In what seems almost like a festive miracle, the Employment Rights Bill has been passed by the House of Lords and is set to receive Royal Assent (very) soon and thus become the Employment Rights Act 2025 (ERA25).
The period of parliamentary ping-pong which has endured since the summer has been unprecedented in many respects and is testament to the number and significance of the measures included in this behemoth piece of legislation.
Unfair Dismissal - The qualifying period
The Government’s original proposals for a ‘day 1 unfair dismissal right’ ran into trouble in the House of Lords, which instead suggested a short qualifying period of 6 months, dispensing with the need for a new ‘light touch’ dismissal process for use during a new ‘statutory probationary period’. After considerable wrangling over a protracted period, the Government agreed on 27 November 2025 to accept this amendment.
Therefore, the Day 1 right to unfair dismissal, a ‘headline’ provision of the ERB and a Labour manifesto promise, will not be taken forward, and a shorter 6 month qualifying period will replace the current qualifying period of 2 years.
Making this change by ‘primary’ legislation (i.e. a ‘new’ piece of law) rather than ‘secondary’ legislation (i.e. regulations that amend an existing piece of law already in force) makes it much more difficult for a future government to make further changes and means that any attempt to do so is likely to be closely scrutinised by Parliament.
The new qualifying period is set to take effect from 1 January 2027.
Unfair Dismissal - The cap on compensation
In an unexpected move during the wranglings that resulted in its concession on the qualifying period (above), the Government introduced an entirely new amendment to the ERB ‘lifting’ (which, it transpires, means removing rather than increasing) the compensation cap on unfair dismissal awards in the employment tribunal.
The House of Lords was entirely unimpressed with this turn of events and accordingly the ERB returned again to the House of Commons on Monday 15 December 2025, only to be immediately ping-ponged back to the Lords with no substantive concessions countenanced by the government.
In its final bounce back to the Lords yesterday, Tuesday 16 December 2025, the Lords conceded and allowed the Bill to pass with the removal of the unfair dismissal compensation cap in place. This is big news!
Implications of uncapped awards
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.
The removal of the cap on compensation for unfair dismissal will 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 the number of 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 unfair dismissal 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 only at a later stage.
Once awards are uncapped, far closer attention will need to be paid, by the parties and the tribunal, 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 preparation time, and therefore legal cost, for the parties and more employment tribunal time being required, if matters do not resolve themselves early.
High earners
Traditionally, employment tribunal litigation has been an unattractive option for very high earners, deterred by the overall financial cap, currently £118, 223. Such claims tend to be pursued in the civil courts, where higher awards are available and successful parties usually recover their legal costs from the losing side. However, this may change when the employment tribunal compensation cap is lifted. High value claims will be pursued within the cost-free employment tribunal, with less financial / cost risk for employees pursuing speculative claims; all of which will also add to the workload of an already over-stretched employment tribunal system.
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 without the cap. For example, without the one-year limit, an older worker might attempt to recover ‘career long 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.
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.
Consultations
We are next to be hit by an avalanche of consultations about the detail and implementation of the Act’s provisions; and we will provide more insight on this in the weeks and months ahead in line with the previous consultation synopses we have published already.
The government has committed to maintaining constructive and receptive dialogue with employers and business representatives, so employers are encouraged to get involved in the consultations and have their say on what remains to be settled in the new ERA25 world of employment rights in the UK.
Watch this space for further updates.
If you have any questions or concerns, please do not hesitate to reach out to your usual Weightmans contact.
