Guide · Employment law

The unfair dismissal compensation cap goes in January 2027

The limit on what a tribunal can award for ordinary unfair dismissal is removed. Here is what the cap is today, what changes, and what a sales manager should do about it.

Today the compensatory award for ordinary unfair dismissal is capped at the lower of £123,543 or 52 weeks' gross pay. Under the Employment Rights Act 2025 the cap is removed for dismissals where the effective date of termination is on or after 1 January 2027. Awards are still based on the employee's actual loss.

Not legal advice. This page explains the cap as set out in the Employment Rights Act 2025, its commencement regulations (SI 2026/559) and law firm commentary. The dates and the cap figure were last checked on 27 October 2026. Confirm the detail with Acas or an employment solicitor before you act on a real case.

What the cap is today

The compensatory award for ordinary unfair dismissal is capped at the lower of £123,543 (the figure from 6 April 2026) and 52 weeks' gross pay. For anyone earning less than £123,543 a year, the limit is 52 weeks' pay. That is why, for most reps, the exposure today is about a year of earnings at most.

What changes

From 1 January 2027 both limits go. The rule turns on the effective date of termination (regulation 4 of SI 2026/559). A dismissal that takes effect before that date keeps the old cap. The qualifying period for a claim falls from two years to six months on the same date. Our guide to the January 2027 changes covers the whole picture, including a late-December caution.

Who feels it most

Law firms advising employers say the largest effect falls on high earners, on people who would lose share options or pension benefits, and on people in regulated sectors where a dismissal can end a career (Trowers & Hamlins, August 2026). On a sales floor, our reading is that the reps to think about first are the highest earners, where a year of pay is a lot more than the typical case. Compensation is based on loss of earnings and benefits, so how commission would count for a particular rep is a question for a solicitor.

What stays the same

  • Awards are based on actual loss. Not on a headline sum.
  • Awards can still be reduced. Where the employee contributed to the dismissal, failed to mitigate their loss, or would have been dismissed anyway after a fair process (the Polkey reduction).
  • The Acas Code uplift. A tribunal can adjust an award by up to 25% where either side unreasonably fails to follow the Code.
  • A dismissal can still be fair. The change affects what is paid when a claim succeeds, not whether it does.

Why the record matters more

With no cap, the cost of a lost case is harder to put a ceiling on. What reduces it is a fair process and a dated record of it: the target and the gap, the support given, and the rep's own view of whether it happened. Our capability procedure for sales managers sets out the steps, and the PIP template gives you the document.

Some advisers suggest that planned exits should take effect before 1 January 2027. Our view is that rushing an exit is no substitute for a fair process. A rushed exit with no record is the case that costs the most.

Common questions

What is the unfair dismissal compensation cap?
The upper limit on the compensatory award for ordinary unfair dismissal. At the moment it is the lower of £123,543 or 52 weeks' gross pay.
When is the compensation cap removed?
For dismissals where the effective date of termination is on or after 1 January 2027, under the Employment Rights Act 2025.
Does removing the cap mean awards are unlimited?
There is no longer a statutory ceiling on the compensatory award. Awards are still based on the employee's actual loss, and they can be reduced where the employee contributed to the dismissal, failed to mitigate their loss, or would have been dismissed anyway after a fair process.
Does the removal apply to dismissals before 1 January 2027?
No. Where the effective date of termination falls before that date, the old rules apply.
What can an employer do to reduce the risk?
Follow a fair process and keep a dated record of it. That means the target and the gap, the support given and the rep's own view of whether it happened. A tribunal can reduce an award where a fair process would have led to the same outcome.

Sources

Reviewed by: not yet reviewed by a solicitor. If you are an employment solicitor in Manchester and would like to review this page and be credited, get in touch through the book page.

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