SENIOR EXECUTIVE DISMISSALS: WHAT HAPPENS WHEN THE COMPENSATION CAP DISAPPEARS

When a very senior executive is dismissed without any meaningful process, the dismissal will usually be unfair.

More commonly than capability, the real issue may be that the executive has lost the confidence of the board, investors or other key stakeholders. That can amount to some other substantial reason (SOSR) and therefore a potentially fair reason for dismissal. But the employer must still act reasonably, and an argument that a proper process would have made no difference will rarely cure the unfairness, although it may reduce compensation.

From 1 January 2027, the financial consequences potentially become much greater because the compensatory award cap for unfair dismissal disappears. Consider an executive aged 61, earning £70,000 and intending to work until 67. Six years' earnings amount to £420,000.

A Tribunal would not simply award that sum, but where future employment prospects are poor, the eventual loss could still run into hundreds of thousands of pounds.

There is an additional risk with newly appointed executives. From the same date, the qualifying period for ordinary unfair dismissal falls from two years to six months. An employer which discovers relatively quickly that a senior appointment is not working will therefore have a much shorter period before ordinary unfair dismissal protection applies.

At board level, process is not simply a technical obstacle to removing an executive who has lost confidence. It is an essential way of managing potentially very substantial financial risk.