High earners and directors: the biggest winners in January law change?

From 1 January 2027, the cap on compensatory awards for ordinary unfair dismissal claims will be removed. That does not mean every successful claimant will receive a windfall: compensation will still be assessed by reference to actual and projected financial loss, supported by evidence, and subject to the claimant’s duty to mitigate. For most employees, awards are still likely to remain well below the current cap.

The real change is for higher earners, directors and senior executives. At present, the statutory cap can significantly limit the value of an ordinary unfair dismissal claim, particularly where the employee’s annual remuneration, bonus, benefits or long-term incentive arrangements exceed the cap. Once the cap is removed, a tribunal will be able to award compensation that more closely reflects the individual’s full financial loss, including longer periods out of work where re-employment at a comparable level is difficult.

This is particularly relevant for directors and senior staff whose roles are more specialist, more highly paid and less readily replaceable in the job market. A dismissal which might previously have carried a relatively predictable unfair dismissal exposure could, from 2027, become materially more expensive if the individual can evidence substantial ongoing loss.

Statutory directors need particular care. Companies (or the outgoing director) need to consider issues such as whether the director is both an office-holder and an employee, in which case removing them from the board under the company’s constitutional arrangements will not necessarily end their employment contract fairly or lawfully. The removal of the cap may also make claims more valuable where dismissal affects bonuses, share options, long-term incentive plans (LTIPs), carried interest, deferred remuneration, benefits or reputationally sensitive future earnings. For statutory directors, therefore, the dismissal process will need to be coordinated with company law steps, board approvals and contractual exit provisions, rather than treated as a straightforward employment termination.

For employers, the practical message is clear: dismissals involving high earners and board-level employees will need even closer management. A fair reason, a fair process, clear evidence and careful assessment of litigation risk will matter more than ever, because the financial ceiling which previously limited many ordinary unfair dismissal claims will no longer be there.