The Government has confirmed that it will ditch its original plan to make unfair dismissal a day-one right and will instead reduce the qualifying period from two years to six months. This significant policy shift broke the parliamentary deadlock to keep the Employment Rights Bill (which has today become the Employment Rights Act 2025) on track. The Government’s changes do not end there. In a last minute change of heart (perhaps to appease Trade Unions) it just removed the statutory cap on the unfair dismissal compensatory award.
Unfair dismissal
Before the 2024 general election, Labour proposed a change to day-one unfair dismissal rights and included this proposal in the draft Employment Rights Bill published in October 2024. They suggested that during the ‘initial period of employment’ (expected to be nine months) there could be a lighter-touch process for dismissals other than redundancy. There was no proposal to change the compensatory award cap in the original Employment Rights Bill.
The House of Lords has repeatedly rejected the day one proposal, forcing the Government to compromise in order to avoid further delay. It has therefore offered the six-month qualifying period, saying that it will no longer be alterable via statutory instrument. This means that any future change will require primary legislation and is therefore likely to remain in place for the foreseeable future.
Surprise turn – Lifting the compensation cap
In an unexpected development, the Government has now stated that it will lift the compensation cap of the lower of £118,223 or 52 weeks’ pay. This last-minute change will have substantial ramifications in terms of the value of unfair dismissal claims.
The timeline still seems to point to implementation on 1 January 2027 for the six month qualifying period, but the removal of the cap is likely to take longer as the Government has committed to publish an impact assessment on the consequences of removing the compensation cap. HR teams should start preparing now:
- Review probation processes
A six-month qualifying period means that decisions on performance, conduct and fit must be made early. Review your guidelines for staff and prompt managers to act well before the six-month point.
- Build in some cushion to timescales
Allow flexibility in review schedules to avoid rearranged meetings or delays causing issues.
- Consider the ‘statutory week’
Don’t leave things to the last minute. A dismissal without notice adds one statutory week to service, so an intended pre-six-month dismissal could unintentionally cross the threshold.
- Prepare for costly claims
Employees are more likely to claim when the caps are lifted. The current cap creates a disincentive for high earners to claim unfair dismissal and this disincentive is to be removed. Therefor settlement negotiations could become more difficult as employers will not have the statutory cap to fall back on. Tribunals may also award significantly more to lower earning claimants. Dismissing older workers or those with long-term health conditions will be more tricky because future loss of earnings claims could be career-long. Early evidence around mitigation will be absolutely essential.
The shift away from day-one rights offers employers breathing space – but the move to a six-month threshold combined with the removal of the compensation cap still represents a substantial change requiring early planning.
Further reading
- Revised rollout of the Employment Rights Bill
- Read the implementation document in full.
- Employment Rights Bill – Top 8 significant changes – Hunter Law
- Employment Rights Bill: factsheets – GOV.UK
- Post General Election update – How will a Labour Government impact your workplace? – Hunter Law
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