News & Insights

A rush to exit underperforming high-performers before the removal of the unfair dismissal cap, the Financial Times reports

The Employment Rights Act 2025 is set to bring in sweeping changes, some of which have already been enacted as early as April this year. Amongst the most significant, and perhaps most controversial, are the reforms to the law on unfair dismissal. The 2-year qualification period now being shortened to 6 months is a topic that has has widely been discussed by a variety of commentators, including our partner Hina Belitz. However, a recent article by the Financial Times points to the fact that this is not the only reform to unfair dismissal that employers should prepare for.

Hina Belitz comments on this article: 

Having spent decades advising both employees and companies on exits, I often have to advise both parties that the law on unfair dismissal is actually fairly weak. Even if you get past the hurdle of the 2-year qualification period, compensation is limited to the actual losses you have incurred which is then capped at the lower of either 1 year’s salary or around £120,000.

For the vast majority of senior executives I advise, they exit on a package that is more generous than the statutory cap. This often means that no matter the circumstances behind their dismissal, pursuing an unfair dismissal claim would be fruitless.

The Employment Rights Act 2025 significantly changes this landscape. Starting from January 2027, not only will the qualification period shorten by a large margin, but the cap on unfair dismissal claims is being removed. The Financial Times has recently reported that many companies are looking to quickly exit senior executives before this comes into law, as they brace for an influx of claims from executives who previously may have had little incentive to fight a dismissal.

While this field is an unpredictable one, it is clear that the last six months of 2026 will be a crucial period for many companies when it comes to making decisions on their workforce. 

Employment law will be changing over the coming months, and your business will need to adapt to these changes as well. Are your contracts, policies, and approaches completely up to date? Are you aware of your obligations under the law? Contact us today for us to assess how we may be able to assist.