Taking the cap off: major changes to the Employment Rights Bill

• 8 December 2025
• Views
• Employment

In recent weeks, the Employment Rights Bill (“ERB”) has been ‘ping-ponging’ between the Houses of Parliament, with the Lords pushing back on the Government’s flagship policy of ‘Day One’ to protection from unfair dismissal for employees. That has resulted in some surprising and potentially hugely significant changes to the Bill.

On 27 November, the government reversed its manifesto pledge to grant all workers the right to claim unfair dismissal from day one of employment. This was a major point of contention blocking the ERB’s passage. The Lords repeatedly rejected the day-one proposal, citing concerns that removing the qualifying period entirely could deter hiring, particularly for younger or higher-risk candidates. Labour have now confirmed that the qualifying period for unfair dismissal will be reduced from two years to six months. 

This longer period should make it easier for employers to part ways with employees towards the outset of the working relationship than we initially anticipated. It also makes the ERB significantly simpler, as the concept of a ‘statutory probation period’ has disappeared from the Bill. However, there will still need to be a significant change of mindset from managers in particular in terms of the time available and approach required to assess whether recruitment has been successful and act accordingly. 

Perhaps even more significantly, the Government has very recently put forward an amendment to remove the cap on the compensatory award for unfair dismissal entirely. As a reminder, this currently stands at the lesser of £118,223 and 52 weeks’ pay (in addition to any basic award, which reflects length of service). 

If passed, this change would potentially significantly increase the legal exposure and unpredictability of unfair dismissal claims. In many cases, we would not necessarily expect awards to rise; awards for discrimination claims are potentially unlimited and yet average figures for successful contested claims are not high. However, the removal of the cap will undoubtedly have an influence upon negotiations and will potentially be very significant for higher earners, whose awards (and settlements) might previously have had a clear ceiling.

We intend to share further information in 2026 about the detail of these potential changes and the timeline for implementation should they proceed. 

Potential reforms to non-compete clauses in employment contracts

• 28 November 2025
• Views
• Employment

The government has published a working paper inviting views on potential reforms to non-compete clauses in employment contracts.

Non-compete clauses are provisions that restrict an individual from working for or establishing a competing business after leaving their current role. The paper seeks input on alternative policy options which are designed to promote job mobility, enhance competition, and encourage knowledge sharing. These measures are intended to support employment opportunities and drive economic growth. The aim is to ease restrictions on employee movement and reduce downward pressure on wages, aligning with the government’s broader ‘growth mission’.

The paper invites views on a range of policy options, including:

1. Introducing statutory limits on the length of non-compete clauses

   One approach is to impose a short blanket limit (e.g. 1 – 3 months). This may reduce disputes due to the shorter duration, as workers might feel it is easier to comply because the restriction is brief.

   Alternatively, statutory limits could vary according to company size, making it easier for employees of larger firms to move to competitors. This could benefit start-ups, which would retain the ability to use longer non-compete clauses to help secure and retain talent.

2. Banning non-compete clauses 

   Making non-compete clauses unenforceable could encourage employers to adopt positive incentives to retain staff. However, a potential downside is that employers may respond by strengthening other restrictive covenants, such as non-solicitation or confidentiality clauses, to achieve similar effects.

3.  Banning non-compete clauses below a salary threshold 

   This option would make non-compete clauses unenforceable for lower paid workers, who are often not in a financial position to challenge the enforceability of the clauses.  However, implementing a threshold could raise uncertainty around calculating pay and determining an appropriate level for the threshold itself. 

4. Combining a ban below a salary threshold with a statutory limit

   A combined approach could involve banning non-compete clauses for workers below a salary threshold, while imposing a statutory limit of three months for those earning above the threshold.

Enforcement

Restrictive covenants, including non-compete clauses, are currently enforced through the courts, with the losing party normally liable for legal costs. This potential financial exposure may deter individuals from contesting clauses, even where they are likely unenforceable.

The government is seeking evidence on whether the prospect of high legal costs acts as a barrier to challenging non-compete clauses and invites views on appropriate measures to prevent this. 

The closing date for responses to the working paper is 18 February 2026.

The working paper can be viewed here. 

Despite the UK having one of the most flexible labour markets among advanced economies, persistent low job mobility, weak competition in certain sectors, and low innovation are constraining productivity and economic growth. Non-compete clauses play a part in restricting employee movement, limiting knowledge spillovers, and can undermine incentives for innovation.

https://www.gov.uk/government/publications/reform-of-non-compete-clauses-in-employment-contracts-working-paper/working-paper-on-options-for-reform-of-non-compete-clauses-in-employment-contracts