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