Unfair Dismissal: The Compensation Cap will be gone as of 1 January 2027

As of 1 January 2027, the statutory cap of on compensation awards for ordinary unfair dismissal claims will be completely removed. This is another change bought about by the Employment Rights Act 2025.

Currently, the compensation for ordinary unfair dismissal claims is strictly limited to the lower of 52 weeks gross' salary or a statutory cash limit of £123,543. From 2027, this ceiling will disappear entirely.

The removal of this cap coincides with another major reform – the qualify period required to bring an ordinary unfair dismissal claim is being slashed from 2 years down to just 6 months.  

As an employer, what do this mean for you?

1. Massive Financial Exposure: Employers can no longer calculate a worst-case scenario financial risk based on a fixed cap. If a high-earning executive is unfairly dismissed and cannot find comparable work, a tribunal can award career-long projected losses stretching into millions.
2. Harder Disputes to Settle: Out-of-court settlements and exit packages will become significantly more expensive and complex to negotiate, as departing employees hold much higher leverage.

Immediate Next Steps for Businesses

With these changes taking effect on 1 January 2027, HR departments and business leaders are being urged to audit their frameworks immediately, and consider the following:

• Shortening standard probationary periods to 3-4 months to assess new hires before they hit the critical 6-months threshold; and
• Implementing rigorous documentation and manager training to ensure absolute procedural fairness

Contact us

If you need advice regarding this, or any other Employment Law matter, please do not hesitate to contact a member of our Employment Law Team or make an enquiry here.