, given that the measure favours higher paid workers, it is not clear why either the unions or employers would think this a good idea. It may be that the government is “rolling the pitch” ahead of a significant hike to the current £118K limit.

Emily Chalkley, Partner in our Employment team, explains however that there may be one silver lining. She comments:

With the removal of the cap on unfair dismissal claims employees may be less inclined to bring spurious discrimination and whistleblowing claims to get round the statutory compensation cap.

Read Dan's comments in The Times (subscription required), City AM and the Daily Mail.