The Employment Rights Act 2025: key points to note for senior executives
Insight
The Employment Rights Act 2025 (ERA 2025) received Royal Assent on 18 December 2025, marking a significant shift in employment rights in the UK. There have been lots of articles written around how the ERA 2025 will impact employers; however, little has been written on how the changes will affect senior executives personally.
Although the ERA 2025 is yet to come into force, two reforms in particular will transform the landscape for senior executives' employment rights:
- the removal of the statutory cap on the compensatory award for ordinary unfair dismissal; and
- the reduction of the qualifying period for ordinary unfair dismissal claims from two years to six months.
In this blog, we explore these two developments in more detail and discuss the practical implications for senior executives as employees.
Removal of the unfair dismissal compensation cap
Under the current framework, the compensatory award in statutory unfair dismissal claims is capped at the lower of 12 months’ gross salary or the statutory maximum (currently £118,223). Senior executives generally earn well in excess of the capped figure, meaning that bringing an unfair dismissal claim may have very little strategic value to an executive and often won't come close to achieving recovery of the financial loss suffered from any unfair termination.
In a landmark move, the ERA 2025 will remove the cap entirely. For senior executives, this is arguably the most consequential shift in dismissal protection in decades, and it will significantly increase the potential value of employment tribunal claims.
Although each case will depend on its own facts, senior executives and their representatives may be able to use this as leverage during exit and without prejudice settlement discussions. While any losses for a potential claim would be subject to a duty to mitigate, on its face the removal of the cap allows senior executives to include within their losses not just salary but valuable additional remuneration such as the impact on their entitlement to equity, carried interest and/or deferred bonuses.
Exits involving senior individuals are frequently resolved before litigation and while this is partly due to a desire for both the employer and the executive to manage any reputational consequences of the exit, it is also because senior executives have historically not been able to recover their losses through a claim for ordinary unfair dismissal. Therefore, unless the executive can argue that they have been discriminated against or suffered a detriment as a whistleblower, their legal arguments to leverage a higher settlement are often limited.
That said, we doubt this change will open the floodgates and lead to an exponential rise in senior executives bringing employment tribunal claims. As referenced above, there are other factors that determine whether a senior executive wants to bring a claim such as reputation, commercial bargaining power, the current backlog in the Employment Tribunal and that successful executives will typically be focussed on the next stages of their career, including pursuing a new role. However, with uncapped compensation in the background, executives may reasonably expect settlement figures to reflect that they potentially have an uncapped claim for unfair dismissal (albeit they would be expected to seek to mitigate their loss if they bring an Employment Tribunal claim).
This may well lead to more protracted exit negotiations and potentially more attention being given by employers to compliance with its employment processes in managing senior executives. These processes are unlikely to be welcomed by senior individuals and may well not be suited to managing board-level or other very senior departures.
Reduction of the qualifying period to six months
The ERA 2025 will also reduce the qualifying period for unfair dismissal claims to six months. This is a significant departure from the prevailing two‑year qualifying period and will affect executives on two levels:
- they will acquire unfair dismissal protection earlier in their employment than ever before; and
- executives may face a compressed timeframe in which they will be assessed for suitability in the role and for their employer to decide whether to continue the relationship beyond the first six months. This carries obvious downsides given that, for those in senior positions, it can take some time to make a meaningful impact on an organisation.
When advising senior executives on entry to a new position/role, we often negotiate the removal of any probation period; this is on the basis the individual is very senior and has usually gone through extensive interviews and/or has been headhunted for the role from an existing position.
In these circumstances, probation periods are not usually appropriate and expose the executive to being terminated at short notice early in their employment.
The reduction in the unfair dismissal qualifying period to six months could mean that employers are more wedded to retaining probation periods in an executive's contract. In addition, we may see more employers seeking to exit a senior executive prior to the end of six months' employment if they have concerns around performance or suitability for the role (particularly in light of the removal of the unfair dismissal compensation cap). Executives should therefore be alive to this risk and seek to mitigate it by negotiating meaningful contractual protection on early termination of their contracts.
Concluding thoughts
It is anticipated that the above-mentioned changes will be effective from 1 January 2027, and so there is still time for executives to plan ahead. Executives will, of course, also need to consider these changes in the context of managing their own staff.
While the removal of the unfair dismissal cap and reduction in the qualifying period to six months are the two most significant changes for senior executives as employees, other ERA 2025 reforms will also shape the executive employment environment. These include changes to flexible working and parental rights and the duty to prevent sexual harassment; it is important that executives are aware of these additional changes as well, given they will also be relevant in their capacity as managers.
For a more general guide on some of the other key changes from an employer perspective, see our other guides here:
- Employment Rights Act 2025, redundancies, neurodiversity claims: employment disputes insights
- The Employment Rights Act 2025: preparing for change with seven practical steps
- Employment Rights Act 2025: Updates, Key Reforms and Resources | Farrer & Co
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2026
