Tribunal ruling boost for small businesses

The Law Lords overturned a previous ruling which allowed workers to claim damages from their firms for distress caused when they are forced out of their jobs.

Such ‘non-economic’ loss will now not be considered during unfair dismissal cases, potentially saving small firms thousands of pounds in compensation claims.

Although employers will still be liable to pay compensation in such cases, they will not have the additional cost of paying out for injury to feelings, which has traditionally been difficult to assess.

Awards for hurt feelings in previous cases have ranged from £500 to £25,000.

The ruling will be welcomed by businesses that are under increased threat of legal action by disgruntled employees.

Studies have shown that rising numbers of workers are prepared to lie to secure a large compensation pay-out, a scenario which dooms thousands of small firms every year.

Potential legal action has become a major concern for entrepreneurs, although many are risking insolvency by not using employers’ liability insurance, which is required by law and helps fend off various compensation claims.

Kimbra Green, of Croner Consulting law firm, said that the ruling clearly states that tribunals should only award damages for financial loss.

“This is actually good news for employers because until today the law was unclear as to whether the mental effects of bullying could be interpreted as recoverable in unfair dismissal cases.

“This also provides the much needed distinction that additional compensation for injury to feelings may only be awarded when the case involves discrimination by the employer.

“However, the House of Lords decision does not mean that employers can avoid tackling the issue of bullying in the workplace,” she said.