The Employment Rights Act 2025 will remove the statutory cap on unfair dismissal compensation, which will mark a significant shift in litigation risk for employers.
The removal of the cap will change the landscape of resolving workplace disputes with senior employees because of the removal of the cap on the compensatory award.
Currently, if a former employee is successful in a claim for unfair dismissal, there is a cap on the amount of compensation that an individual can recover which is 52 weeks pay or £118,223 whichever is the lower amount.
From January 2027, the cap will be lifted and therefore whilst currently, employers can rely on the cap to determine its financial exposure with a statutory ceiling, from January 2027, the removal of the cap means it will difficult to assess the risk, and which can be significant, particularly in relation senior employers.
In this evolving risk landscape, mediation is no longer simply an alternative dispute resolution mechanism – it is rapidly becoming a strategic tool for managing legal, commercial and commercial risk.
Without a compensation cap, unfair dismissal claims now carry potentially open ended liability linked to the employee’s actual financial loss, which may include bonus, shares, pensions and associated benefits.
This expanded exposure creates several challenges for employers:
- Greater uncertainty in litigation risk assessment
- Increased legal costs associated with prolonged tribunal proceedings
- Heighted reputational and employee relations risks
- More complex settlement valuation exercises
Against this background, early and structured dispute resolutions becomes commercially critical.
Mediation offers a confidential flexible and commercially focused route to resolving workplace disputes before they escalate into lengthy and costly tribunal litigation. As compensation risk rise, the value of early intervention correspondingly increases.
The benefits of mediation include:
(a) Cost certainty and financial risk management
(b) Speed and efficiency
(c) Preservation of workplace relationships
(d) Confidentiality and reputational protection
(e) Tailored commercial outcomes.
Our specialist workplace mediators can support organisations at every stage of the dispute.
