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Removal of the Unfair Dismissal Compensation Cap: Rethinking Board Strategy

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.

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Family Friendly Leave: What’s New, What’s Coming and What Employers Should Do Now

Family-related employment rights are continuously expanding and becoming increasingly more detailed. With the Government set to introduce even more changes over the next two years, I have summarised the key details of what’s new and what to expect.

Recent Changes Already in Force

Neonatal Care Leave & Pay

Eligible parents whose babies meet the qualifying conditions and require specialist neonatal treatment have a right to take up to twelve weeks of leave from day one of employment.

What does this look like in practice? Where an employee has a premature baby that spends several weeks in hospital, they can take neonatal care leave on top of their maternity, paternity, adoption or shared parental leave.

What about the pay? Eligible employees will receive statutory neonatal care pay which is calculated using the standard statutory formula like maternity/paternity pay (i.e., the lower of £187.18 per week or 90% of average weekly earnings). This is designed to give parents genuine breathing room during what is often an overwhelming and emotionally difficult period.

When does it need to be taken? This leave is flexible and can be taken in blocks or as one period (depending on the regulations and employer policy). In reality, most parents take it immediately following a neonatal admission, but the rules allow the leave to fit around individual family needs.

Statutory Carer’s Leave

Employees now have the right to one week’s unpaid carer’s leave per year to provide or arrange care for a dependant with long-term care need. This right is available from day one of employment.

What counts as a long-term care need? A dependant with a long-term care need is someone that may have:

• an illness or injury requiring care for more than 3 months; or
• a disability under the Equality Act; or
• care needs related to old age.

Employers are required to grant this type of leave and may only postpone (not refuse) in exceptional circumstances, i.e., where taking leave at the requested time would cause serious operational disruption.

Many employers understandably confuse carer’s leave with other similar types of leave. There are clear distinctions between these types of leave as follows:

1. Carer’s leave: unpaid leave for planned or foreseeable responsibilities for someone with a long-term condition
2. Time off for dependants: unpaid leave for short notice or emergencies regarding dependants
3. Compassionate leave: discretionary leave to deal with traumatic events or bereavement. This can be paid or unpaid depending on the company’s policy.

Changes Under The Employment Rights Act

The Employment Rights Act (“the Act”) builds on these developments and signals a further strengthening of family-related rights. In December 2025, the Government passed the Act which expanded statutory protections as follows:

1. Enhanced protection against dismissal for pregnant against dismissal for pregnant employees / new parents

The Act proposes to strengthen protection against dismissal for pregnant employees, new parents and those taking statutory family-related leave, including neonatal care leave and pregnancy-loss bereavement leave.

In relation to pregnant employees and new mothers, the period of protected employment could be extended. The public consultation closed on 15 January 2026 with responses currently being reviewed to decide on the specific rules. It is still being decided whether the protected period spans 18 months from the birth of the child or 6 months from the return to work (i.e., the end of maternity leave).

The aim is to ensure that returning to work does not immediately place employees at risk of redundancy during a particularly vulnerable period.

2. Bereavement leave for pregnancy loss

One of the most prominent changes extends statutory bereavement leave to cover pregnancy loss, including miscarriages before 24 weeks. This new right would give employees formal time off to grieve, rather than relying on sympathetic managers or annual leave. The duration (beyond the one week minimum), notice requirements and whether the leave is paid are currently being finalised following the close of public consultation. This change is expected to take effect in 2027.

3. Paid carer’s leave

The government has committed to reviewing the proposal to convert the above current one-week unpaid entitlement into paid leave at the employee’s normal pay rate.

This may lead to increased payroll costs and a potential increase in employee’s taking carer’s leave. It is essential that employers have clearer systems for managing and recording care-related absences.

There is currently no confirmed implementation date for paid carer’s leave as it was not included as a mandatory requirement in the Act. A formal consultation is expected in 2026, with no implementation expected before 2027.

4. Day one rights for paternity and parental leave

The Act expands paternity leave and unpaid parental leave so that they become available from the first day of employment, removing the current service-based eligibility thresholds. These measures will take effect on 06 April 2026.

In practice, this means a new starter may qualify almost immediately which is something employers will need to factor into workforce planning.

5. Flexible working

Where an employer refuses a flexible working request, they must give a written and reasonable explanation for the refusal. The statutory 8 business grounds for refusing a request remain the same, however the requirement for justifying a rejection is a new development under the Act. This change is expected to take effect in 2027.

Therefore, the change reflects that flexible working will become the default from day one and a normal working arrangement unless there is a clear business justified reason to not allow it.

Implications For Employers

These relatively new changes under the Act represent a much more complex and protective family friendly framework.

Employers should ensure:

• their policies accurately reflect the recent changes of the new neonatal care regime and carer’s leave entitlement;
• payroll systems are adjusted to accommodate the revised statutory rates and eligibility rules for neonatal pay or carer’s leave when this change comes into effect;
• managers have appropriate training and clear guidance on how to respond to leave requests, particularly in sensitive circumstances such as neonatal care or pregnancy loss; and
• absence management procedures and record keeping are place and regularly updated.

To discuss the contents of this article, contact our employment team via the form below.

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Buying a Business or Tendering to Provide a Service? Don’t Get Caught Out by TUPE.

This article was published in the November/December 2025 edition of London Business Matters.

When buying a business or taking over a service, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) is a key consideration. TUPE applies to all relevant transfers regardless of workforce size and importantly, cannot be contracted out of. TUPE protects employees from losing their jobs by automatically transferring their employment to the buyer on existing terms and liabilities.

Which employees transfer?

All employees ‘assigned’ to the business/service will automatically transfer. The assessment is rarely straightforward, particularly where roles are divided across clients or activities. While the percentage of time spent on the relevant work is a starting point, the law also considers contractual arrangements, job description, cost allocation and economics value.

ETO reasons and dismissals

Dismissals connected with the transfer are automatically unfair unless the employer can show an ‘economic, technical or organisational’ (ETO) reason ‘entailing changes in the workforce.’ Tribunals interpret ETO reasons narrowly however, genuine redundancies arising from a reduction in demand, technological change or efficiency-driven restructuring may fall within scope, provided they are also procedurally fair.

Restrictions on ‘harmonising’ terms

A buyer is unable to ‘harmonise’ terms and conditions of transferring staff with its existing workforce if the sole or principle reason is the transfer. This prohibition is not time-limited so that attempts, even years later, can be unlawful exposing the buyer to breach of contract or constructive dismissal claims. Even with a genuine ETO justification, the buyer must still obtain employees’ agreement.

Duty to inform and consult

Employees must be informed of the transfer and also any ‘measures.’ ‘Measures’ is construed widely and can include redundancies, relocations, changes to working practices or payroll. Where ‘measures’ are proposed, consultation is also required. Any procedural failures in this regard can result in protective awards of up to 13 weeks’ gross pay per affected employee.

Employee liability information (ELI)

The seller must provide specified ELI on transferring employees. Prudent buyers should carefully analyse this information as early as possible to understand the risks of assuming equal pay liabilities, enhanced redundancy rights or long-term sickness absences.

Conclusion

TUPE considerations require early legal advice and forensic due diligence. If considered late in the process, it can result in a lost opportunity to negotiate important indemnities leaving the buyer with liabilities which may outweigh the value of the deal itself.

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