From 1 January 2027, there will be no ceiling on unfair dismissal compensation. The statutory cap, the single figure that has limited what an employer could be ordered to pay, disappears entirely. This is confirmed in primary legislation, not a proposal still working its way through consultation.
For most claims, this changes less than the headline suggests. The median unfair dismissal award in 2023/24 was £6,746, and most disputes never approach anywhere near the current cap. But for the claims that do, the ones involving senior salaries, long service, or serious procedural failure, removing the ceiling changes the exposure from “large but bounded” to genuinely open-ended.
This piece covers what’s actually changing, what uncapped compensation looks like in practice using real tribunal awards, and why the ROI case for preparing now, rather than waiting until 2027, is stronger than it might first appear.
Explore: Employment Rights Act 2025: A Complete Guide for HR & Managers
What’s Actually Changing
The current cap on the unfair dismissal compensatory award is £123,543, or 52 weeks’ gross pay, whichever is lower, effective from 6 April 2026. This was the last time this figure will ever be increased. From 1 January 2027, the cap is removed entirely rather than raised again.
It’s worth being precise about what “removed” actually means here. Unfair dismissal compensation has two separate components:
- Basic award — remains capped, calculated from the statutory week’s-pay limit (£751 from April 2026), maximum £22,530. Unaffected by this change.
- Compensatory award — the part that reflects actual financial loss. This is the part that loses its ceiling entirely from 1 January 2027.
A tribunal will still calculate the basic award the same way it always has. What changes is the second, usually larger, figure.
Timing matters here too. The change applies based on the date of dismissal, not the date a claim is eventually heard. A dismissal that takes place on or after 1 January 2027 falls under the uncapped regime, regardless of how long the case takes to reach a tribunal afterward.
Explore: ERA Timeline 2026-2027
What Uncapped Compensation Actually Means in Practice
Most unfair dismissal claims are nowhere near the current cap, let alone likely to test an uncapped one. Government figures for 2023/24 show the median unfair dismissal award was just £6,746, with an average of £14,000. That year’s highest award, at £179,000, already exceeded what would have been the ordinary cap at the time, because it fell into one of the existing exceptions where the cap doesn’t apply.
Those exceptions are exactly where the preview of an uncapped world already exists. Whistleblowing and health and safety-related dismissals have never been subject to the compensatory cap, and two real cases show what that looks like at the extreme end:
- Michalak v Mid Yorkshire Hospitals NHS Trust (2011): £4.5 million awarded, driven largely by forecasted loss of future earnings and pension, following unfair dismissal and sex and race discrimination findings
- Barrow v Kellogg Brown & Root (2021): £2,567,831.97 awarded after 36 years’ service, following a successful unfair dismissal claim alongside findings of disability-related harassment and unfavourable treatment
Neither case is typical. Both involved long service, senior roles, and serious findings against the employer. But that’s precisely the point: from 1 January 2027, an ordinary unfair dismissal claim with those same features is no longer bounded by a fixed ceiling. It sits in the same uncapped territory that whistleblowing and discrimination claims already occupy.
Why This Is Happening
The cap’s removal sits inside the same policy logic as the rest of the Employment Rights Act 2025: a lower cap was seen as reducing the deterrent effect for employers who dismiss unfairly, since even a poor process could be priced in as a bounded, predictable cost. Removing the ceiling ties compensation more closely to actual financial loss, bringing ordinary unfair dismissal in line with how discrimination and whistleblowing claims have worked for years.
It isn’t an isolated change. It lands on the same date as the reduction in the qualifying period for unfair dismissal protection, from two years to six months, meaning more employees gain protection at the same moment the potential cost of getting a dismissal wrong stops having a ceiling.
The ROI Case for Training Now
Two changes landing on the same date compound each other:
- Qualifying period drops from two years to six months’ service
- The compensation ceiling disappears entirely
Together, that means more dismissals fall within scope, and each one carries genuinely open-ended exposure if it goes wrong.
The timing risk is easy to underestimate. Because the uncapped regime applies based on the date of dismissal, not the date a claim is heard, a poorly handled dismissal at the end of 2026 is still protected by the current cap. But any dismissal from 1 January 2027 onward carries the new exposure regardless of when the resulting claim actually reaches a tribunal, which could be a year or more later. Waiting until the new rules are already in force to review dismissal practices means the organisation is learning the new risk in real time, on a live case, rather than beforehand.
Set against that risk, the cost of preparing now is modest. Michalak and Barrow are extreme examples, but they illustrate the ceiling that’s disappearing: a single senior, long-service dismissal handled badly could reach seven figures once there’s no cap to limit it. Manager training on fair process, clear documentation standards, and a proper review step before any dismissal decision is finalised costs a fraction of that, and it addresses the same failure points, unclear reasoning, inadequate investigation, no genuine consideration of alternatives, that show up across almost every large award on record.
What HR Should Be Doing Now
None of the following requires waiting for January 2027 to begin.
- Audit current dismissal processes. Check that every dismissal follows a documented, consistent procedure, genuine investigation, a real opportunity for the employee to respond, and a decision-maker who wasn’t already committed to the outcome before the process started.
- Review documentation standards. The cases that produce the largest awards tend to share a common thread: poor or missing documentation that made it harder for the employer to show a fair process was actually followed. Tightening this now costs little and matters more once compensation is uncapped.
- Prioritise manager training on fair process. Managers who make or influence dismissal decisions need to understand not just what the rules are, but why procedural fairness now carries materially higher financial stakes than it did even a year ago.
- Flag borderline dismissals for legal review now. Any dismissal currently in progress or under consideration that looks procedurally weak is worth a second look before it happens, not after a claim is lodged.
How Avado Can Help
Getting a dismissal wrong has always been costly. From 2027, it can be costly without limit. Avado’s HR Compliance for Managers course, presented by employment law specialist Amanda Chadwick, builds the fair-process judgement that prevents dismissals from becoming disputes in the first place, covering disciplinary and grievance essentials alongside the wider legal landscape managers now operate in.
Explore HR Compliance for Managers and make sure every dismissal decision can withstand scrutiny before the cap disappears!
