Unfair Dismissal Could Now Cost You £123,543 — The Law Just Changed

From 6 April 2026, dismissing an employee unfairly could cost your business up to £123,543. That figure just went up — quietly, without a single headline.

A statutory instrument laid before Parliament on 16 March 2026 (SI 2026/310: The Employment Rights (Increase of Limits) Order 2026) increased the maximum compensatory award for unfair dismissal from £118,223 to £123,543. The weekly pay cap for statutory redundancy also rises from £719 to £751.

If you have staff and didn't hear about this, you're not alone. Statutory instruments don't make the news. But they're just as legally binding as acts of Parliament — and they change your financial exposure from one day to the next.

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What Is SI 2026/310 and What Does It Change?

The Employment Rights (Increase of Limits) Order 2026 is a statutory instrument — a piece of secondary legislation made under the Employment Rights Act 1996. It is updated annually to reflect changes in average earnings. It came into force on 6 April 2026.

Here's what changed:

Limit	Before 6 April 2026	From 6 April 2026
Maximum compensatory award (unfair dismissal)	£118,223	£123,543
Weekly pay cap (for redundancy and other calculations)	£719	£751
Maximum basic award (unfair dismissal)	£21,570	£22,530
Maximum statutory redundancy payment	£21,570	£22,530

The combined maximum unfair dismissal award (basic + compensatory) is now £146,073.

This applies to any claim lodged at the Employment Tribunal from 6 April 2026 onward — meaning a dismissal that happened in March but is litigated after April 6 may fall under the new limits.

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Why This Matters More Than Just a Number

Tribunal awards don't just hurt financially. They come with:

• Legal costs — even if you win, you typically bear your own costs. If you lose, you may face the claimant's costs too.
• Time — defending an ET claim takes months, sometimes years of management time, HR resource, and legal involvement.
• Reputational damage — Employment Tribunal judgments are published online and indexed by Google.

For a business turning over £500,000 a year, a £123,543 judgment plus legal costs represents over a quarter of annual revenue. For smaller businesses, it can be existential.

The £5,320 increase sounds small. But compounded across the genuine risk factors — procedural failures, lack of documentation, poorly handled capability processes — the message is clear: the cost of getting dismissal wrong keeps going up.

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What Dismissals Are Most at Risk?

Not all dismissals result in tribunal claims. But the risk spikes in predictable scenarios:

1. No Written Procedure

If you dismissed an employee without following a documented disciplinary or performance management process, you're vulnerable. Tribunals expect a fair reason AND a fair process. Skip either and you lose.

2. "At Will" Assumptions

Some employers — particularly those who've grown quickly — assume they can let people go without explanation. This is only partially true. Employees with 2+ years' service have full unfair dismissal rights. Even employees with less service can claim automatically unfair dismissal in specific categories (whistleblowing, pregnancy, trade union activity).

3. Probation Period Confusion

Many SMBs believe that dismissing someone within their probation period is risk-free. It isn't — if the employee has 2 years' service and was continuously employed, probation doesn't protect you. And automatic unfair dismissal rights (no qualifying period) can apply regardless.

4. Capability Dismissals Without Evidence

Dismissing on grounds of poor performance is legitimate — but requires documented warnings, targets, support offered, and reasonable time given. Most small businesses don't keep these records. When a claim lands, they can't defend it.

5. The "Mutual Agreement" That Wasn't

Oral agreements to "part ways" don't hold up. If the employee later claims constructive dismissal, your undocumented "mutual departure" becomes an employer-initiated dismissal with no procedure.

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The Redundancy Calculation Change

The weekly pay cap increase from £719 to £751 also matters for redundancy. The statutory redundancy payment is calculated as:

Years of service × age multiplier × weekly pay (capped)

• 0.5 week's pay per year worked under age 22
• 1 week's pay per year worked aged 22–40
• 1.5 weeks' pay per year worked aged 41+

For a 45-year-old with 15 years' service, the maximum statutory payment increases from £10,785 to £11,265 under the new cap. If your business is planning redundancies, factor the new cap into your financial modelling now.

Enhanced redundancy schemes (where you pay above the statutory minimum) may also need reviewing — some are written as a multiple of the statutory cap and automatically increase.

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What Every UK Employer Should Do Before April 6

The window before the new limits kick in is already tight. Here's what to prioritise:

1. Audit your dismissal documentation Do you have written records for every live disciplinary or performance process? If not, start now. Notes from meetings, outcome letters, evidence of support offered.

2. Check your employment contracts Are your contracts clear on probationary periods, notice periods, and disciplinary procedures? Out-of-date templates from 10 years ago are a liability.

3. Train line managers The most common cause of successful unfair dismissal claims isn't malice — it's a line manager who didn't follow the process correctly. Brief them on what fair procedure looks like.

4. Check your contractual redundancy policy If you have an enhanced redundancy scheme, verify whether it automatically uplifts with the statutory cap. If you're planning redundancies, recalculate costs using the April 6 figures.

5. Get Employment Practices Liability (EPL) insurance For businesses without in-house HR expertise, EPL cover can cap your exposure. Many SME insurers now bundle this with commercial liability policies.

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The Broader April 6 Employment Law Picture

The increase in unfair dismissal limits is one of several employment law changes arriving on April 6 2026. Alongside SI 2026/310:

• National Living Wage rises to £12.21/hour for over-21s (already in force from April 1)
• Day-one SSP entitlement — under the Employment Rights Act 2025, statutory sick pay entitlement begins from day one (removing the 3-day waiting period)
• Holiday pay reform — the holiday records criminal offence means failure to keep compliant records becomes an offence from April 6
• Unfair dismissal day-one rights — not yet in force (expected 2027), but confirmed in the ERA 2025; now is the time to upgrade your processes

Each of these changes compounds the others. An employer facing an unfair dismissal claim on April 7 faces higher maximum awards, more rigorous holiday record requirements, and a workforce increasingly aware of their rights.

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How Much Has the Limit Increased Over Time?

The steady upward trend in tribunal limits should inform how UK employers think about employment risk:

Year	Maximum Compensatory Award
2020	£88,519
2022	£93,878
2023	£105,707
2024	£115,115
2025	£118,223
2026	£123,543

The limit has increased by nearly 40% in six years. Employment tribunal claims — particularly for unfair dismissal — are rising year-on-year. The combination of rising limits and rising claim volumes means this is a growing risk area for every UK employer.

📋 Not sure if your HR processes are up to date? Take our free 3-minute Compliance Score quiz — 20 questions, instant results, no sign-up required. compliancealert.co.uk/compliance-score →

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Frequently Asked Questions

Does the new £123,543 limit apply to dismissals before April 6? The limit applies to the date the tribunal hearing occurs, not the date of dismissal. Claims lodged before April 6 may still use the new limits if the hearing falls after that date. This is rare in practice — but it's worth checking with your solicitor if you have live claims.

Can an employee get more than £123,543? Yes. The compensatory award cap doesn't apply in cases of whistleblowing or health and safety dismissals (automatically unfair dismissal). In those cases, there is no cap on the compensatory award — meaning six-figure claims become more common.

What's the difference between the basic award and the compensatory award? The basic award compensates for length of service and is capped at £22,530. The compensatory award covers actual financial loss (wages, benefits, future earning) and is capped at £123,543. Most awards at tribunal include both.

Does this apply to all businesses? Yes. There is no SMB exemption. A company with 3 employees faces the same maximum award as one with 300.

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Summary: What's Changed and What to Do

• SI 2026/310 increased the maximum unfair dismissal compensatory award from £118,223 to £123,543 from April 6 2026
• The weekly pay cap for redundancy calculations rises from £719 to £751
• The combined maximum award (basic + compensatory) is now £146,073
• The risk is highest for businesses without documented disciplinary processes, written procedures, and trained line managers
• The April 6 date clusters several other employment law changes — treat this as a compliance checkpoint across HR as well

ComplianceAlert tracks every employment law change — from statutory instruments to enforcement updates — and sends you plain-English alerts when rules affecting your business change.

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