Key takeaways
| Point | What it means |
|---|---|
| The cap may change | Section 124 of the Employment Rights Act 1996 currently limits the compensatory award in most unfair dismissal claims. Proposed reform could remove or alter that limit. |
| Loss still needs proof | Removing a cap would not create an automatic payment. A claimant must prove loss and take reasonable steps to reduce it. |
| Procedure matters | A fair reason and a fair process remain central. The ACAS Code may affect the outcome and compensation. |
| The basic award is separate | Section 119 of the Employment Rights Act 1996 sets out the usual calculation based on age, weekly pay and service. |
| Deadlines remain short | Most tribunal claims must start within three months less one day, subject to ACAS Early Conciliation. |
What is the removal of the unfair dismissal cap?
The current legal position
The removal of the unfair dismissal cap could become an important change in UK employment law. At present, section 124 of the Employment Rights Act 1996 limits the compensatory award for most unfair dismissal claims to the statutory maximum or 52 weeks’ pay, whichever is lower. The statutory figure can change each year.
This limit does not apply to every possible claim. Some dismissals linked to whistleblowing, health and safety, trade union activities or discrimination can fall outside the ordinary cap. The legal basis of a claim therefore matters from the beginning.
A proposal to remove the cap would not mean that every dismissed worker receives a large award. A tribunal would still examine the reason for dismissal, the process followed and the losses caused. A claimant must establish that the dismissal was unfair and show the financial effect.
The source material focuses on private capital managers, but the wider lesson applies to many employers. Businesses may need to review dismissal procedures, senior employee contracts, settlement practices and records showing how decisions were made.
Employees should obtain advice before accepting a settlement or signing a waiver. Wolf Law’s employment law team can discuss your circumstances and explain the options available.
How could compensation change?
Loss, mitigation and the tribunal award
The compensatory award aims to reflect the financial loss caused by an unfair dismissal. It can include lost earnings and, in suitable cases, other proven losses. The claimant must provide evidence rather than rely on a general estimate.
A tribunal will consider what happened after dismissal. Did the claimant look for other work? Did they turn down suitable employment without a good reason? Did they receive income from a new job or benefits? These questions can reduce an award even where the dismissal was unfair.
Removal of the cap would change the ceiling, not the basic legal test. A senior worker with substantial proven losses might face a different calculation from a worker who quickly finds comparable employment. Length of service, pay, age and the availability of suitable work may all affect the evidence.
The basic award is different. It normally follows a statutory formula based on age, weekly pay and completed years of service. Section 119 of the Employment Rights Act 1996 provides the framework, subject to the limits in force at the relevant time.
Employers should avoid assuming that a dismissal is low risk simply because an employee’s notice period is short. A careful process and clear evidence can help show that the decision had a fair reason and was handled reasonably. Employees should keep payslips, job applications, recruitment correspondence, benefit records and details of any new income.
Wolf Law can explain how the law applies to your situation. Employment advice is chargeable, although a free initial consultation may help establish the right next step.
What should employers do before dismissing someone?
Fair reason and fair process
An employer should identify the reason for dismissal and gather evidence before making a final decision. The five potentially fair reasons under section 98 of the Employment Rights Act 1996 include capability, conduct, redundancy, legal restriction and some other substantial reason.
Even where a potentially fair reason exists, the employer should act reasonably. A rushed meeting, unclear allegations or a failure to consider an appeal can create problems. The ACAS Code of Practice on disciplinary and grievance procedures gives practical guidance, although it does not replace the law.
- Set out the concern or allegation clearly and provide relevant evidence.
- Give the employee a fair opportunity to respond before deciding.
- Allow a companion at a formal meeting where the statutory right applies.
- Record the decision, reasons and appeal process in clear language.
- Check for discrimination, whistleblowing and automatically unfair dismissal risks.
An employer should not treat a settlement agreement as a substitute for a fair process. Settlement can be useful, but the employee must receive independent legal advice for the waiver to work. The agreement should accurately describe the claims being settled.
Wolf Law provides company and commercial legal support for businesses reviewing risk and documentation. A solicitor can also help identify whether a proposed dismissal creates wider employment law concerns.
What should workers do after dismissal?
Protecting evidence and tribunal deadlines
If you believe your dismissal was unfair, act quickly. The usual employment tribunal deadline is three months less one day from the effective date of termination. You normally need to notify ACAS and complete Early Conciliation before presenting a claim.
Early Conciliation can extend the time limit, but it does not remove the need to act promptly. Do not assume that an internal appeal automatically stops the tribunal clock. Ask a solicitor to calculate the deadline and identify the correct respondent.
Keep your dismissal letter, contract, policies, payslips, performance records, meeting notes and relevant messages. Write down what happened while events remain fresh. Do not delete material that may help explain the decision or your financial loss.
Ask whether the stated reason matches the process. A capability dismissal may involve earlier warnings and support. A redundancy dismissal may require a genuine redundancy situation and a fair selection process. A conduct dismissal should normally involve clear allegations and a reasonable investigation.
Wolf Law’s employment law FAQs provide general information, but every case turns on its own facts. If the cap changes, it may affect strategy and valuation, but it will not remove the need to prove an unfair dismissal claim.
Frequently asked questions
Has the unfair dismissal cap already been removed?
The source material concerns a proposed change to the current framework. The precise legal position depends on legislation and commencement dates, so check the latest official guidance before relying on a reform.
What is the current compensation limit?
For most claims, section 124 limits the compensatory award to the statutory maximum or 52 weeks’ pay, whichever is lower. The statutory maximum can change each year.
Does removing the cap mean every claimant receives more?
No. A claimant must still prove unfair dismissal and financial loss. The tribunal may reduce an award where the claimant failed to mitigate loss or contributed to the outcome.
Can senior employees claim unfair dismissal?
Potentially, yes, if they meet the qualifying rules and other requirements. Their position, pay and losses may affect the evidence and value of a claim, but no outcome is automatic.
How long do I have to bring a claim?
Most claims must start within three months less one day from the relevant event. ACAS Early Conciliation usually forms part of the process and may alter the deadline.
Can I sign a settlement agreement without legal advice?
A settlement agreement normally requires independent advice for the statutory waiver to be valid. Take advice before signing, particularly where the agreement covers unfair dismissal or other employment claims.
Legal disclaimer: This article is intended for informational purposes only and does not constitute legal advice. For specific advice relating to your circumstances, please contact Wolf Law directly to arrange a consultation with one of our qualified solicitors.
