Unfair dismissal compensation: basic award, compensatory award and the cap

Who can claim unfair dismissal?

To claim ordinary unfair dismissal, you must be an employee and have enough continuous service on the date your employment ends:

• 2 years if the effective date of termination is before 1 January 2027;
• 6 months if it is on or after 1 January 2027 ERA 2025, s.25; SI 2026/559.

Some reasons for dismissal need no qualifying service, for example whistleblowing. The Employment Rights Act 2025 guide explains the change of rules on 1 January 2027.

If a tribunal finds the dismissal unfair, it can order your employer to take you back. In most cases, though, the outcome is money. That money has two parts.

Part 1: the basic award

The basic award is a fixed calculation. It works like statutory redundancy pay ERA 1996, s.119:

Age during each full year of service	Weeks’ pay per year
Under 22	0.5
22 to 40	1
41 or over	1.5

• Years are counted back from the effective date of termination.
• Only the last 20 years count.
• A week’s pay is capped at £751 where the effective date of termination is on or after 6 April 2026 (£719 before) SI 2026/310.
• The maximum is therefore 20 × 1.5 × £751 = £22,530.

The basic award is not affected by the changes on 1 January 2027. The cap on a week’s pay stays.

Two reductions are common:

• if you received a redundancy payment for the same dismissal, it is taken off the basic award s.122(4). So if your employer called it a redundancy and paid statutory redundancy pay, the basic award is often nothing;
• the tribunal can reduce it if your conduct before the dismissal makes that just and equitable s.122(2).

For some reasons for dismissal, such as health and safety or trade union reasons, the law sets a minimum basic award: £9,157 since 6 April 2026 s.120(1); TULRCA 1992, s.156; SI 2026/310.

Part 2: the compensatory award

The compensatory award is the amount the tribunal considers just and equitable for the loss you suffered because of the dismissal s.123(1). The law includes:

• pay you have lost since you left, and may lose in the future;
• the value of benefits you lost, such as pension contributions or a company car;
• reasonable expenses caused by the dismissal, such as the cost of looking for work s.123(2).

It is not a fixed formula. The tribunal looks at evidence. The main points it considers:

• Mitigation. You are expected to try to reduce your loss, usually by looking for work s.123(4). Keep proof of every application.
• Your conduct. If you caused or contributed to the dismissal, the award can be reduced s.123(6).
• Enhanced redundancy pay. Any redundancy payment above the basic award is taken off the compensatory award s.123(7).
• The Acas Code. If your employer, or you, unreasonably failed to follow the Acas Code of Practice on discipline and grievances, the award can be raised or lowered by up to 25% TULRCA 1992, s.207A.

The cap on the compensatory award

On 20 October 2026, the compensatory award cannot be more than the lower of ERA 1996, s.124(1ZA):

• £123,543 (since 6 April 2026) SI 2026/310; and
• 52 times your week’s pay, based on your actual gross pay: the £751 limit on a week’s pay does not apply here ERA 1996, s.227(1).

There was already no cap for some reasons for dismissal, such as whistleblowing or health and safety s.124(1A).

What happens to the cap on 1 January 2027

Section 124 is removed from 1 January 2027 ERA 2025, s.25(3); SI 2026/559, reg. 3. From then, the compensatory award has no upper limit. The rules on loss, mitigation and reductions stay the same.

The change applies where the effective date of termination is on or after 1 January 2027, even if the dismissal was announced before. It does not apply where that date is before 1 January 2027 SI 2026/559, reg. 4.

The effective date of termination is usually your last day. The law can use a later date for some purposes when the minimum notice was not given s.97(2), but section 97(2) does not list the compensatory award. If your last day is close to 1 January 2027, get advice on which date applies.

A worked example

This example is fictional and shows how the parts fit together. It is not what a tribunal would award in a real case.

Sam is 45, has worked for 10 full years and earns £800 a week before tax. He is dismissed, the tribunal finds the dismissal unfair, and he received no redundancy payment.

Basic award. His last 4 years were at 41 or over: 4 × 1.5 = 6 weeks. The 6 years before were at 35 to 40: 6 × 1 = 6 weeks. Total 12 weeks. His week’s pay is capped at £751: 12 × £751 = £9,012.

Compensatory award. Say the tribunal accepts a loss of £50,000, after taking account of his job search and his new pay.

	Last day on 15 December 2026	Last day on 15 January 2027
Basic award	£9,012	£9,012
Loss accepted	£50,000	£50,000
Cap	lower of £123,543 and 52 × £800 = £41,600	no cap
Compensatory award	£41,600	£50,000
Total	£50,612	£59,012

With a last day in December 2026, the 52-week limit (£41,600) is lower than £123,543, so it applies, and £8,400 of the loss is not paid. With a last day in January 2027, there is no limit. The cap only makes a difference when the loss is larger than the limit.

Other money is claimed separately

Unpaid wages, holiday pay and notice pay are not part of the unfair dismissal award. They are separate claims, with their own rules, and you can bring them whatever your length of service. The final pay checker compares what is due with what you received, and the pay in lieu of notice guide explains notice pay.

Tax on an award is not covered here. The redundancy pay tax guide explains the £30,000 rule for payments when a job ends.

How long do you have to claim?

For a dismissal that took effect on or after 1 October 2026, the time limit is 6 months minus 1 day from the effective date of termination, and you must contact Acas within it. For example, a dismissal effective on 15 October 2026 gives a last day of 14 April 2027. Earlier dismissals keep the 3-month limit. The tribunal time limits guide explains how Acas extends the deadline.

If you go to a tribunal, you will usually be asked to set out your figures in a schedule of loss.

Northern Ireland

Northern Ireland has its own unfair dismissal law, limits and tribunal, and the changes of 1 January 2027 do not apply there. This guide does not cover it.

What to do now

1. Check your dates, free. The time limit calculator gives your last day to contact Acas, with a suggested earlier date and a free email reminder.
2. Raise it in writing. A grievance can set out what happened and what you are asking for. You can prepare a grievance letter yourself (£9, or £19 with a dated reminder letter, an appeal letter and reminders). See the grievance letter guide.
3. Next step. The free Acas preparation sheet lists what Acas will ask. Acas, Citizens Advice, a trade union or a solicitor can also help you.