Senior Executive Layoffs Rise Ahead of Employment Law Changes

Senior exits can be commercially sensitive and expensive. When a senior employee leaves, there may be issues regarding notice pay, bonuses, commissions, share options, pension contributions, restrictive covenants, confidentiality, references, and reputation. The City A.M. article suggests that some employers are acting now due to concerns about the upcoming changes to unfair dismissal; however, acting before January 2027 does not remove the need to follow a proper process.

Under current rules, employees usually need two years’ continuous service to bring an ordinary unfair dismissal claim; however, some workplace rights apply from day one, including protection from discrimination, whistleblowing-related dismissal and certain automatically unfair dismissal claims. This means employers should be cautious about rushing senior exits or treating the current rules as a risk-free window.

From 1 January 2027, the qualifying period for ordinary unfair dismissal protection is expected to be reduced from two years to six months. This means many more employees will be able to bring unfair dismissal claims much earlier in their employment. For employers, the change is likely to make probation periods, performance reviews, conduct processes and redundancy decisions more significant. Managers will need to address concerns promptly, document decisions clearly and follow fair procedures.

For employees, the change may offer earlier protection against unfair dismissal; however, the rules will still depend on the date of dismissal, length of service and the individual facts of the case. From October 2026, the time limit for most Employment Tribunal claims is set to increase from three months to six months. This gives employees more time to consider a claim, but early advice will still be important because evidence, documents and deadlines can quickly become an issue.

Settlement agreements are likely to remain a key part of senior executive exits. A settlement agreement is a legally binding agreement between an employer and an employee. It usually involves the employee receiving a financial package or other agreed terms in exchange for waiving certain legal claims against the employer.

For the agreement to be valid, the employee must obtain independent legal advice before signing. For employees, the key question is not just whether the financial offer looks reasonable: a settlement agreement can also affect bonus payments, share schemes, references, confidentiality, restrictive covenants, future employment and reputation.

For employers, a properly drafted settlement agreement can help bring an employment relationship to an agreed conclusion, reduce the risk of future disputes and protect confidential or commercially sensitive information. However, settlement agreements should not be used as a substitute for proper advice: if the underlying process is unfair, discriminatory or mishandled, the risk of a dispute may remain.

Employers should review how they manage performance, probation, redundancy, restructuring and senior exits before the new rules come into force. That may include updating contracts and policies, training managers, keeping better records, reviewing probation processes and making sure decisions are supported by evidence.

Where a senior exit is being considered, employers should carefully consider the reason for the decision, the process followed, the terms being offered and how the departure will be communicated. Early legal advice can help employers make informed decisions, reduce the risk of an Employment Tribunal claim and deal with difficult workplace issues in a fair and commercially sensible way.

Employees who are told their role is at risk, asked to leave, or offered a settlement agreement, should seek advice before agreeing to the terms. This is particularly important for senior executives, directors and higher earners, whose financial and professional consequences can be significant.

Employees should understand which claims they may be giving up, whether the package reflects their legal and contractual position, and whether non-financial terms, such as references, confidentiality clauses and restrictions, could affect their next role. Taking advice early can help employees understand their position, make informed decisions and avoid signing away important rights without proper consideration.