From Tuesday 1 February 2011 employers who dismiss employees unfairly will face a larger penalty: the maximum compensatory award for unfair dismissal will increase to £68,400. The maximum statutory redundancy payment will also go up to £12,000.
Where an individual's effective date of termination is on or after 1 February 2011 the limit on the amount of the compensatory award they could recover if they were successful in bringing a claim for unfair dismissal in the employment tribunal increases from £65,300 to £68,400.
At the same time, the limit on a week's pay will increase from £380 to £400. This means that the basic award for unfair dismissal and the maximum statutory redundancy payment and will also increase from £11,400 to £12,000.
Statutory redundancy payments are calculated using a formula based on the employee's age, completed years of service and weekly wage.
The limit on guarantee payments, made when an employee is not provided with work throughout a day when they would normally be required to work; also increases from £21.20 to £22.20 on 1 February 2011.
Unusually, the maximum amount of the compensatory award for unfair dismissal actually decreased from £66,200 to £65,300 for the first time in 2010 due to a drop in the Retail Price Index. With this year's increase "normal service" has been resumed and once again it will become more expensive for employers where they get it wrong.
This is not the only anomaly of the volatile economic situation: the upper limit on a week's pay has stayed the same since October 2009, when the Government introduced a one-off increase from £350 to £380 in an attempt to provide additional support for those made redundant during the economic crisis.
Given the potential for significantly increased liability, employers should seek professional help at the earliest opportunity to ensure they are complying with legal requirements for dismissing employees: these can be complicated and seeking legal advice early can avoid greater costs in the long run.