Unfair dismissal: last-minute changes to the Employment Rights Act 2025

22 January 2026

On 18 December 2025, the Employment Rights Bill received Royal Assent and passed into law as the Employment Rights Act 2025 (the Act). For a general overview of the Government’s published timeline for commencing the Act’s provisions (to which the Government says it remains committed, as at 21 January 2026) see our previous article here. Some measures relating to trade unions are already in force, and some of the main changes to expect in April 2026 include the removal of the waiting period for statutory sick pay (SSP) and the day-one right to paternity leave.

In the weeks preceding the bill’s passing, in what the Government described as a ‘compromise’ following discussions with unions and business representatives, the provision for ‘day one’ ordinary unfair dismissal rights (which had been a manifesto commitment) was removed from the bill. Instead, as passed, the Act reduces the qualifying period from two years to six months.

The Act also retracts the existing power to use secondary legislation to amend the law in this area. In practice, this means that any future Government would have to undertake a relatively lengthy and burdensome law-making process to amend the unfair dismissal qualifying period.

The other notable last-minute change made by the Government was to remove the cap on compensation for unfair dismissal. Compensation is currently capped at the lower of £118,223 or 52 weeks’ pay. As passed, the Act removes both of these caps, meaning that compensation for ordinary unfair dismissal will be (as is already the case in whistleblowing and discrimination claims) unlimited.

The Government has confirmed in a factsheet published by the Department for Business and Trade on 21 January 2026 that it intends to bring these changes into force on 1 January 2027. In respect of the qualifying period for unfair dismissal rights, this will be done by stipulating that any employee’s accrued service on the commencement date will be counted towards the new qualifying period, regardless of when their employment commenced. For example, all employees whose employment commenced on or before 1 July 2026 would immediately gain unfair dismissal rights on 1 January 2027 (if they didn’t already have them). Anyone whose employment commenced after 1 July 2026 would gain their rights six months after the date employment began. This means that employers need to bear in mind that new hires in 2026 will almost certainly gain unfair dismissal rights within, at the most, a year.

Employers should also note that, from 1 January 2027, the Act will remove the qualifying period for protection against unfair dismissal by reason of spent convictions. At present, if an employer replies on a spent conviction to reject a candidate for a role, the candidate can only bring an unfair dismissal claim if they have two years’ qualifying service. The unfair dismissal right is thus somewhat toothless, because, quite obviously, in many cases applicants with spent convictions will not be existing employees. The change brought about by the Act from 1 January 2027 will mean that employers need to be careful in their hiring activities, ensuring they do not rely on spent convictions to make recruitment decisions. Otherwise they may face unfair dismissal claims which will not be subject to a compensation cap.

The Government’s backtracking on general ‘day one’ unfair dismissal rights marks a concession to lobbying by business groups, and means that the Government has not delivered on its manifesto commitment to ‘day one’ protection. Nevertheless, the change was brokered at discussions to which unions also contributed and, given the alternatives, might be regarded as a fairly good compromise by both sides. As previously drafted, the bill had included provisions for an ‘initial period of employment’ (effectively a probationary period) during which a modified test for unfair dismissal rights would apply. In other words, although employees would have possessed unfair dismissal rights from the first day of employment, in practice it might have been easy to lawfully dismiss them, albeit employers would have borne the burdens of compliance and litigation risk, which might have been substantial until the case law was settled. Given all this, it was arguable that introducing a new test for fairness during an employee’s probationary period was a complication of disproportionate dimensions, especially given that it would have required extensive consultation and, once in force, seemed likely to be heavily litigated.

The removal of the cap on unfair dismissal compensation was not a manifesto commitment, was not consulted upon, and was not (due to the lateness of its appearance in the bill) extensively debated in Parliament. However, it is not a completely unexpected development, since it did appear in the Employment Rights green paper produced by the Labour Party in 2022 and published in 2024, only for the initial drafting of the bill to appear to confirm that Labour had discarded the idea. In returning to it, the Government may be attempting to counterbalance the reinstatement of the unfair dismissal qualifying period, which is likely to be interpreted as pro-business. The removal of the cap will be welcomed by those who regard it as punitive on those with high losses. It can be argued that the 52-week cap (introduced by the coalition Government in 2013) is particularly unfair on anyone with relatively low earnings whose losses amount to more than a year. Conversely, the monetary cap (currently £118,223) chiefly limits the recovery of very high earners – which may in some cases have deterred them from issuing employment tribunal litigation at all. The Government’s factsheet states that most unfair dismissal awards are much lower than the current cap, which appears to bypass the question of whether the change in the law will encourage high-value claims. The Government also optimistically makes the argument that the removal of the cap may disincentivise Claimants from appending worthless discrimination claims to unfair dismissal cases in order to access unlimited compensation. If there is any truth to this, it might enable Tribunals to deal with unfair dismissal cases more swiftly.

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This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.