The Government has today published its response to its 'Ending the employment relationship' consultation (summarised here). 

The key announcement relates to the cap on the compensatory award for unfair dismissal, currently £72,300 (and due to increase to £74,200 from 1 Feb 2013). 

The Enterprise & Regulatory Reform Bill includes a provision enabling the cap to be set at (i) a specified amount between one and three times’ median annual earnings (currently £26,200 to £78,600) or (ii) a specific number, not less than 52, multiplied by the individual’s weekly pay  or (iii) the lower of the these two amounts. 

The Government has now confirmed that it will adopt option (iii), imposing a cap of 12 months' pay subject to an overall cap to be left at its present level for the time being.  It intends to use the standard statutory definition of week’s pay, which excludes pension and benefits in kind (but without the statutory weekly pay cap of £430).  The plan is to bring this change into effect in summer 2013.

The Bill also includes provisions introducing the concept of protected settlement discussions.  In relation to these, the response confirms that a statutory code to be written by Acas will include an explanation of the 'improper behaviour' test which is to govern the admissibility of settlement discussions at tribunal (where there has been such behaviour, the new protection from admissibility in ordinary unfair dismissal claims will be lost).  

The Code will also include template settlement letters, although they will not be compulsory.  A model settlement agreement will be included in guidance, but employees will still need to obtain independent legal advice on a settlement agreement. The idea of setting a guideline tariff for compensation has been dropped, but guidance will be given on the factors to be taken into account when negotiating a financial settlement. 

The Government is working towards the amended legislation, statutory code and accompanying guidance being in place by summer 2013.