New restrictions on use of non-disclosure clauses in settlement agreements

From 6 April 2019, new increased compensation limits for employment tribunal claims will come into force. This means it will become more expensive for employers to make staff redundant or dismiss them for other reasons.What are the changes?

the limit on the amount of compensation which can be awarded in unfair dismissal cases will rise to £86,444 (up from £83,682)
the maximum statutory redundancy payment (and basic award for unfair dismissal) will rise to £15,750 (up from £15,240)
the maximum amount of a week’s pay (used for calculating various awards) will rise to £525 (up from £508)

Why are the figures changing?

Compensation limits are increased each year, in line with the retail price index (RTI) for the previous September. The Employment Rights (Increase of Limits) Order 2019 reflects the increase in the RTI of 3.3% from September 2017 to September 2018.

How is compensation calculated?

For statutory redundancy payments, a formula based on the claimant’s age, whole years of service and weekly pay (subject to the prevailing cap) is used to calculate the amount due. You are only entitled to a redundancy payment if you have been in the job for two years or more. The government has a redundancy calculator you can use to work out your entitlement.

Claimants who are successful in establishing they were unfairly dismissed will be entitled to a basic award and a compensatory award. The basic award is worked out in the same way as for statutory redundancy payments.

The compensatory award is intended to compensate the individual for the economic loss they have suffered as a result of the unfair dismissal. Note that only economic loss can be recovered, there are no awards for injury to feelings, as there are in discrimination claims. The compensatory award will cover loss to the date of the hearing and after. In calculating its compensatory award, the tribunal will consider how long it will reasonably take the individual to gain similarly paid employment.

It should be noted that while the very most an individual will be able to recover as a compensatory award from this April is capped at £86,444 (even if their losses are higher), this is also subject generally to a limit of 52 weeks’ actual pay if that is less than the statutory cap. What this means is that lower paid employees can only receive up to what they were earning before they were dismissed.

The cap applies to ordinary unfair dismissal claims. In some limited situations, such as where the dismissal was due to whistleblowing, the statutory cap on the compensatory award does not apply.

When will the new limit apply?The new limits apply where the “appropriate date” on or after 6 April 2019. The appropriate date varies according to the different types of claim but in most cases will be the effective date of termination.

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