The Employment Rights Act 2025 changes the financial risk calculation for employers. For years, many tribunal risks were serious, but containable. Ordinary unfair dismissal had a qualifying period. Compensation was capped. Many claims had to be brought within three months. Harassment and whistleblowing sat in related, but legally distinct, risk categories.
From January 2027, the qualifying period for ordinary unfair dismissal will reduce from two years to six months, and the cap on unfair dismissal compensatory awards will be removed. That is a major change for employers, particularly where senior staff, high earners or difficult exits are involved. A dismissal process that once created a limited compensation risk could now produce a much larger award if the employee suffers prolonged loss of earnings.
The Act also strengthens protections around whistleblowing and harassment. Sexual harassment disclosures will sit within the protected disclosure framework, meaning retaliation after a harassment report could become an uncapped whistleblowing claim. The risk is not limited to dismissal. Removing someone from a project, giving them a poor review, excluding them from meetings or allowing a manager to treat them as a problem after they report harassment could all create exposure.
Other changes increase the likelihood of claims reaching tribunal. Time limits for most employment tribunal claims are moving towards six months, reducing the number of cases employers can defeat purely because the claim was brought late. Day-one rights around sick pay, paternity, parental and bereavement leave also make early employment decisions more sensitive. Employers who still treat probation as a low-risk period may find that assumption increasingly dangerous.
The result is not that every tribunal claim will suddenly become a six-figure case. Tribunals will still dismiss weak claims. Employers will still be able to defend decisions where they have evidence, process and a lawful reason. But the cost of getting routine decisions wrong is going up.
What does it cost to defend a tribunal claim today?
Even before compensation is awarded, defending an employment tribunal claim can be expensive. A relatively straightforward wrongful dismissal or unfair dismissal claim may cost between £7,500 and £17,500 plus VAT to defend, excluding attendance at the final hearing. More complex claims, including whistleblowing or discrimination, may cost £17,500 to £30,000 plus VAT, again excluding hearing attendance.
Those figures do not capture the full business cost. Employers also need to account for internal HR time, management distraction, witness preparation, document review, settlement discussions, reputational exposure and the operational disruption of having senior staff focused on litigation rather than the business.
The hidden cost can be particularly high where allegations involve harassment, discrimination, whistleblowing or unsafe working conditions. These cases often require wider disclosure, more witnesses, more difficult factual disputes and greater reputational sensitivity. They are also more likely to involve uncapped compensation.
The introduction of the Employment Rights Act increases this risk in three ways.
First, more employees will be able to bring claims. The reduction of the unfair dismissal qualifying period to six months brings many more dismissals within tribunal jurisdiction.
Second, more claims will be financially open-ended. Removing the unfair dismissal compensation cap means employers can no longer assume that an ordinary unfair dismissal claim has a predictable ceiling.
Third, more claims are likely to be pleaded in higher-risk ways. A harassment complaint followed by poor treatment may become a whistleblowing claim. A flexible working refusal may become an indirect discrimination claim. A probation dismissal after a request for leave may become a day-one rights claim. Recent tribunal cases actually show how this could matter in practice.
Baksh v Advanced Markets: the senior executive exit
Farmiena Baksh was a senior financial services executive earning £160,000. She worked as managing director and head of compliance at Advanced Markets. She had argued that she was “grossly underpaid” and sought a significant pay rise, with discussions including figures of £250,000 and £300,000.
The employer dismissed her after concluding that there had been a breakdown in trust and confidence. The tribunal found the dismissal was procedurally unfair. There had not been a proper process. However, Baksh was awarded no compensation because of her own conduct, which the tribunal considered sufficiently blameworthy to reduce the award to zero.
This case shows that even where the employee’s conduct is difficult, a procedurally defective dismissal can still be unfair. Under the current regime, ordinary unfair dismissal compensation is capped. From April 2026, that cap is £123,543 or 52 weeks’ gross pay, whichever is lower. From January 2027, the cap will be removed.
If a similar case were decided post-ERA, and if the tribunal did not make a 100% reduction for conduct, the financial exposure could be materially higher. On a £160,000 salary, one year of lost earnings already exceeds the current statutory cap. If a senior employee was out of work for 18 months, the gross earnings loss alone could be around £240,000 before pension loss, benefits, bonus arguments, legal costs and internal business disruption are considered.
Griffin v Lancashire Logistics: ordinary unfair dismissal
Mrs M Griffin brought an unfair dismissal claim against Lancashire Logistics International Ltd. The tribunal found in her favour. She was awarded a basic award of £11,110 and a compensatory award of £19,619, producing a total unfair dismissal award of just over £30,000. The compensatory calculation was based on 74 weeks’ loss, reduced for new earnings.
For a modestly paid employee, the award remained manageable. But the same structure of loss calculation applied to a high earner looks very different.
Post-ERA, a claimant earning £250,000 who is unfairly dismissed and takes a year to find equivalent work could point to a loss figure far beyond the current cap. At 18 months, the headline earnings loss could be £375,000. At two years, it could be £500,000. That does not mean the tribunal would automatically award those sums. The claimant still has to prove loss and mitigation, and the employer may argue that a fair process would have produced the same outcome. But the cap will no longer do the employer’s work.
Griffin therefore illustrates the quietest, most common financial risk created by the Act. The factual question is still whether the dismissal was fair. The commercial question is now: what does the same unfair process cost when the claimant is a senior manager, director or specialist who cannot quickly replace their income?
Coutts v Sky: the value of a time-limit defence
Ms Sharon Coutts brought claims against Sky Subscriber Services UK Ltd. She initially brought claims including unfair dismissal, disability discrimination and failure to make reasonable adjustments.
At an earlier preliminary stage, her unfair dismissal claim was dismissed because it had been presented late. The tribunal found that it had been reasonably practicable for her to bring the unfair dismissal claim in time. Her discrimination claims were also late, but the tribunal allowed those to proceed on the basis that it was just and equitable to extend time. The tribunal ultimately dismissed the remaining discrimination claims.
This is a useful example of a defence that may become less available after the Employment Rights Act is fully implemented. At present, most employment tribunal claims must be brought within three months less one day, subject to Acas early conciliation and some exceptions. Under the Employment Rights Act reforms, most tribunal time limits are expected to move to six months.
If a case like Coutts were brought under a six-month time limit, the unfair dismissal claim may not have fallen away at the preliminary stage. That does not mean the employee would have won. It means the employer may have had to defend another claim on the merits, with more evidence, more witness preparation and greater settlement pressure.
Chaves v Wind River: whistleblowing fails, but unfair dismissal still succeeds
Mr B Gomes Ferreira Chaves worked for Wind River UK Ltd as a field applications engineer. He resigned and brought claims including unfair dismissal, disability discrimination, whistleblowing detriment, automatic unfair dismissal and unlawful deduction from wages.
The tribunal upheld his unfair dismissal claim and part of his unlawful deductions claim. It dismissed his whistleblowing detriment and automatically unfair dismissal claims. In the remedy judgment, Wind River was ordered to pay £11,375 in unpaid commission, £518.28 in accrued holiday pay, a £4,550 basic award, an £8,925.50 compensatory award and a 10% uplift for unreasonable failure to comply with the Acas Code, producing a total award of £26,261.33.
This is an important case because the employer avoided the highest-risk element of the claim. Whistleblowing claims are uncapped and can become far more expensive than ordinary unfair dismissal. In Chaves, the whistleblowing claims failed. The employer still lost on unfair dismissal and wages.
Post-ERA, this type of litigation becomes more dangerous for employers because more claims may be pleaded as whistleblowing, especially where the underlying issue is harassment. If an employee reports sexual harassment, then experiences colder treatment, a poor appraisal, reduced responsibilities or dismissal, the claim may not simply be “harassment” or “victimisation”. It may also be framed as protected disclosure detriment or automatic unfair dismissal.
That can change the economics of the case. In Chaves, the compensatory award was under £9,000. If the whistleblowing claim had succeeded, the tribunal would have been operating in an uncapped regime. If a future harassment-related disclosure is treated as whistleblowing, the employer may face compensation for financial loss, injury to feelings, reputational sensitivity and greater pressure to settle.
Recalculating the cost of a tribunal post-ERA
A pre-ERA tribunal risk assessment often started with liability and then looked at the statutory cap. That approach is becoming less reliable.
For a straightforward unfair dismissal claim pre-ERA, the employer might face £7,500 to £17,500 plus VAT in legal defence costs before final hearing attendance, plus any award or settlement. For more complex discrimination or whistleblowing claims, defence costs may start at £17,500 to £30,000 plus VAT, again before final hearing attendance.
Post-ERA, the same claim may cost more for several reasons.
More cases will be eligible. Reducing the ordinary unfair dismissal qualifying period to six months means more probation and early-service dismissals can be challenged. More cases may be in time. Extending most tribunal limitation periods to six months gives employees longer to bring claims. More cases may be uncapped. Removing the unfair dismissal cap changes the exposure in high-earner cases, while harassment, whistleblowing, discrimination and health and safety claims already carry uncapped or near-uncapped risk.
The highest-risk scenarios are likely to include:
Senior exits where the employee earns £150,000 to £300,000 or more, and the employer has rushed the process.
Harassment reports followed by any adverse treatment, including poor appraisals, exclusion, project removal or dismissal.
Whistleblowing allegations where the employer treats the individual as a troublemaker rather than managing the disclosure properly.
Probation dismissals after requests for paternity leave, parental leave, sick pay, bereavement leave or other day-one rights.
Discrimination-linked flexible working, return-to-office, redundancy or performance decisions.
Health and safety complaints followed by discipline, dismissal or reduced hours.
Collective redundancy failures, where protective awards can multiply across the workforce.
Remember the tribunal award is only one line of the cost. Employers also pay in legal fees, HR time, management distraction, settlement leverage, lost productivity, damaged morale and reputational exposure.
The Employment Rights Act does not mean every claimant will win. It does mean employers need to stop thinking about tribunal risk as a capped downside attached to occasional HR disputes.
