The statutory cap on unfair dismissal compensation, currently set at £118,223 or one year’s salary (whichever is lower), often fails to deliver justice for high earners. In most areas of law, damages reflect actual loss. Yet senior executives face an arbitrary ceiling on redress, regardless of how egregious the dismissal or how significant the financial impact.
£118,000 may sound substantial, but for professionals earning £250,000 or more plus bonuses, it rarely amounts to more than a few months of income. Senior roles are scarce and highly competitive, with a typical search taking six to nine months from first conversation to offer. Add substantial fixed outgoings such as mortgages and school fees, and the financial shock of an unfair dismissal can be immediate and severe.
With limited options under current law, claimants may feel compelled either to accept a low settlement or pursue more complex claims, such as discrimination, because these are uncapped. While discrimination concerns can arise when there is an unfair dismissed, it is not a desirable route – the legal threshold is high, the process emotionally draining, and the litigation costly for both sides. What should be a relatively straightforward discussion about process and compensation often escalates into a lengthy dispute with unnecessary acrimony.
In my opinion, removing the compensation cap would not result in claimants waiting at home for their day in court. Senior executives are typically motivated, pragmatic individuals with reasonable expectations who want to move on quickly: they seek a lump sum that reflects their genuine loss, nothing more. Tribunals only award compensation on a “just and equitable” basis, meaning claimants must prove their losses. If they secure a comparable role swiftly, the award will reflect that. Eliminating the cap would not lead to inflated payouts; it simply aligns the system with economic reality.
Nor would lifting the cap open the floodgates. The Employment Tribunal system is already under strain. Removing the limit could ease this pressure – tribunals could determine liability first and list a remedy hearing later, a process that tends to encourage early settlement. More importantly, it would reduce the incentive to pursue discrimination claims purely to access uncapped compensation. In practice, fairer compensation rules would likely result in fewer, not more claims being brought.
Most cases settle, but settlements are shaped by what a tribunal might award. At present, the benchmark is too low to reflect the true losses of senior executives. Reforming the cap would allow the law to function with greater honesty, efficiency and proportionality. It would encourage employers to follow fair processes, support realistic compensation for employees, and reduce unnecessary litigation.
The Employment Rights Bill has recently faced significant scrutiny in the House of Lords, including debate over proposals to scrap the “one-year salary” rule or remove the cap entirely. Ending the cap has long been advocated by unions, but its real beneficiaries would be high-earning executives dismissed unfairly. If the Government is serious about workplace justice, it must ensure that the unfair dismissal cap is removed.
Author: Nicola Welchman – Partner