The sky’s the limit on unfair dismissal compensation

From 1st of January 2027 there will be no upper limit on the compensatory element of awards for unfair dismissal.

For dismissals up to that date there is a limit of the lower of one year’s gross pay or £123,543. Most awards are considerably lower than these upper limits. However, high paid employees treated unfairly and unable to find a role with similar pay are sometimes under-compensated.

Trade unions insisted on this concession in consultation with the Government over the passage of the Employment Rights Act 2025. The unions agreed to a 6 month qualifying period for unfair dismissal instead of a day 1 right. However, they held out for an end to the compensation cap.

There are currently no upper limits on compensation for dismissals because of whistle- blowing or discrimination. Sometimes high earners try to shoe-horn in a discrimination or whistle-blowing angle. This makes settlement negotiations tougher and tribunal claims more complicated.

The highest award for an employment tribunal claim in the UK was over £4.5 million in a disability discrimination case in 2024.

Could we see similar awards an unfair dismissal cases?

There are extra elements in discrimination cases such as injury to feelings/personal injury which can make for far higher awards on average. For example, in 2023/4 the average for unfair dismissal was £13,749 against £53,403 in sex and £102,891 in age discrimination cases.

However, imagine an executive director in their late 50s applying for an equivalent top role. The dismissal harms their reputation: this is an extra obstacle in getting their career back on track. Loss of earnings could quickly mount up while they search in vain for the new job.

The change will not have an impact in the vast majority of cases but for employers in highly paid sectors they will face a “double whammy” of unfair dismissal rights after 6 months and unlimited compensation if they get it wrong.