Key facts
- The UK's statutory cap on unfair dismissal compensation will be £123,543 from January 1, 2026.
- This new cap is equivalent to one year's pay for an executive.
- The previous UK cap was £118,000.
- The UK government's Employment Rights Bill introduced the change.
- Approximate executive dismissal compensation caps in France, Spain, and Germany are £115,000, £110,000, and £112,000 respectively.
The United Kingdom is set to increase its statutory cap on unfair dismissal compensation for executives to £123,543 from January 1, 2026, a move that could make terminating senior employees more costly than in France, Spain, and Germany. This change, enacted through the Employment Rights Bill which received Royal Assent in December 2025, raises the previous £118,000 limit.
The Employment Rights Bill aims to modernize worker protections and was influenced by concerns about 'day-one rights' and union pressure. The new cap is equivalent to one year's pay for an executive, aligning with a benchmark used in several European countries, though at a slightly higher level.
According to City AM, the approximate executive dismissal compensation caps in France, Spain, and Germany are £115,000, £110,000, and £112,000 respectively. Legal commentator Caspar Glyn KC noted that this marks the first time dismissing someone in the UK could be more expensive than in these continental European nations.
For UK businesses, the higher ceiling signifies a potentially larger financial liability when terminating senior staff, requiring adjustments to budgeting and risk management frameworks. The legal profession is closely monitoring these changes, anticipating a potential increase in demand for employment law advice.