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Employers of people on high salaries are becoming increasingly vulnerable to costly employment tribunal claims in advance of the current cap on compensatory awards for unfair dismissal being lifted.

New figures have revealed that about 840,000 PAYE taxpayers now earn more than the current maximum compensation available for unfair dismissal.

Analysis of HMRC data by TWM Solicitors shows that 840,000 people earned more than £123,543 in the 2025/26 tax year – the current cap on compensatory awards for unfair dismissal. From January 2027, however, the cap is due to be removed under the Employment Rights Act 2025, significantly increasing the financial exposure for employers.

Until then, compensatory awards are limited to the lower of one year’s gross salary or £123,543, meaning highly paid employees have less financial incentive to pursue unfair dismissal claims. Once the limit is abolished, employers could face substantially larger claims from senior executives and other high earners.

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Anthony Wilcox, partner in the employment law team at TWM Solicitors, said: “Removing the compensation cap is likely to dramatically increase employers’ exposure to high-value employment tribunal claims. They could be faced with some exceptionally large claims from senior employees who earn well above the current limit.”

He added: “This is going to be particularly problematic for employers in financial services and the tech sector where remuneration can be very high.”

Wilcox warned that the impact would extend beyond highly paid executives.

“The consequences of this change will not just be felt in cases involving high earners. Cases brought by employees earning average salaries will also see larger awards where there are ongoing losses or the loss of valuable benefits, such as those with final salary pension schemes.”

He added: “Awards could reach levels that would have a serious impact on the profitability of some employers, especially smaller businesses.”

Alongside the removal of the compensation cap, the Employment Rights Act will introduce another major change from 1 January 2027, allowing employees with at least six months’ service by the end of 2026 to qualify for ordinary unfair dismissal rights much earlier than under the current rules.

Employment lawyers believe many businesses are already adjusting their workforce planning ahead of the reforms.
James Townsend, head of employment at Payne Hicks Beach, said: “Many employers are likely to bring forward probation reviews and, in some cases, consider shorter probation periods to avoid employees benefiting from the new protections from 1 January 2027.”

Townsend believes the changes could alter employer behaviour without necessarily improving job security for workers.

“For employees, the reforms provide earlier legal protection, but that does not necessarily translate into greater job security. Some employers may simply make probation and performance decisions sooner, meaning difficult conversations happen earlier rather than later,” he said.

Wilcox warned that more high-value claims could place further strain on an already overstretched system. “If, as expected, the reforms lead to an increase in high-value unfair dismissal claims, this is almost certainly going to place further strain on an employment tribunal system that is already struggling with significant backlogs and difficulties recruiting judges.”

According to the Financial Times, businesses are already taking action to reduce exposure to the new laws with finance and tech groups “rushing to fire underperforming executives, cut headcount and toughen probation processes for new hires.”

Alex Mizzi, legal director in the employment team at Howard Kennedy, told the FT: “They are trying to clear out deadwood in senior leadership teams before it gets more expensive.”

Sarah Henchoz, global head of employment at A&O Shearman, told the newspaper that employers were taking action from 1 July (six months before the January 2027 implementation) “to ensure they avoid excessive costs that can arise from terminations and to take advantage of what is currently an employer-friendly legal position”.

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Discount supermarket chain Lidl will ringfence interviews for people who are long-term unemployed, it has announced.

The company will offer 10% of its interview slots for entry-level roles at each new store for those who have been out of work for at least six months. There will be a further 480 slots at its 13 warehouses.

It will work with several local employability partners to identify candidates, as well as the Department for Work and Pensions.

All new starters will receive entry-level pay rates of £13.45 an hour, rising to £14.45 an hour with length of service. Benefits include a 10% in-store discount from their first day of employment and access to a digital GP.

Although the unemployment rate fell slightly in the last set of figures from the Office for National Statistics to 4.9%, there has been a decline in the number of vacancies available to jobseekers.

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Lidl said it aimed to “level the playing field” by fast-tracking long-term unemployed candidates straight to interview stage, removing the need for CVs.

Stephanie Rogers, chief people officer, said: “Unemployment is affecting communities right across the country, adding to the pressures many households are already under.

“For people who are facing barriers into employment, getting that first opportunity can be the hardest step.

“That’s why we’re fast‑tracking interviews across the nation to help people get a foot in the door.

“A career in retail develops a massive range of transferable skills and, here at Lidl, we pair that with industry-leading training and competitive pay to ensure our people can truly thrive.”

Minister for employment Dame Diana Johnson said the programme was “vital”: “It’s moving people from welfare to work, providing those who have been out of work with a pathway back into employment.

“By joining forces, we are helping people to kickstart rewarding careers in the retail sector as we continue to drive our economy forward.”

Lidl trialled employment support for homeless people last year in the north west, and has extended this to other regions in a bid to getting more people “off the streets and into high-quality employment” in the next 12 months.

Those who are eligible for the scheme will be contacted by the DWP or their local partner organisation, or can see more information on the supermarket’s careers site, it said.


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