The UK employment tribunal compensatory award cap has until now limited financial exposure for unfair dismissal claims. That certainty is soon disappearing. Once the cap is removed, tribunals can award losses reflecting an executive’s actual full earnings including base salary, long notice periods, discretionary bonuses, and long-term incentives. For senior executives, claims could easily reach seven figures.
This change will fundamentally affect how Boards manage senior exits. Informal processes, limited performance documentation, and reliance on ‘loss of confidence’ are no longer safe. Tribunals will examine whether dismissals were reasonable and evidenced, and may ask what would have happened if the employer had acted fairly, considering potential performance outcomes, bonuses, and incentive awards. Even discretionary bonuses could now become part of claims.
The implications are Board-level, not just HR. So, what do Boards need to consider going forward?
- Performance oversight: Boards must ensure clear, measurable, and documented expectations for senior executives.
- Exit strategy: Settlement ranges and notice periods need to reflect potential uncapped liability.
- Bonus design: Timing and clarity of discretionary awards are critical.
- Governance discipline: Decisions must be evidence-based, documented and defensible.
- Board capability: NEDs must be confident in managing C-suite performance and challenging executive peers.
- Risk assessment: Employment litigation exposure and insurance coverage should be reviewed and well in advance of any conversations with the senior executive.
Boards which are unprepared for this shift risk material financial exposure, reputational harm, and potential for high-stakes litigation. The removal of the cap is not just a legislative change but a call for Boards to elevate performance management, governance discipline, and deeper risk assessments.
With significant experience in advising Boards on people-risk, executive remuneration, and governance, I see this as a pivotal moment for leadership accountability. Boards that act now will safeguard both people and organisational reputation, while strengthening confidence in making difficult but necessary leadership decisions.
