The Government has announced a significant change of direction on one of the key elements of the Employment Rights Bill (“ERB”) in relation to unfair dismissal rights.
The ERB gives shape to one of the Government’s key manifesto pledges, to introduce legislation to improve the rights of working people. However, whilst the ERB had been expected to receive Royal Assent this autumn, its progress has been deadlocked and subject to delays as a result of ongoing scrutiny of the draft legislation in Parliament, passing back and forth between the House of Commons and House of Lords in a parliamentary process also known as “ping pong”.
What the Government Has Changed
The ERB was originally introduced with a plan to remove the current qualifying period of two years for protection from unfair dismissal, which aligned with the Government’s manifesto commitment to ensure that all workers had a right to unfair dismissal protections from “day one”.
With a view to unlocking the current deadlock so that the ERB can pass towards Royal Assent, the Government has now confirmed that it will replace the planned “day one” rights in the ERB with a new qualifying period of six months before an employee can make a claim for unfair dismissal.
It has stated this approach is a more “workable package” whilst still providing enhanced protections to employees who will “gain new rights” and providing “much needed clarity” to employers and businesses. The Government has also committed to ensuring that the unfair dismissal qualifying period can only be modified by way of primary legislation, meaning it will be more difficult for future governments to modify or reverse the changes.
In an additional surprise, the Government has revealed that it also plans to “lift” the cap on compensation for unfair dismissal claims, which is currently set at a year’s gross pay or a statutory cap (currently £118,223 from 6 April 2025, as set by the Employment Rights (Increase of Limits) Order 2025), whichever is the lower, although it is unclear at this stage as to how this would take effect.
What the Changes Might Mean for Employers and Employees
The compromise on “day one” unfair dismissal rights will provide some relief to employers and businesses, with the previous plans presenting increased challenges for employers, particularly in relation to recruitment, performance and management of other issues and disputes in the workplace.
Employees will still gain enhanced unfair dismissal protections due to the new, shorter qualifying period for unfair dismissal claims, meaning that claims can be brought at a much earlier point in time than is currently possible under the existing legal framework which requires a two year qualifying period in most cases.
As a result of the shorter qualifying period, decisions made in relation to key issues such as recruitment, onboarding and conduct or capability concerns will likely carry more weight, as dismissals occurring after a six-month period could now be challenged. It will therefore be crucial for employers to take steps to review policies and procedures and maintain a proactive approach to managing issues and disputes (particularly in relation to performance and conduct) and to ensure that managers and key decision makers are updated and trained as to the changes coming into force in the ERB.
Alongside the “day one” right to unfair dismissal protections, the Government has also planned to introduce a form of statutory probationary period in the ERB, where a “light touch” approach to dismissals would apply for an as yet undecided period of time following commencement of employment. The Government’s position on this is currently unconfirmed, however, it is possible that this may also be revisited or removed from the ERB, as a result of these new revisions to unfair dismissal rights.
There is also currently limited detail on the Government’s plans to remove the statutory cap on compensation for unfair dismissal claims and it is not known whether the Government intends to remove the cap entirely so that any limit is taken away, or to modify the existing provisions. Removing any limit or cap on compensation awards entirely may result in an increased risk to employers of unfair dismissal claims by those employees who are highly paid.
The ERB also introduces a number of other key changes to employment legislation which are expected to come into force and for further insight, see our additional coverage here and here.
What Will Happen Next?
Whilst confirmatory detail on these new developments is awaited, it is expected that the ERB will return to the House of Lords for consideration of the amendments in the coming weeks with the aim of resolving the current disagreements and reaching a consensus as to the final text of the legislation.
Other pressure points do remain, in particular, in relation to a right for workers to opt out of further guaranteed hours offers, which had previously been rejected in the House of Commons but was returned to the table by the House of Lords. It remains to be seen whether the concessions on “day one” unfair dismissal rights will be sufficient to diffuse the current deadlock.
The amendments are currently expected to be considered by the House of Lords on 10 December 2025. Once a consensus is achieved, the ERB is likely to pass towards Royal Assent, following which it will officially become law.
Broadfield is ready to help employers prepare and respond effectively to these developments and is uniquely positioned to assist with preparing for the changes, including providing bespoke training, reviewing and updating policies and contracts, and in-depth support at all stages of disputes and employment tribunal claims, in addition to other informed employment law advice.
