In This Guide
The Current Compensation Cap (2026/27 Figures)
Under the current law (Section 124 of the Employment Rights Act 1996), compensation for unfair dismissal is split into two parts: the basic award and the compensatory award. The compensatory award is currently capped. Here are the exact figures as of 6 April 2026, set by the Employment Rights (Increase of Limits) Order 2026 (SI 2026/310):
Used to calculate basic award and statutory redundancy pay (previously £719)
Formula: years of service (max 20) × age multiplier × £751/week. Under 22 = 0.5 week; 22–40 = 1 week; 41+ = 1.5 weeks per year
Currently the lower of 52 weeks' gross pay OR £123,543. The ERA 2025 proposes to remove this cap, but this has not yet come into force
For health & safety, employee representative, trade union, or pension trustee dismissals (previously £8,763)
Why the Cap Is Proposed to Be Removed
The government factsheet sets out the rationale for the proposed removal. Two key reasons are given:
1. Fair Compensation for Actual Loss
"It is important that when there is a finding of unfair dismissal at tribunal, the claimant is fairly compensated for any loss they have suffered." The cap meant that "It is important that when there is a finding of unfair dismissal at tribunal, the claimant is fairly compensated for any loss they have suffered." The cap meant that high earning employees who were unfairly dismissed could recover only a fraction of their actual financial loss. This was particularly damaging for older workers or those in specialised roles who take longer to find equivalent employment. who were unfairly dismissed could recover only a fraction of their actual financial loss. This was particularly damaging for older workers or those in specialised roles who take longer to find equivalent employment.
2. Deterring Employers from Treating Unfair Dismissal as a Business Cost
"By lifting the cap, this will deter employers from treating the cost of dismissing employees unfairly as part of business as usual." Some employers have calculated that paying a capped compensation is cheaper than following proper procedures — effectively treating the cap as a "licence fee" for unfair dismissal.
3. Reducing Complexity in the Tribunal System
"The Government also believes that the cap on compensatory awards for unfair dismissal has created a systemic incentive for claimants to construct complex cases which allege both unfair dismissal and discrimination to access uncapped compensation." By removing the cap, employees can pursue straightforward unfair dismissal claims without needing to add discrimination allegations simply to access fair compensation. This should reduce case complexity and tribunal waiting times.
"My employer admitted privately they'd budgeted for the cap when they restructured my team out. Removing the cap changes the calculation entirely."
David, Manchester
Unfair dismissal, pending claim
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How Unfair Dismissal Compensation Works
Even after the cap is removed, compensation isn't arbitrary. Tribunals follow a structured calculation:
Part 1: Basic Award
Calculated like statutory redundancy pay. The formula uses three factors:
Age Band
Under 22: 0.5 week per year
22–40: 1 week per year
41+: 1.5 weeks per year
Weekly Pay Cap
£751
Max per week (from 6 April 2026, SI 2026/310)
Max Service
20 years
Only last 20 years count
Part 2: Compensatory Award (Cap Proposed for Removal)
This is the larger component and covers your actual financial loss. The cap currently remains at £123,543 (effective 6 April 2026) until the proposed removal comes into force:
Polkey Reductions and Contributory Fault
Tribunals can reduce compensation if: (a) there's a chance you would have been dismissed anyway even with fair procedure (Polkey reduction), or (b) your own conduct contributed to the dismissal (contributory fault, typically a 10 to 50% reduction). Both still apply after the cap is removed.
Real-World Award Statistics
The government factsheet provides a crucial reality check on tribunal awards:
£6,746
Median unfair dismissal award (2023/24)
646
Total compensation awards made at tribunal
Few
Awards that reached the cap in practice
The factsheet notes: "In practice, when claims for unfair dismissal succeed at employment tribunal and the tribunal awards compensation to the dismissed employee, few compensatory awards reach the current cap."
This doesn't mean the cap removal is insignificant. For higher earners and those with long service who suffer prolonged job loss, the cap has been a real barrier to fair compensation. A senior manager on £80,000 dismissed at age 55 could face years of reduced earnings. The current cap of £123,543 might cover barely 18 months of loss.
Belonge's Compensation Calculator
Get a realistic estimate of your potential award based on actual tribunal data:
Example: Employee aged 45 with 8 years' service and £50,000 salary. Basic award: £9,012. Compensatory award: potentially £50,000+ depending on reemployment timeline.
Impact on Your Claim Strategy
If enacted, the proposed removal of the compensation cap would change the dynamics of unfair dismissal claims in several important ways:
Simpler Claims
You may no longer need to add discrimination claims solely to access uncapped compensation. A straightforward unfair dismissal claim could now fully compensate your loss. This means faster resolution and lower complexity.
Stronger Settlement Leverage
With uncapped potential awards, employers have greater incentive to settle. Settlements during ACAS early conciliation could increase in value, particularly for higher earners.
Evidence Is More Important Than Ever
Thorough, organised evidence, exactly what Belonge helps you build, becomes even more critical.
Estimate Your Potential Compensation
While every case is different, here's a breakdown of how compensation is typically structured:
| Component | Current Law | After ERA 2025 |
|---|---|---|
| Basic Award | Up to £22,530 | Up to £22,530 (unchanged) |
| Compensatory Award | Lower of £123,543 or 52 weeks' gross pay | Proposed: No cap — based on actual loss |
| ACAS uplift (if employer ignores Code) | Up to 25% increase | Up to 25% increase (unchanged) |
| Discrimination (if applicable) | Unlimited + Vento bands | Unlimited + Vento bands (unchanged) |
Build Your Strongest Possible Case with Belonge
Higher potential awards mean preparation matters more. Belonge gives you:
"My solicitor quoted £5,000 just to prepare my unfair dismissal claim. Belonge's workspace helped me do it myself for £25/month."
Karen, Leeds
Unfair dismissal claim
Frequently Asked Questions
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