Category: Unfair Dismissal

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Acas Compensation Employment Law Employment Rights Act 2025 Kate Walsh Unfair Dismissal

Removing the statutory cap in unfair dismissal compensation: how will the UK compare to other countries?

The European Union flag, blue with yellow stars, flies in front of the EU Parliament

The Employment Rights Act 2025 was passed late last year, and you will be forgiven for trying to catch up with all the proposed developments — there are so many! One of the most significant is the removal of the statutory cap for the compensatory award in successful unfair dismissal claims (the cap is currently the lower of 52 weeks’ gross pay or £118,223).

The statutory cap will be removed at some point in January 2027

From the information currently available to us, it is likely to be 1 January 2027 on the same date that the qualifying period for unfair dismissal is reduced from 2 years to 6 months.

Once removed, how will the UK fare when compared to a very employee friendly Europe?

In most European counties, unfair dismissal compensation is capped. The aim is simple: balance fairness for employees with predictability for employers.

Let’s look at the different regimes:

  • France link compensation to length of service. Awards start at around three and a half months’ salary (for two years’ service) and cap at 20 months’ salary, even for long-serving employees. 
  • Switzerland limits compensation to six months’ salary. 
  • Sweden caps awards at 32 months’ salary, depending on service. 
  • Spain applies a formula of 33 days’ pay per year of service (for post-2012 hires) but again capped at 24 months’ salary.
  • Italy operates a dual system. Employees hired after March 2015 face capped awards of:
6 to 36 months’ salary for large employers.
3 to 18 months’ salary for small employers.
Following a Constitutional Court ruling, judges now have discretion within those ranges — but the cap remains firmly in place.
  • Ireland caps unfair dismissal compensation at 104 weeks’ total remuneration. 
  • Denmark applies caps under collective agreements (up to 52 weeks’ pay) or six months’ salary for salaried employees, depending on service. 

The common thread for most European countries — compensation is capped, and employers are able to plan negotiations accordingly. Beyond Europe, caps are still the norm. In Australia for example, the Fair Work Commission can award compensation for unfair dismissal but only up to six months’ salary.

The UK will be joining a handful of countries which have uncapped awards. In Luxembourg, judges are given a wide discretion with no fixed statutory cap. Canada has no formal statutory cap, but compensation is typically limited to damages reflecting the employee’s reasonable notice period, rather than open-ended loss. Lastly, in Brazil, employers are required to deposit 8% of the employee’s monthly salary into an account which is managed by the Federal Savings Bank on behalf of the employee. If an employee is dismissed without cause the employer must pay to the employee, (in addition to the payment of accrued rights and as a penalty for unfair dismissal) an amount equal to 40% of that which the employer has deposited into the employee’s severance compensation fund during their employment. The amount of the penalty will therefore depend on the length of employment and on the amount of the employee’s monthly salary.

It is clear that the UK will be joining the minority rather than the majority of countries who have uncapped unfair dismissal awards.

What are the repercussions of an uncapped compensation regime?

The statutory cap currently guides settlement negotiations with parties often negotiating around three to six months’ pay to avoid the time and costs attached to tribunal hearings.

Without the statutory cap:

  • Claimants may be more willing to take cases to a final hearing, adding to an overburdened tribunal system.
  • It is more difficult for employers to quantify the financial risk of a dismissal, which will inevitably impact settlement negotiations.
  • High earners are no longer deterred from lodging Tribunal claims meaning an increase in litigation for this group.
  • There is likely to be more complex remedies hearings that need to consider quantifying bonuses, deferred incentives and unvested equity.
  • Where the Acas Code applies, a potential 25% uplift suddenly bites harder when the underlying award is not capped.
  • On a positive note, it is likely to result in a reduction in more complex discrimination claims and whistleblowing claims as there will no longer be a need to bring these claims to avoid capped compensation.

How should you prepare?

Employers would be wise to start taking preparatory steps to tighten up procedures and ensure a clear document trail is in place. With an extended early conciliation period, plans to increase tribunal time limits for lodging claims and existing tribunal delays, tribunal witnesses will be placed under significant pressure to recall events which took place possibly two to three years ago. HR teams can make both their and witnesses’ lives a lot easier with clear processes and consistent decision making. 

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Kate Walsh
Refreshing Law

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Anna Denton-Jones Articles Collective Redundancy Compensation Dismissal Employment Law Employment Rights Act 1996 HR Notice Periods Redundancy Unfair Dismissal

Things to know when dismissing a member of staff

View of the City of London at sunset

The main risks

Anyone sacking a member of their staff faces three main types of potential push back by their ex member of staff. Firstly, the employee may claim they have not received the correct notice pay or other sums owed to them, secondly, they may claim unfair dismissal, once they have 2 years’ service and thirdly, they may claim discrimination.

Unfair dismissal claims are capped at 1 years’ salary or £74,200 compensatory award and a further basic award of up to £13,500 – depending on financial losses of the employee but discrimination awards are uncapped and may include damages for injury to feelings up to £36,000. That said, it is important to note that average awards are much less – between £4-5,000 for unfair dismissal and £12,000 for discrimination.

So how can you protect yourself?

Key advice is: Put yourself in the employee’s shoes and think about how you would want to be treated. If you follow that commonsense rule you shouldn’t go too far wrong eg:- you are likely to investigate the situation thoroughly, listen to all sides including the employee before making a decision and not jump to conclusions. Canny employers draft a provision into the contract of employment enabling them to suspend an employee pending an investigation – this protects the business for example, a disgruntled employee cannot then contact customers or destroy computer evidence relevant to the investigation.

Follow a procedure – for unfair dismissal purposes you have to show that not only did you have a good reason to dismiss (such as the person being incapable of doing their job or guilty of misconduct) but you have to show that you have acted “fairly and reasonably in all the circumstances”. This certainly means following the basic steps outlined above but the ACAS Code of Practice on Discipline and Grievance should be the employers’ touchstone here – Employment Tribunals judge you by this standard and expect you to be familiar with it – it also contains handy flowcharts.

Whilst employees are entitled to bring a companion along to a meeting in which they are dismissed (a colleague or trade union official) you may also want to take a witness along. This person could help you take notes of the meeting but is also there to protect you as they can confirm you acted fairly if challenged.

So where do people tend to go wrong?

The most common mistakes are:

  • Inconsistency of decisions – dismissing for something that the last person who did it just had a warning for – this is unfair. If you want to distinguish between cases you have to be able to justify it on reasonable grounds such as the length of service and previous good record of the employee given the warning compared to the one that was dismissed.
  • Failure to investigate properly – an employer has to have a reasonable belief based on the evidence before them that an employee is guilty of misconduct. Even if an employee denies something outright if you have reasonable grounds to believe they were involved or did do something – you don’t need cast iron proof that they did, unlike criminal law.
  • Dismissing someone for poor attendance record when they have a medical condition such as depression which could qualify as a disability under the disability discrimination legislation. The employee then claims not enough was done to accommodate their medical position.
  • Pre-preparing letters of dismissal and presenting them to the employee at the end of the meeting – this makes your decision look pre-judged and will result in the dismissal being unfair. You must keep an open mind – there could be a reasonable explanation behind the situation as it appears to you.
  • Decision-makers taking account of matters which are not discussed in the disciplinary hearing ie:- the employee doesn’t get a chance to address this evidence and so the dismissal is unfair.
  • Not having an appeal stage making the case automatically unfair or the appeal decision-maker getting involved in the case when the original decision to dismiss is made so that they are not impartial which is unfair.
  • Rushing eg:- walking someone into your room, ambushing them with an allegation, deciding they are in the wrong and dismissing them. Notice of a disciplinary hearing should be given at least 24 hours before the meeting and it often helps to “think” overnight before coming to a conclusion and confirming dismissal, even if you have known all along that is where you are heading – that does mean it could take at least 72 hours  to follow the procedure but it is worth investing the time upfront to protect you against criticism at a later stage.
  • Not giving the employee the opportunity to be accompanied by a companion – failure to do this can result in a Tribunal award of up to £900

Anna Denton-Jones
Refreshing Law

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Anna Denton-Jones Articles Employment Law Employment Rights Act 1996 Employment Tribunal Grievance HR Investigations Unfair Dismissal

Three ways to protect yourself against employee claims

Royal Courts of Justice, London

Ultimately, no employer can prevent employees from attempting to bring employment related claims against them. However there are things you can do to protect yourself and put you in a strong position.

  • Firstly and most importantly, put yourself in the employees shoes and think about how you would want to be treated. If you follow that common sense rule you shouldn’t go too far wrong. For example, you are likely to investigate the situation thoroughly, listen to all sides including the employee before making a decision and not jump to conclusions.

Canny employers may draft a provision into the contract of employment enabling them to suspend an employee pending an investigation. This protects the business for example, a disgruntled employee cannot then contact customers or destroy computer evidence relevant to the investigation.

Secondly, follow a procedure.  For unfair dismissal purposes you have to show that not only did you have a good reason to dismiss (such as the person being incapable of doing their job or guilty of misconduct) but you have to show that you have acted fairly and reasonably in all the circumstances. The ACAS Code of Practice on Discipline and Grievance should be the  touchstone here as Employment Tribunals judge you by the standards set out in it and expect you to be familiar with it. It also contains handy flowcharts.

Thirdly, whilst employees are entitled to bring a companion along to a meeting in which they are dismissed (a colleague or trade union official) you may also want to take a witness along. This person could help you take notes of the meeting but is also there to protect you as they can confirm you acted fairly, if challenged.

Anna Denton-Jones
Refreshing Law

Categories
Anna Denton-Jones Articles Dismissal Employment Contract Employment Law Employment Rights Act 1996 Employment Tribunal Redundancy Unfair Dismissal

What employers get wrong when dismissing staff

Royal Courts of Justice, London

The most common mistakes employers make when dismissing people (in no particular order) are:-

  • Inconsistency of decisions  – dismissing for something that the last person who did it just had a warning for  this is unfair. If you want to distinguish between cases you have to be able to justify it on reasonable grounds such as the length of service and previous good record of the employee given the warning compared to the one that was sacked.
  • Failure to investigate properly  an employer has to have a reasonable belief based on the evidence before them that an employee is guilty of misconduct. Even if an employee denies something outright if you have reasonable grounds to believe they were involved or did do something  you don’t need cast iron proof that they did, unlike criminal law, but you do need to have conducted a reasonable investigation.
  • Dismissing someone for poor attendance record when they have a medical condition such as depression which could qualify as a disability under the disability discrimination legislation (Equality Act). The employee then claims not enough was done to accommodate their medical position.
  • Pre-preparing letters of dismissal and presenting them to the employee at the end of the meeting  this makes your decision look pre-judged and will result in the dismissal being unfair. You must keep an open mind  there could be a reasonable explanation behind the situation as it appears to you.
  • Decision-makers taking account of matters which are not discussed in the disciplinary hearing ie:- the employee doesn’t get a chance to address this evidence and so the dismissal is unfair.
  • Not having an appeal stage or the appeal decision-maker getting involved in the case when the original decision to dismiss is made so that they are not impartial which is unfair.
  • Rushing eg:- walking someone into your room, ambushing them with an allegation, deciding they are in the wrong and dismissing them. Notice of a disciplinary hearing should be given at least 24 hours before the meeting and it often helps to think overnight before coming to a conclusion and confirming dismissal, even if you have known all along that is where you are heading  that does mean it could take at least 72 hours  to follow this stage of the procedure but it is worth investing the time upfront to protect you against criticism at a later stage.
  • Not giving the employee the opportunity to be accompanied by a companion – failure to do this can result in a Tribunal award of up to 900

Anna Denton-Jones
Refreshing Law