Why The Rest Of 2026 Is Risky For The Well-Paid

Changes to legal protections for employees, coming on 1 January 2027, are likely to benefit high-earners the most; but that could mean uncertainty this year, before the changes take effect.

Current Unfair Dismissal Protections and Compensation Limits

At present, employees with at least two years of service are protected against unfair dismissal. This means that employers have to follow a fair process and ensure they have a fair reason before letting go an employee with the protection – potentially fair reasons including performance, conduct and redundancy.

Crucially, though, if a dismissal is unfair, the main compensation available is in relation to the loss of earnings caused by it.  It is capped at £118,223 (£123,543 from 6 April).  That’s only about four months’ pay for someone paid £350,000 a year and even less for those on more.

How the Employment Rights Act 2025 Changes Everything

This is about to change as the government rolls out the Employment Rights Act 2025; the biggest shake up of employment law for decades.  From 1 January 2027, just six months of service will be required to acquire unfair dismissal protection and the amount of compensation available will not be subject to any limit at all.  The removal of the maximum was unexpected and appears to have been added to the new law as a trade-off for the government rowing back on its election promise to make unfair dismissal protection a “day one” right, applicable from the first day of a new job.

What This Means for High Earners

Contrast that with the position if a high earner is dismissed next year.  An ex-employee claiming unfair dismissal is under a duty to mitigate their losses by doing what they can to find another job. It can be difficult for those in senior roles to find another job on comparable pay within a few months, and this means that claims could be worth a lot more in 2027.

The change in the law is unlikely to affect someone earning the UK average wage of around £40,000.  Yes, in theory they will have a claim unlimited in value, but in practice they should find it easier to find another job on comparable pay sooner and within a year.

Why 2026 Is a Risky Year for the Very Well-Paid

What does this mean for the very well-paid?  In short, they want this year to pass as quickly as possible.  A claim this year – or a negotiated exit from a business – is likely to be on much more modest terms than the same process carried out next year.  For those paid, say, £200,000 or more, 2027 should bring with it greater job security or a higher severance package if their employer wants them to move on.  Employers will be taking much more care when making dismissals or not bothering at all, given the potentially unlimited cost if they get it wrong.  It’s not all about a high salary either, as compensation for the loss of bonuses and share options adds to the value of claims.

The Reality of Performance and Misconduct Dismissals

Of course, fair dismissals for gross misconduct or performance will not give rise to any viable claims for compensation, but it’s rare for matters to be indisputable in practice.  It’s common for management to take the view that senior executives are no longer the right people to be undertaking a role, instead of the change being driven by a person’s misconduct or serious underperformance.  Even when an employer feels confident in their decision, the cost of defending Employment Tribunal claims is not usually recoverable from the employee, even if the business is vindicated, which in turn can incentivise the agreement of a generous settlement sum.  That said, higher value claims can be worth fighting, in light of how much is at stake.

And if you’re looking for such a role or in the first six months of a post?  It may be more difficult to find a job in the first place, or you may find you are under much greater scrutiny in the first few months as employers take steps to manage the risk of employing senior staff.

Want to discuss how these upcoming changes could affect you? Reach out to Anthony Purvis.