Press release: November 2026
Unfair dismissal compensation cap scrapped from January
Small business owners who put off dealing with people problems could face significantly higher financial penalties from January 2027, warns local HR consultant Tara Anstee.
The statutory cap on unfair dismissal compensation, currently the lower of £123,543 or 52 weeks’ gross pay, will be removed entirely on 1 January 2027. At the same time, the qualifying period for unfair dismissal claims drops from two years to just six months. Together, these changes mean that a poorly handled dismissal could cost employers far more than it would today.
Tara, who runs ZEST HR in Basingstoke, said “This is probably the biggest shift in dismissal risk that small employers have faced in years. The cap used to act as a safety net. From January, that safety net is gone and tribunals will be able to award the full financial loss, with no ceiling.”
Unfair dismissal is already the most common type of employment tribunal claim. New single claims rose 54% year-on-year in the last quarter of 2025 and the government estimates that these changes will generate an additional 3,000 claims every year.
“A lot of the employers I work with assume that they won’t end up in front of a tribunal”, Tara said. “And most won’t. But the ones who do tend to get caught out by the same things: no paper trail, no process, conversations that should have happened months earlier.”
She is urging business owners to treat this as a deadline, not a distant headline.
“If you’ve got someone underperforming or a conduct issue that you’ve been avoiding, now is the time to deal with it properly. Get your process right, document everything and make sure that you can show a tribunal that you acted fairly.”
Tara recommends that business owners take four practical steps before January:
- Check that your disciplinary and grievance procedures are up to date and legally compliant.
2. Audit your current documentation. If you’ve had conversations about performance or behaviour, make sure that there’s a written record.
3. Train your managers on how to handle early-stage issues properly, so problems get picked up before they escalate.
4. Review any ongoing people issues now and make a plan to resolve them before the new rules take effect.
“Getting this right doesn’t need to be complicated. It just needs to be done,” Tara says.
To help local employers to prepare, Tara is offering a free process and documentation review throughout November. The session will assess whether current procedures meet the new legal standard and highlight where the gaps are.
Business owners can book a review at zesthr.co.uk or email tara@zesthr.co.uk for details.
ZEST HR has been in business for over 20 years and works with small businesses across the UK providing practical HR advice, compliance support and proactive people management.
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Note to editor:
Tara Anstee is available for further information and interviews on tara@zesthr.co.uk.