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United KingdomLegislation gov

Draft rules carry uncapped dismissal awards into linked claims

Draft Regulations in force 1 January 2027 replace leftover references to the abolished unfair dismissal compensation cap, fixing union-remedy awards at £123,543 or 52 weeks' pay, whichever is lower.

By Taxxa AI OyPublished 12 October 2026

Payroll & Labour

Draft Regulations laid before Parliament would carry through the removal of the statutory cap on unfair dismissal compensation by amending the linked provisions that still reference itLegislation. The Employment Rights Act 2025 (Unfair Dismissal) (Removal of Limit on Compensation) (Consequential Amendments) Regulations 2026 are consequential on section 25(3) of the Employment Rights Act 2025, which removes the limit on the compensatory award in an unfair dismissal claim under section 98 of the Employment Rights Act 1996. The draft Regulations come into force on 1 January 2027.Legislation

The compensatory award under section 123 of the 1996 Act is the amount the tribunal considers just and equitable for loss attributable to the employer's action, taking mitigation into account; section 124 has capped that award at the lower of a fixed sum and 52 weeks' pay. The draft Regulations strip out the cross-references to section 124 wherever other remedies piggyback on the unfair dismissal capLegislation.

For detriment claims taking the form of termination, the pattern is consistent: compensation may not exceed what the worker would have received as an employee succeeding in unfair dismissal — the basic award under section 119 plus the compensatory award calculated under section 123Legislation. That formula replaces the section 124 references in section 24 of the National Minimum Wage Act 1998, section 56 of the Pensions Act 2008, the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 and the Exclusivity Terms for Zero Hours Workers (Unenforceability and Redress) Regulations 2022Legislation, and it is also the measure inserted into paragraph 160(2) of Schedule A1 to the Trade Union and Labour Relations (Consolidation) Act 1992 for recognition-compliance compensationLegislation.

Trade union remedies are fixed differently. Sections 67(8)(b) and 176(6)(b) of the 1992 Act — compensation for unjustifiable discipline and for exclusion or expulsion — substitute the lower of £123,543 and 52 weeks' pay for the old section 124 cross-referenceLegislation; the explanatory note states £123,543 is currently the section 124 limit. Section 140(4) of the 1992 Act, which capped compensation for refusal of employment or agency refusal of service on union-membership grounds by reference to section 124, is removed outrightLegislation. Section 34 of the Employment Relations Act 1999 is amended so the Secretary of State's duty to uprate sums in line with inflation extends to the new substituted amounts. The ACAS Arbitration Scheme (Great Britain) Order 2004 loses its section 124 references, including paragraphs 166 and 167 of its Schedule.

Transitional provision in regulation 10 keeps the old rules for cases whose appropriate date falls before 1 January 2027Legislation: the termination date for detriment-as-termination cases, the determination date for unjustifiable-discipline applications, the conduct date for refusal-of-employment complaints, and the exclusion or expulsion date for section 176 applications. The draft instrument, laid under sections 154(4) and 156(6)(a) of the 2025 Act for approval by resolution of each House, has the same extent as each provision it amends.

Legal basis: The Employment Rights Act 2025 (Unfair Dismissal) (Removal of Limit on Compensation) (Consequential Amendments) Regulations 2026 (draft), consequential on section 25(3) of the Employment Rights Act 2025; sections 123, 124 and 119 of the Employment Rights Act 1996 as amended.

Employers and advisers should price settlement and litigation risk on the basis that dismissals taking effect on or after 1 January 2027 carry uncapped compensatory awards, and check whether linked detriment, union-membership or zero-hours claims arising from a termination fall under the new uncapped measures or the pre-2027 transitional rules.

Sources

The Employment Rights Act 2025 (Unfair Dismissal) (Removal of Limit on Compensation) (Consequential Amendments) Regulations 2026