Day-one unfair dismissal rights was one of the headline-grabbing manifesto pledges made by the Labour Party in their bid to win the last general election. When the Employment Rights Bill was published and confirmed the removal of the qualifying period for unfair dismissal claims, panic ensued. Businesses feared a potential surge in claims, while lawyers and HR professionals scrambled to figure out what this would look like in practice. However, after months of speculation, it looked like we finally had clarity on the issue… only for everything to change all over again!
On 27 November 2025, a Government press release confirmed that an agreement had been reached between key stakeholders about the unfair dismissal provisions of the Employment Rights Bill. This followed several weeks of parliamentary ‘ping pong’ between the House of Commons and the House of Lords, with each House rejecting the other’s amendments. Key details of the announcement were:
- The qualifying period for unfair dismissal claims to be reduced from two years to six months (rather than starting from day one);
- Changes to the qualifying period above will only be able to be made via primary legislation; and
- The compensation cap will be lifted.
But what does this actually mean in practice? Below, we’re taking you through some of the key practical questions which this latest u-turn has exposed.
Qualifying period
What will the six-month qualifying period look like?
Employees will gain protection from unfair dismissal after six months of employment, rather than after two years. Protection against discrimination and automatic unfair dismissal remains unchanged. The ideas about the ‘initial period of employment’ or unfair dismissal rights from the first day of employment have been abandoned.
Why does it matter that the qualifying period can only be changed through primary legislation?
Future changes to the qualifying period will require primary legislation, meaning any adjustments will be subject to full parliamentary scrutiny. This makes changes less likely and prevents ministers or other bodies from altering the period through secondary legislation.
Compensation cap
What is the compensation cap?
This is the maximum amount that may be awarded by Employment Tribunals in an unfair dismissal claim. The figure is reviewed annually and announced at the start of the tax year. In 2025, the cap on the compensatory award was £118,223 or the equivalent of one year’s pay, whichever is lower.
How has the compensation cap operated historically?
Before 1999, statute dictated that the maximum compensation was £12,000. In 1999, this increased to £50,000 and was subsequently uprated using a formula that resulted in above-inflation increases in the following years.
By 2013, the cap had reached £72,300. The government decided to limit the compensatory award to the lower of 12 months’ gross salary or the statutory cap (currently £118,223) to prevent unrealistic expectations of tribunal awards and avoid discouraging recruitment.
So, what is changing?
The government has announced that the ‘compensation cap will be lifted’. While details remain unclear, any change to the cap is surprising because the Employment Rights Bill previously made no reference to it.
Lifting the cap could mean removing the £118,223 limit, removing the 12-month salary cap, removing both, or increasing both. Current speculation suggests the 12-month salary cap will be removed, but with the £118,223 cap remaining in place. Formal confirmation is awaited.
How will these changes impact employers?
During the six-month qualifying period employers will need to assess new hires and address performance concerns. As employees will secure unfair dismissal rights 18 months earlier than before, employers must be proactive and diligent to avoid unnecessary claims.
Probationary periods will now be more important than ever. Managers should address issues promptly and keep performance under constant review. Likewise, recruitment processes should be reviewed to ensure that new hires meet the required standards from day one.
In relation to the compensation cap, if the 12-month salary cap is removed, an employee earning £30,000 and previously limited to claiming £30,000 for unfair dismissal, could claim up to the statutory cap of £118,223. This significantly increases financial risk for employers in unfair dismissal claims. This change may make settlement agreements more attractive when exiting employees. Settlement agreements allow employees to waive their right to bring future claims in exchange for a payment above their contractual entitlements, thereby reducing employer exposure.
Importantly, Claimants will still have a duty to mitigate their loss, and Tribunals will not award compensation for losses that could have been avoided by seeking alternative work. Employers may consider offering enhanced outplacement support, such as: CV drafting, interview preparation, career coaching, and wellbeing support. By offering these services, employers will help employees return to work and mitigate losses, in turn reducing their potential exposure.
This also does not change the financial risks of Employment Tribunal claims where other claims (which are uncapped in compensation) are being brought. For example in discrimination or whistleblowing claims.
Key Takeaways for Employers
- Review procedures relating to recruitment, probation, capability, and dismissal.
- Train managers on how to maximise the probation process.
- Review settlement agreement processes and consider expanding outplacement support offerings.
How we can help
For further information, or to discuss the issues raised within this case, please contact us to speak to a member of our Employment Team.
This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.
