Uncapped unfair dismissal: why bonus and equity are now central to exit risk

The Employment Rights Act 2025 was passed just before Christmas and employers are now busy preparing for its reforms, which have staggered commencement dates starting from as early as next month (February 2026). Take a look at our Employment Rights Act hub for more details on the reforms, when they are coming into force and what they mean for employers. 

Among the most consequential changes for reward is the removal of the statutory cap on the unfair dismissal compensatory award (currently the lower of 52 weeks’ gross pay and £118,223).

The risk is not simply “larger tribunal awards”. The real shift is commercial: once ordinary unfair dismissal is no longer bounded by a statutory ceiling, claim value becomes more fact-driven. That pulls bonus and equity into the core of quantum, settlement dynamics and (in practice) board-level decision-making.

The legal delta: what changes?

Even with the cap removed, compensatory awards remain anchored to compensatory loss with the usual constraints: causation, mitigation and tribunal discounts such as Polkey deductions (where a fair dismissal could have been arrived at if a procedural defect were rectified) or contributory fault deductions. But despite these constraints, once the statutory ceiling disappears, three things are likely to happen in most senior exits:

1. The settlement range widens materially. For senior/high-paid employees, the “statutory anchor” stops doing the work and claimants have a stronger incentive to run claims closer to hearing (or at least to the edge of it).

2. Incentives move from background noise to pleaded loss. Bonus “loss of opportunity", deferred award forfeiture and the value impact of equity vesting/lapse/forfeiture decisions become front-and-centre in schedules of loss.

3. Process risk becomes multiplier risk. Where relevant, the ACAS Code uplift (up to 25%) becomes more material where the underlying compensatory award is no longer capped.

What changes inside the reward analysis? Put bluntly, bonus and equity are attractive targets because they offer predictable lines of attack - not because tribunals audit remuneration, but because these issues drive the counterfactual and valuation exercise once liability is in play:

• Bonus: is there a credible reasonable expectation that a bonus would have been paid (and broadly at what level), based on policy, objectives, calibration and communications?

• Equity: once unfair dismissal is established, the loss of unvested/forfeited equity can be pleaded as a head of loss - and the hard questions are typically (i) would the award probably have vested / been retained but for the dismissal? and (ii) what is the value of that lost opportunity? In private companies, the practical flashpoints are leaver mechanics, timing and the valuation methods used, by whom and on what basis.

This is how reward becomes leverage.

A micro-example: why reward suddenly matters to quantum

Take an exec on £250k with a 150% on-target bonus and £400k unvested equity/LTIP/RSUs which is due to be paid / vest in the next 90 days.

The point isn't that a tribunal will simply award upwards of £700k for lost variable pay; it's that once these figures are in play, they set the commercial gravity. They drive the pleaded schedule of loss and force the parties to confront (and evidence) the counterfactual assumptions that sit behind bonus and equity outcomes - often shaping settlement dynamics even where the employer has strong legal defences.

But will tribunals really hear bonus and equity arrangements?

In practice, we think yes. Bonus and equity will be pleaded through employment tribunal claims, not because tribunals are the perfect venue for a forensic value dispute but because the tribunal process is where leverage is created. The employment tribunal is designed to be accessible and claims can be brought without the hurdle of court fees. 

A tribunal claim forces early conciliation, drives disclosure (objectives, calibration, committee papers, etc.) and brings leaver status and discretion into scope to the extent they affect causation, probability and valuation. Put another way: the tribunal will not be asked to re-run a Remco decision; it would be asked to value what was probably lost.

Under the capped regime, the incremental upside of running complex reward arguments in an ordinary unfair dismissal claim was invariably limited. Remove the cap and the economics shift: the expected value of litigating reward-heavy loss materially increases, so more claimants will run the argument through the tribunal first to set the commercial range and apply pressure - often with settlement following well before any final “value-style” remedy hearing.

Where claims will bite: bonus and equity as the new pressure points

Uncapped awards therefore make ordinary unfair dismissal a more valuable vehicle for litigating reward outcomes. Most businesses already understand the uncapped risk in discrimination and whistleblowing claims; the change here is that ordinary unfair dismissal becomes more commercially significant - especially once the qualifying period for these claims reduces from two years to six months with effect from 1 January 2027. 

The legal tests may differ by claim type, but the commercial effect is consistent: once the downside is no longer artificially capped, reward becomes a material component of leverage.

That drives predictable friction around:

• Bonus loss disputes: did the employer's framework and practice create a reasonable expectation of a bonus outcome? Were objectives set in time, assessed, calibrated and documented? Where discretion exists, was it exercised consistently and with a defensible rationale?

• Equity disputes: once liability is established, the focus is often what would probably have happened to vesting / retention absent the dismissal and what that lost chance is worth. The boundary between “good leaver” and “bad leaver”, malus/clawback triggers, timing relative to vesting/exercise; and (in private companies) valuation mechanics will be scrutinised because they drive quantum. 

Reward decision governance 

Where incentive plans have broad bad-leaver triggers, narrow good-leaver treatment and wide discretion, the vulnerability is governance and evidence. In an uncapped regime, these features can be framed as enabling the employer to convert a contested exit into forfeiture of variable pay and equity.

What gets stress-tested is:

• Decision ownership: who decides (Remco/committee vs management), and is delegation permitted and documented?

• Evidence threshold: what contemporaneous documents exist (objectives, calibration, performance management records, investigation outputs)?

• Rationale capture: do minutes/papers explain the decision against the plan factors (not a retrospective narrative)?

• Consistency: do comparable cases produce comparable outcomes and if not, is the distinction documented?

In plain terms: if you cannot evidence why the plan outcome happened, assume it will be used against you.

Timing and procedure: disputes will sit “in the system” for longer

This matters for reward because the pre-claim window is often when committees are asked to lock in bonus outcomes, leaver status and equity treatment - frequently under time pressure and with incomplete records. 

Separately, the maximum ACAS early conciliation period has been extended (up to 12 weeks for notifications on/after 1 December 2025).

That elongates the pre-claim window where consistency, minutes and documentation quality matter. This pre-claim window is set to be extended even further from October 2026, when the time limit for bringing employment tribunal claims will be extended from three months to six months.

Practically, that means more time for grievances, DSARs, comparator narratives and internal documents to become settlement leverage. The right response is not “more process”; it is better decisions and better records, earlier.

Practical reward controls to implement

1. Drafting (plan rules and award documentation)

• Define decision factors and mandatory process steps (not just broad discretion): who decides, what must be considered, what must be recorded.

• Align leaver definitions and outcomes across variable pay (bonus, LTIP, retention) to avoid plan-by-plan contradictions that look arbitrary in contested exits.

• In private companies, hardwire internal coherence between valuation mechanics and leaver outcomes: if discretion exists, make the governance and methodology defensible and repeatable.

2. Governance

• Reserved matters + delegation protocol: clarify who decides what, and when - then document it (committee terms of reference, authority levels etc.).

• Mandate evidence packs for adverse outcomes (forfeiture, malus/clawback, bad leaver).

• Improve minute-taking, so the rationale is intelligible to a third party and ties back to the plan factors and evidence.

3. Operations and comms

• Align award letters/FAQs with how the plans actually operate (avoid “helpful” oversimplifications that contradict the rules or create expectations you cannot meet).

• Manager enablement: performance and conduct documentation is now a reward risk control, not just HR admin.

• Integrate legal/reward sequencing into exit playbooks: what you decide, when, who signs it off and what evidence must exist before the decision is final.

The commercial takeaway

Removing the cap doesn’t guarantee larger awards, but it re-prices the downside and increases the leverage of reward in contested exits. Organisations that win will be the ones that can run incentives like a controlled framework: clear drafting, disciplined decision-making and disclosure-ready evidence.

At Burges Salmon, we help employers get ahead of these changes by running an incentives-focused legal stress test across their reward framework - aligning plan rules and award documentation, tightening leaver and discretion mechanics, and embedding an evidence-led decision process that will stand up to scrutiny in a contested exit.