Within the forums of Senior Executives, there has been a quiet, uncomfortable truth: the more you earn, the less meaningful the concept of ‘unfair dismissal’ is for you. If someone is unfairly dismissed today, they can bring a claim in the Employment Tribunal but, absent discrimination, whistle-blowing or a small number of other exceptions, any compensatory award is capped at the lower of £123,543 or 52 weeks’ gross pay. For most people, that is a significant, but for a high earner it can represent only a few months salary and bonus. 

That is why employers frequently ‘buy out’ the unfair dismissal claim in C-Suite exits, by offering payment of the maximum compensation that can be awarded by an Employment Tribunal. It is this practice which means that those potential unfair dismissal claims never ‘see the light of day’; it is only the parties and the lawyers who deal with them who are aware of the frequency of such settlements; the truth is, they happen day in, day out. 

This is all about to change. 

From 1 January 2027, the statutory cap on compensatory awards for unfair dismissal is to be removed, and the qualifying period for bringing a claim is to be significantly shortened from 2 years to 6 months’. 

For the first time, Senior Executives will have meaningful protection against unfair dismissal and, crucially, meaningful compensation if that protection is breached.

It has been said repeatedly, including during the debates on the Employment Rights Bill, that the practical impact of this change will be modest: the median unfair dismissal award at the time the change was proposed was under £7,000. We disagree. The median unfair dismissal award tells you nothing about the amount that a Senior Executive loses when they are unfairly dismissed: whilst a claimant is under a duty to mitigate their losses by trying to find another role, for a Senior Executive, that process can easily take the better part of a year to 18 months. Every month of that search represents on going losses in terms of salary, pension, bonus, and vested/unvested deferred incentive awards and, as from 1 January 2027, an Employment Tribunal can compensate for all of those losses arising. The median award will inevitably rise. Employment Tribunals will also have to get comfortable with larger value claims in the unfair dismissal arena, and grapple with the challenge on valuing the loss of vested and unvested deferred incentive awards. 

Take a base salary of £350,000 and a bonus opportunity of up to 200%, as a starting point, and the theoretical value of an uncapped unfair dismissal claim, will, as from 01 January 2027, makes such claims very much worth litigating. This significantly shifts the ‘risk’ dial in favour of Senior Executives and raises the prospect of litigation where it once did not, in practice, exist.

The natural consequence of this change is that the C-suite will find itself under much greater performance scrutiny. Dismissals will have to be fair in substance, and fair in process, and that process, in most cases, means a PIP (performance improvement plan). Historically, senior dismissals for under performance have rarely involved a protracted performance improvement process and completing such a process fairly, is difficult: the C-suite is typically judged against qualitative measures like ‘leadership’ and ‘judgement’, and translating those into fair, defensible, SMART objectives which is properly documented, takes real experience and practice. 

You won't find any employment lawyers on holiday in the early part of next year and we predict that mediation is likely to become an increasing forum for resolution given the extraordinary delays in the listing of cases before the Employment Tribunals.