Soundbite: Government Plans Removal of Unfair Dismissal Compensation Cap

Soundbite: Government Plans Removal of Unfair Dismissal Compensation Cap

 

Last week, it was announced that the UK government plans to abolish the cap on unfair dismissal compensation, currently limited to the lower of 52 weeks’ pay or £118,223. The basic award will remain capped.

 

If enacted, employees who succeed in unfair dismissal claims will be entitled to full proven financial losses, with no upper limit.

 

This follows the government’s U-turn on its plan to introduce day-one unfair dismissal rights, instead reducing the qualifying period from two years to six months, as detailed in our previous Soundbite.

 

The six-month qualifying period is expected to take effect from 1 January 2027. However, the timing of the cap removal has not yet been confirmed and remains subject to parliamentary approval.

 

This change will lead to higher financial exposure for employers, and employers will no longer be able to rely on the cap as a benchmark for settlement negotiations. Compensation will instead be fact-driven and open-ended. It is therefore essential that employers have fair and robust processes in place to mitigate the risk of unfair dismissal claims.

 

If you need advice on how the changes could impact your business, please get in touch with a member of the team.