Last week the government announced a U-turn on its manifesto commitment to give employees the right to bring an unfair dismissal claim from day one of employment, which was a key part of the Employment Rights Bill.
Instead, The Department for Business and Trade proposed a six-month qualifying period, reduced from the current period of two years.
This change will happen by primary legislation, making it harder for a future government to change it, rather than by the existing powers to vary the qualifying period in the Employment Rights Act 1996.
The decision reflects concerns raised by business groups and trade unions that a day-one right could discourage employers from hiring.
Whilst this U-turn on a key manifesto commitment has understandably attracted most of the headlines, the government also planned to “lift” the cap on compensation for unfair dismissal. Currently, compensation for unfair dismissal is capped at one year’s gross pay, with a maximum of £118,223 (for dismissals after 6th April 2024).
There was some ambiguity surrounding what the plan to “lift” the cap would mean, and whether this would allow unlimited awards, or that either the maximum of £118,223- or one-year’s gross pay would be removed and the other remain. The government clarified the position it its amendments to the Employment Rights Bill which included to “Omit section 124 (limit of compensatory award etc).” Section 124 is the section of the Employment Rights Act 1996 containing the caps outlined above. This would mean awards for unfair dismissal would be uncapped.
The amendments to unfair dismissal were debated in the House of Commons on Monday (8th December), whereby Kate Dearden reported that the six-month qualifying period for unfair dismissal protections will be brought in from 1 January 2027.
The government anticipated that these changes would allow the legislation to pass through the House of Lords, however the legislation went back to the House of Lords yesterday (10th December), where the removal of the cap was rejected (votes 244 to 220), in favour of the government conducting a review of the impact of the change. Whilst the House of Lords welcomed the amendment to the qualifying period, several members raised concerns about the late introduction of the removal of the cap, lack of consultation, and the ambiguity surrounding what business representatives agreed to during their talks with the Department for Business and Trade.
The legislation will now return to the House of Commons.
What Should Employers Do Now?
- Stay Informed
Monitor the progress of the Employment Rights Bill and stay informed with legal updates. Sign up to our newsletter on our website Solicitors in Bury St Edmunds, Suffolk | Greene & Greene - Review Employment Contracts
Ensure contracts clearly set out notice periods, termination clauses, and any post-termination restrictions. - Review Policies
Update disciplinary and grievance procedures to ensure compliance and fairness. Document all processes thoroughly. - Train Managers
Provide training on policies, dismissal practices and handling performance issues to ensure fairness and reduce the risk of claims.
This is only intended to be a summary and not specific legal advice. Should you require assistance, please contact a member of our team.
Article published 02 December 2025. Updated 11 December 2025.
