Upcoming reforms could lead to much larger tribunal awards, experts warn, with 840,000 employees already earning above the current limit
1 July 2026
Employers are being reminded of the need for watertight dismissal and redundancy procedures, with research finding that the removal of the unfair dismissal compensation cap under the Employment Rights Act could result in higher tribunal payouts for some employers.
Around 840,000 PAYE taxpayers earned more than the current unfair dismissal compensation cap of 123,543 in 2025-26, according to analysis of HMRC data by employment law firm TWM Solicitors.
From January 2027, that limit will be removed while employees will also gain the right to claim unfair dismissal after six months’ service instead of the current two years.
Employment Rights Act reforms in 2026
Managing the end of the two-year unfair dismissal rule: guidance for employers
How to avoid unfair dismissal claims
Sally Sellwood, the CIPD’s employment law consultant, said the changes were being applied retrospectively, meaning that anyone with six months or more service at the beginning of January next year will be immediately eligible to claim unfair dismissal.
“Employers can’t afford to wait until 1 January to ensure their policies and processes on recruitment, induction, probation periods and performance management are updated to reflect these changes, they need to be taking action now,” she advised.
Anthony Wilcox, partner in the employment team at TWM Solicitors,...
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