Employers of people on high salaries are becoming increasingly vulnerable to costly employment tribunal claims in advance of the current cap on compensatory awards for unfair dismissal being lifted.
New figures have revealed that about 840,000 PAYE taxpayers now earn more than the current maximum compensation available for unfair dismissal.
Analysis of HMRC data by TWM Solicitors shows that 840,000 people earned more than 123,543 in the 2025/26 tax year – the current cap on compensatory awards for unfair dismissal. From January 2027, however, the cap is due to be removed under the Employment Rights Act 2025, significantly increasing the financial exposure for employers.
Until then, compensatory awards are limited to the lower of one year’s gross salary or 123,543, meaning highly paid employees have less financial incentive to pursue unfair dismissal claims. Once the limit is abolished, employers could face substantially larger claims from senior executives and other high earners.
Anthony Wilcox, partner in the employment law team at TWM Solicitors, said: “Removing the compensation cap is likely to dramatically increase employers’ exposure to high-value employment tribunal claims. They could be faced with some exceptionally large claims from senior employees who earn well above the current limit.”
He added: “This is going to be particularly problematic for employers in financial services and the tech sector where remuneration can be very high.”
Wilcox warned that the...
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