The UK Employment Rights Act 2025 (ERA 2025) fundamentally reshapes the law around unfair dismissal, potentially radically changing employers’ risks. According to the Government’s plan for implementation, from January 1, 2027, employees will need just six months’ continuous service to acquire protection from ordinary unfair dismissal, and the compensatory award element for ordinary unfair dismissal will become uncapped. Given the importance of this topic, we are doing a deep dive into the impacts and potential strategies to manage risk. This month, we hone in on the removal of the cap for the compensatory award element of unfair dismissal and in particular examine how Polkey deductions could mitigate financial risks arising from unfair dismissal claims.
Removal of the Cap on Compensation Awards for Unfair Dismissal
In most cases, there are two elements of compensation that may be payable to an employee who successfully claims for unfair dismissal:
The ERA 2025 will remove both elements of the statutory cap on the compensatory award. The basic award will remain unchanged.
The consequences of the removal of the cap for the compensatory award are significant,...
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