In one of our early updates on the wide-reaching Employment Rights Bill (ERB) we explained the Government’s significant proposal to remove the qualifying period for unfair dismissal, and allow employees to claim from Day 1 of their employment.
To mitigate the perceived adverse impact on employers, it was proposed that a ‘light touch dismissal process’ should apply during an ‘initial period of employment’ (IPE) of 9 months. No details were given of what this ‘light touch’ process would entail, or whether it would meaningfully empower employers to fairly dismiss unsuitable new joiners.
This controversial aspect of the ERB has been subject to a rocky passage through Parliament, with the relevant provisions being batted back and forth between the House of Commons and the House of Lords in an attempt to reach agreement.
The qualifying period
The Government’s original proposals ran into trouble in the House of Lords, who suggested a short qualifying period of 6 months, dispensing with the need for an adapted, ‘light touch’ process. This was felt to be simpler and easier to understand for all parties, and to strike a better balance between employer and employee interests. After considerable wrangling over a protracted period, the Government agreed on 27 November to accept this amendment.
The Day 1 right to unfair dismissal, a ‘headline’ provision of the ERB, will not be taken forward, and a shorter 6 month qualifying period will replace the current qualifying period of 2 years. We understand that the new qualifying period is set to take effect from 1 January 2027.
The cap on compensation
Currently, compensation for ‘ordinary’ unfair dismissal, is capped at £118,223 (regularly updated to account for inflation) or one year’s salary for the individual employee (whichever is lower).
In an unexpected move, at the same time as announcing its concession on the qualifying period (above), the Government introduced a further amendment to the ERB to lift the compensation cap. The amendment, as drafted by the Government, simply removes s124 of the Employment Rights Act 1996, which would mean that both the 52-week cap and the overall financial cap would no longer apply. Again, this amendment was passed by the House of Commons but met resistance in the House of Lords, which objected to such a significant policy change being introduced at the last minute.
The ERB will return to the House of Commons today (15 December 2025), where the Government will need to decide whether to stand its ground, or to agree to consultation as proposed by the House of Lords (in the interests of consensus and meeting the Government’s stated aim of getting the ERB passed by Christmas).
Implications of uncapped awards
Whether included in the ERB, or introduced at a later date following consultation, the removal of the cap on compensation for unfair dismissal will potentially have huge implications for how employers and their legal representatives approach dismissals and litigate unfair dismissal claims.
The 52-week cap is a valuable tool both in giving certainty to employers and sometimes in managing claimants’ expectations. The removal of the upper limit will undoubtedly make it more difficult, and potentially more expensive, to settle claims before an employment tribunal hearing.
A general increase in unfair dismissal claims is also likely, placing additional strain on an already struggling employment tribunal infrastructure and further stretching out the average lifecycle of a claim. In some cases, a claimant might be persuaded to settle a claim for immediate payment, rather than ‘holding out’ for an ET award many months or years in the future, but this will depend on the circumstances of the case and the tenacity of the individual.
Unfair dismissal awards are already uncapped, if the dismissal is alleged to be discriminatory or related to a whistleblowing complaint. The removal of the cap is partly intended to address the perception that employees often ‘over-complicate’ their claims, by introducing tenuous discrimination or whistleblowing allegations to maximise compensation. However, we don’t believe the proposed changes are likely to result in a significant reduction in this practice.
Liability v Remedy
Currently, the primary focus of employment tribunal litigation tends to be on ‘liability’ (i.e. whether the claim will succeed or fail at employment tribunal), with arguments around ‘remedy’ (i.e. the compensation a successful claimant will receive) often coming into play at a later stage. If awards are uncapped, closer attention will need to be paid to remedy from the outset; for example, how easily might a claimant have found a similar job? What other attempts have they made to mitigate their losses? All of this is likely to result in more cost and more employment tribunal time being required, if matters do not resolve themselves early.
High Earners
Traditionally, employment tribunal litigation has been unattractive option for very high earners, deterred by the overall financial cap of £118, 223. However, this may change if the cap is lifted. Employers may be much less inclined to ‘take the risk’ on dismissing a senior individual if there is no longer a ceiling on potential compensation. It may also be considerably harder to reach agreed exit terms in the senior executive space if employment tribunal litigation is potentially a more lucrative option. At the very least, negotiation upon exit will likely become harder.
Greater exposure for Respondents
It is important to remember that even unfair dismissal claims brought by lower or moderate earners may quickly become extremely expensive if the cap is lifted. For example, an older worker might attempt to recover ‘career losses’ covering the remainder of their working life. Pension losses, previously falling within both the 52-week cap and overall financial cap, may also greatly inflate average claim value.
We will of course continue to track this crucial aspect of the ERB and keep you updated. If you have any questions or concerns, please do not hesitate to reach out to your usual Weightmans contact.
Previous insights in our ERB Series
Employment Rights Bill Series: Four ‘autumn 2025’ consultation launched (Principal Associate, Matt Smith) 24 October 2025
Employment Rights Bill Series: Amendments to zero-hours contracts provisions (Principal Associate, Suzanne Nulty and Principal Associate, Louise Singh) 07 August 2025
Employment Rights Bill Series: Amendments to the Fire and Re-hire provisions (Legal Director, Ross Hutchison) 22 July 2025
Employment Rights Bill series | July amendments: NDA changes and more (Principal Associate, Louise Singh) 13 July 2025
Employment Right Bill Series: Implementation Roadmap – a long and winding road (Principal Associate, Suzanne Nulty and Partner, Mark Landon) 08 July 2025
Employment Right Bill Series: House of Lords Stages completed (Principal Associate, Suzanne Nulty) 26 June 2025
Employment Rights Bill Series: The House of Lords Stages so far (Principal Associate, Suzanne Nulty) 6 June 2025
Employment Rights Bill Series: Employment Rights Bill moves from Commons to Lords (Principal Associate, Suzanne Nulty) 25 March 2025
Employment Rights Bill Series continued (Principal Associate, Suzanne Nulty) 7 March 2025
Employment Rights Bill Series: Zero Hours Contracts and Guaranteed Hours: A Zero-Sum policy? (Principal Associate, Louise Singh) 27 January 2025
Employment Rights Bill Series: Small but significant changes to the statutory sick pay system (Principal Associate, Ashley Powis) 13 December 2024
Employment Rights Bill Series: First set of proposed amendments: what it means and what to expect (Principal Associate, Suzanne Nulty) 6 December 2024
Employment Rights Bill Series: Further rules on fair tipping (Principal Associate, Ashley Powis) 3 December 2024
Employment Rights Bill Series: Dismissal and Re-engagement - Tying the Hands of employers? (Legal Director, Ross Hutchison) 22 November 2024
Employment Rights Bill Series: The Fair Work Agency (Principal Associate, Suzanne Nulty) 15 November 2024
Employment Rights Bill Series: The Pendulum Swings on Industrial Relation (Partner Andrew Forrest and Principal Associate, Louise Singh) 8 November 2024
Employment Rights Bill Series: Day 1 right to claim unfair dismissal (Principal Associate, Suzanne Nulty and Associate, Lauren Barchet) 25 October 2024
Employment Right Bill Series – Flexible Working “Further Flexion” (Principal Associate, Suzanne Nulty) 21 October 2024
The Employment Rights Bill Series: 2024 – What’s in, What’s out, and What’s next (Principal Associates, Louise Singh and Suzanne Nulty) 11 October 2024
For further guidance on unfair dismissal, please contact our expert employment law solicitors.
