On 1 January 2027, a number that has quietly shaped every dismissal negotiation in England, Scotland and Wales for decades will cease to exist. The compensatory award cap for ordinary unfair dismissal, fixed under Employment Rights Act 1996 s.124 at the lower of £123,543 or 52 weeks' gross pay, will be removed by the Employment Rights Act 2025. An employment tribunal will, from that date, be able to award whatever it determines genuinely reflects a claimant's actual financial loss, with no ceiling.

That single change lands alongside two others that arrive on the same date or close to it: the qualifying period for unfair dismissal falls from two years to six months under an amendment to ERA 1996 s.108, and the time limit for bringing most tribunal claims is anticipated to extend from three months to six months from around 1 October 2026. Taken together, the three reforms alter the economics of dismissal for both parties more profoundly than any single legislative package since the Employment Relations Act 1999.

Whether you are an employee assessing what you can now realistically claim, or an HR professional working through what your organisation's exposure actually looks like, the analysis runs differently. The sections below address each in turn.

What actually changes on 1 January 2027

Three reforms compound each other, and it is the combination, not any single element, that matters:

• The compensatory award cap is removed. Under ERA 1996 s.124 as it currently stands, the cap rose from £118,223 to £123,543 on 6 April 2026, with the weekly pay cap moving from £719 to £751. Both figures disappear for compensatory awards in ordinary unfair dismissal cases from 1 January 2027. The basic award, calculated by reference to age, length of service and weekly pay, remains separately capped, but the compensatory element, which is where large losses live, will be uncapped.
• The qualifying period drops from two years to six months. ERA 1996 s.108 currently requires two years of continuous employment before an employee can bring an ordinary unfair dismissal claim. The Employment Rights Act 2025 reduces that threshold to six months, a point most workers reach before their first formal performance review. This dramatically widens the pool of potential claimants.
• The tribunal time limit is expected to double. From an anticipated 1 October 2026, the window to bring most tribunal claims is expected to extend from three months to six months. Claimants will have more time to obtain legal advice, compile evidence, and make an informed decision on whether to proceed.

The key point on awards is that tribunals still calculate based on actual loss, not on what the cap once permitted. But for a senior employee earning £180,000 a year who takes eighteen months to find comparable work, actual loss has always comfortably exceeded £123,543. Until now, the cap absorbed that gap. From 2027, it sits on the employer's balance sheet instead.

For employees: what the uncapped regime means in practice

The honest assessment is that the reform gives employees considerably more leverage in dismissal situations, particularly where the loss is genuine and large. It does not, however, convert every dismissal into a high-value claim.

Two groups see the most material change.

The first is higher earners. Under the current cap, a senior professional on £150,000 dismissed without a fair process could see their actual loss acknowledged by the tribunal but then truncated at £123,543. From 2027, if the tribunal accepts the loss figure, the award can match it. Employment practitioners have already begun flagging that settlement discussions for board-level or director-grade exits will shift: the counterfactual is no longer a capped award, it is a realistic projection of how long re-employment at a comparable level takes in that specific sector and region. That can be a significant number.

The second group is employees in their first two years of service. Anyone with between six months and two years of continuous employment, who previously had virtually no route to an ordinary unfair dismissal claim, gains full access to the tribunal from January 2027. For many of these workers, the protection change is more transformative than the uncapped award, because their losses, while real, are likely to be shorter in duration.

ACAS (Advisory, Conciliation and Arbitration Service) guidance on its Code of Practice on Disciplinary and Grievance Procedures already sets out what a fair process looks like; the reform does not change that standard, but it does raise the cost of departing from it. If you find yourself in a dismissal situation from 2027 onward, the following steps are worth considering:

• Ask for the reason for dismissal in writing, clearly and in full, not a verbal summary. ERA 1996 s.92 already gives qualifying employees the statutory right to a written statement of reasons; from 2027, anyone with six months of service can request this.
• Check whether the ACAS Code of Practice was followed: was there a documented investigation, a chance to put your case, and a right of appeal? A dismissal can be substantively justified on the facts and still be procedurally unfair, and procedural unfairness attracts a compensatory uplift of up to 25 per cent under Employment Tribunals (Constitution and Rules of Procedure) Regulations 2013.
• Keep a contemporaneous record of your total remuneration, including base salary, bonus entitlements, pension contributions, and any share-based awards. If loss is the number that matters in a settlement, this documentation is the foundation for a defensible figure.
• Take advice sooner rather than later. The anticipated extension of the time limit to six months from October 2026 gives more runway, but early advice from a specialist employment solicitor or a union representative, if you have access to Prospect or another recognised union, changes the quality of any negotiation, not just its timing.

One principle that does not change: compensation tracks actual loss. Landing a comparable role within a month produces a very different award from remaining unemployed for a year. The removal of the ceiling matters most where the loss is genuinely large, or where the employer calculates that settling before tribunal is cheaper than running the risk of a full hearing.

Knowing what your role commands in the current market is the practical foundation for any settlement discussion. A verified salary benchmark gives you an independent reference point to assess whether an opening offer is realistic or designed to be accepted before you consult anyone.

For HR and employers: five workstreams before the cap goes

The reform creates a two-track problem that HR and legal teams have started modelling. First, settlement discussions become materially more expensive: the employee's solicitor can now point to a plausible uncapped award rather than a statutory ceiling. Second, those discussions become more time-consuming, because establishing what a realistic loss figure looks like for a specific role, salary band, and labour market takes more work than pointing to a legislative number. Both effects compound when the claimant population widens as the qualifying period falls.

The CIPD (Chartered Institute of Personnel and Development), whose annual Reward Management Survey tracks variable-pay and severance practices across UK organisations, has consistently found that smaller employers carry less structured disciplinary and capability documentation than larger ones. The risk profile those employers carry from January 2027 is therefore different in kind, not just degree, compared with organisations that already run tribunal-ready processes.

Five workstreams are worth addressing on a pre-January 2027 timeline.

1. Audit dismissal procedure end to end

Procedural unfairness generates the majority of successful tribunal claims. Under the current cap, an inadequate investigation carries a bounded financial cost. From 2027, the same inadequate investigation attaches to a senior salary with no ceiling on the compensatory element. Every stage, from the first documented performance concern through to the outcome letter and appeal decision, needs to withstand tribunal scrutiny. ACAS Code compliance is the minimum standard; the question is whether your operational reality matches it.

2. Recalibrate how probation is managed

The two-year qualifying buffer disappears. If your organisation has historically relied on the eighteen to twenty-four month window to make exit decisions with limited claim exposure, that window contracts to six months. Probation reviews need to become genuine decision points supported by documented evidence and clear communication. A form completed at month five without substantive performance records does not constitute a fair process.

3. Rebuild the settlement framework

The previous approach of pitching a settlement at or slightly above the statutory cap no longer neutralises the claim. Legal advisers are already working through scenarios where a clean exit for a senior employee involves notice pay, a severance element sized against realistic uncapped exposure, and a settlement agreement that deals with all live claims. Arriving at that number requires a framework grounded in market salary data and a clear-eyed view of the evidence base, not a rule of thumb inherited from the capped era.

4. Train managers who run dismissal meetings

The individuals conducting disciplinary hearings and dismissal conversations are the people creating the tribunal record. Managers need to understand that following a fair procedure is the primary mechanism for controlling exposure, not an HR administration requirement. From January 2027, the cost of a poorly conducted hearing is no longer capped, so investment in training and briefing before the change arrives is materially more valuable than remediation after it.

5. Review employment practices liability insurance and provisioning

Employment practices liability cover has historically been priced against a capped worst-case outcome. Renewals from mid-2026 onward need to reflect a different tail risk, particularly for organisations with a significant senior population. Finance directors and HR directors should be modelling the provisioning implications together, rather than treating this as a purely legal question.

Personnel Today is running a dedicated webinar on 14 July 2026 to walk HR teams and employment lawyers through the practical implications of the new regime. Industry preparation guides have been published throughout the first half of 2026. With the runway to 1 January 2027 now under six months, organisations that have not yet started the audit above face a tighter timeline than the calendar suggests.

The broader shift the number represents

The removal of the compensatory award cap has been characterised by employment law practitioners as the most significant structural change to UK unfair dismissal law in a generation. The substantive legal test that the tribunal applies, whether the dismissal was fair for a valid reason, conducted by a fair procedure, and within the band of reasonable responses, is unchanged. What the Employment Rights Act 2025 alters is the financial consequence of failing that test.

For employees, the consequence becoming proportionate to actual loss is what converts a theoretical right into a claim with genuine deterrent weight. For employers, the same shift converts dismissal procedure from a compliance checklist into a strategic risk control. The two readings are not in tension with each other; they describe the same change from opposite sides of the table. Reading it from both sides, before January 2027, is the more useful exercise than treating it as someone else's problem.