Senior executives and Employment Rights Act 2025: Navigating risk and leverage in a new landscape

Senior executives will need to understand not only the legal changes themselves, but how they recalibrate risk, leverage and strategy across recruitment, appointment and exit from employment. Irwin Mitchell’s specialist senior executive team have prepared guidance to senior executives explaining what the key changes are, how to best protect a senior executive’s position and what shifts to expect in the senior executive job market. 

What are senior executive roles?

Senior Executive roles include Chief Executive Officers (CEO’s), Directors, Chief Financial Officers (CFOs), Chief Operating Officers (COOs), Chief Technology Officers (CTOs), Managing Directors, Presidents, Vice Presidents, and other C‑suite or board-level positions. These roles are distinguished by strategic leadership, governance responsibility, cultural stewardship and external accountability. They are typically engaged on bespoke contractual terms reflecting their status. These often include extended notice provisions, comprehensive restrictive covenants and increasingly complex remuneration structures incorporating bonuses, long-term incentive plans and equity participation.

Why should senior executives care about the Employment Rights Act 2025?

The Employment Rights Act 2025 (ERA 2025) materially alters the protections afforded to senior executives during the early stages of employment and, consequently, the approach employers are likely to take when hiring and managing senior talent. For senior executives, these reforms present both opportunity and vulnerability: enhanced statutory protection on the one hand, but heightened scrutiny and defensive employment practices on the other.

What are the key changes under the Employment Rights Act 2025?

The Employment Rights Act 2025 introduces several reforms that are particularly consequential for senior executives moving roles, three of which are central to understanding the new balance of power:

1. Removal of the unfair dismissal compensatory award cap effective from 1 January 2027:
2. Reduction of the unfair dismissal qualifying period to six months effective from 1 January 2027:
3. Extension of employment tribunal claim time limits from three to six months effective from October 2026:

Currently, the compensatory award for unfair dismissal is capped at the lower of 12 months’ pay or £123,543. For senior executives with complex, high-value remuneration structures, this has long meant that statutory compensation bears little relationship to the financial loss suffered on dismissal, particularly where remuneration is heavily weighted towards variable pay, long-term incentives or deferred benefits. The removal of the cap materially alters this. While the compensatory award will remain subject to the established principles under s.123 ERA 1996 – including mitigation, Polkey reductions and issues of contributory conduct – the removal of an overarching cap means tribunals will no longer be required to limit awards purely by reference to a statutory maximum. This change is likely to recalibrate the risk-reward analysis for senior executives considering statutory claims. Claims that were previously unattractive due to limited value may now warrant active pursuit, either alongside or instead of contractual claims. The impact is likely to be felt most acutely in settlement negotiations, where exposure to an uncapped compensatory award materially strengthens a senior executive’s negotiating position and increases the employer’s litigation risk;

Senior executives entering new roles will now acquire statutory unfair dismissal protection after six months’ continuous employment. This is a significant shift from the longstanding two-year qualifying period, which frequently left senior hires exposed even where they were progressing well and often close to acquiring protection. The reduced qualifying period significantly reduces the time employers have to dismiss without the risk of an unfair dismissal claim. For senior executive appointments, this is likely to sharpen employers’ focus on the initial six months of employment, particularly around role clarity, performance monitoring and early intervention where concerns arise. Employers will be identifying and addressing under performance much earlier to circumvent greater scrutiny once statutory protection applies. For senior executives, the reform strengthens bargaining position and job security during a traditionally vulnerable phase of employment. This is particularly relevant where exits occur following strategic realignment or leadership change rather than clear misconduct or capability failings; and

Extending the limitation period increases the practical ability of senior executives – whose exit negotiations are often complex and multi-layered – to take legal advice. It allows time to explore internal resolution and engage meaningfully with Acas Early Conciliation before issuing proceedings. From a procedural perspective, the reform reduces the historic tactical advantage employers enjoyed where the three-month limitation period curtailed negotiations or forced the early issue of protective proceedings. This may lead to more considered claims, and fewer cases being presented to advisers close to (or after) expiry of limitation periods.

How do we anticipate employers will respond to these reforms?

Employers are already adjusting their approach in anticipation of these reforms, particularly in relation to senior executives. Risk-averse organisations may seek to address concerns earlier on in the employment or, where concerns persist, manage executives out before the six-month qualifying period, especially where there are early concerns around performance, strategic alignment or cultural fit. Consequently, senior executives can expect heightened scrutiny throughout the early months of employment, with more formal probationary processes, clearly articulated performance metrics and reduced tolerance for under performance. 

At the same time, employers will remain sensitive to reputational and governance considerations. A pattern of rapid turnover at senior level can undermine investor confidence and attract unwelcome scrutiny. Therefore, some organisations may place greater emphasis on retention strategies or internal resolution where disputes arise. Where exit disputes cannot be resolved informally, employers may be more inclined to pursue early settlement, particularly because of the increased financial risk from the removal of the compensatory award cap.

Recruitment practices are also likely to evolve, with a more cautious and evidence-based approach to senior appointments, including enhanced pre-appointment due diligence and more tightly drafted contractual and performance frameworks.

The first six months of employment will be a period of early vulnerability and early leverage. Guidance on how to protect your position from the outset:

While the six-month qualifying period improves senior executives’ statutory position, it should not distract from the fact that the initial period of employment remains one of heightened vulnerability. The strongest negotiating position for senior executives has traditionally been at the point of accepting an offer of employment, as this is often their only meaningful opportunity to shape the terms that will govern the relationship. With heightened employer defensiveness, early and informed legal advice from Irwin Mitchell’s specialist senior executive team on executive employment terms is crucial. 

Key points to consider when negotiating with a new employer: 

• Written contractual protections - These remain the primary safeguards available to senior executives during this initial period. Given the heightened risk of early exit during the first six months, all of these protections should be enshrined in the employment contract itself rather than confined to an offer letter. Where appropriate, they should be explicitly preserved and cross-referred to in any related settlement agreement. Without this contractual certainty, executives risk a compounded loss - having already relinquished accrued rights with their former employer, only to be exited shortly after joining with no effective financial protection. At minimum, we recommend the following contractual terms should be considered:
  • Notice periods should be carefully balanced. While longer notice provides greater financial protection if an employer successfully manages the executive out, it can also restrict an executive’s ability to move quickly to alternative employment.
  • Restrictive covenants should be scrutinised and narrowed where possible and drafted no more widely than is reasonably necessary to protect legitimate business interests, and their practical impact on future roles should be assessed at the outset. Where settlement discussions arise and post-termination restrictions are a barrier for an executive to move to their next role, the removal of the unfair dismissal compensatory award cap may materially alter bargaining dynamics. The employer’s increased litigation exposure may strengthen the executive’s negotiating position in seeking a waiver, release or reduction of post-termination restrictions.
• Probationary periods: At senior executive level these warrant careful challenge and are rarely appropriate where individuals have been headhunted or selected following an extensive recruitment process. Where probation cannot be avoided, attention should focus on mitigating its practical effect – such as aligning notice entitlements inside and outside probation, limiting the employer’s ability to extend the probationary period and ensuring that performance expectations are clearly articulated from the outset.
• “Golden handshakes”: Where an executive is being recruited away from an existing role, a sign-on bonus (often referred to as a hiring bonus or ‘golden handshake’) should be treated as a core contractual protection. Its purpose is to compensate for remuneration forfeited on resignation, including base salary, bonus opportunity, deferred compensation and equity awards. For that protection to be meaningful, the sign-on bonus must be clearly segregated from any ongoing performance-related or discretionary bonus arrangements. It should be expressly stated to be unconditional, payable irrespective of termination, and not be subject to clawback or forfeiture. Payment mechanics should be drafted with precision, including timing (for example, within a fixed period following commencement, via the first payroll run, or in defined tranches on specified dates) and form (cash, shares or other instruments).
• Beyond contractual protections, executives should seek clarity before signing a contract on how performance will be measured in practice, including applicable KPIs or targets, how success will be evidenced and where discretion sits with bonus outcomes. Once in role, disciplined performance management – including regular reviews, documented feedback and contemporaneous records of achievement – together with early legal advice where employer behaviour is unusual or inconsistent, provides essential protection against later disputes.

What changes senior executives should expect in recruitment following the Employment Rights Act 2025:

The enhanced protections introduced by ERA 2025 are likely to encourage senior executives to move roles, as they will no longer be giving up statutory protection built up over long periods of employment. This may induce greater mobility at the top of organisations, particularly where executives have historically felt ‘locked in’.

Simultaneously, recruitment is likely to become more challenging for employers operating against a backdrop of rising National Insurance (NI) costs and broader economic uncertainty. Recent data from Reed Recruitment indicates that 22% of businesses have cut back on hiring following increased NI contributions. Senior recruitment, already costly and high-risk, is therefore likely to slow and become more competitive. Employers are also likely to apply greater internal scrutiny to the commercial justification for hires and their total employment cost. 

Employers are increasingly looking for leadership capability that goes beyond technical competence. Considering enhanced obligations around preventing sexual harassment, advancing diversity, equity and inclusion and supporting neurodiversity, senior executives are now expected to demonstrate advanced people-management capability and cultural leadership. As a result, recruitment processes are likely to probe leadership style and behavioural competence more deeply, alongside an executive’s strategic approach to workforce management. Senior recruitment may therefore become more structured, selective and data driven, with greater reliance on behavioural assessment, psychometric profiling and external executive search expertise.

The first six months of employment remain a period in which contractual rights are paramount. While ERA 2025 does not remove risk for senior executives, it does meaningfully recalibrate where that risk sits. Understanding and anticipating the impact of the reforms, creates a more secure platform for senior executives to move roles – and a stronger negotiating position at the point where leverage is at its greatest.

Overview

The Employment Rights Act 2025 reshapes the balance of risk and leverage for senior executives, especially at the point of hire and in the first six months. The six-month qualifying period, longer tribunal time limits and the removal of the unfair dismissal compensatory award cap strengthen an executive’s position if matters unravel, while also encouraging more cautious, front-loaded hiring and early intervention by employers. The practical takeaway is to use offer-stage leverage to secure clear, robust contractual protections.

If you are a senior executive seeking advice on strategy for moving roles and signing on, please speak to a member of our senior executive team.