Under the umbrella of The Employment Rights Bill (the Bill), the Labour government had promised the biggest upgrade to worker rights of our generation, the most famous of the reforms being the abolition of the requirement for employees to have two years’ service in order to bring a claim of unfair dismissal. Labour promised day one rights to bring unfair dismissal claims. However, over the last few months, there has been much parliamentary “ping-pong” over this issue as a result of the House of Lords’ refusal to accept day one rights and insistence on a six-month qualifying period instead. On 27 November, the Government finally accepted the Lords’ position. Instead of immediate protection from an unfair dismissal, employees will be able to bring a claim after 6 months, instead of the current two years.
The Government issued a press release indicating that this step was taken with the agreement of trade unions and business groups, with a view to keeping on track with the Government’s intended timeframe for the implementation of the Bill. It also proposed that, in future, the qualifying period can only be amended by primary legislation (which makes it more difficult for future governments to amend).
When the Government published its amendment on 5 December confirming that the current two-year qualifying period is to be replaced with six months, in the same amendment, it stated that the statutory compensation cap on unfair dismissal awards (currently the lower of 52 weeks’ pay or £118,223) is to be removed in its entirety. This followed many days of speculation as to what precisely the Government intended to do with the statutory compensation cap, whether it intended to remove the 52-week limit and keep the overall cap.
The Bill was debated in the Commons on 8 December 2025, and Kate Dearden, the Parliamentary Under Secretary of State in the Department for Business and Trade, confirmed that the qualifying period for ordinary unfair dismissal claims will be reduced to 6 months and will be brought in from January 2027.
The Government also indicated an intention to adopt a ‘commencement approach’ that would extend protections immediately from 1 January 2027 to employees who already (at that point) have six months’ service or more. For example, under this proposal, someone employed from December 2025 will gain protection against unfair dismissal on 1 January 2027.
The Government has stated that this approach will prevent a ‘two-tier’ system, where some employees would remain on a two-year qualifying period while newly hired employees were subject to a six-month qualifying period.
This amendment will be debated in the Lords on 10 December.
Background
In the UK, employees currently need two years of continuous service with their employer to qualify for the right to claim ordinary unfair dismissal under the Employment Rights Act 1996. This means that if an employee is dismissed before completing two years of service, they generally cannot bring a claim for unfair dismissal. However, there are exceptions where no minimum qualifying period applies, for example, if the dismissal is due to a discriminatory reason, whistleblowing, for asserting a statutory right or related to a health & safety reason. In those cases, the employee can claim unfair dismissal regardless of their length of service.
As part of the Labour Government’s Manifesto pledge, they promised day one rights for all employees to bring a claim for unfair dismissal – removing the current two year service requirement. However, with the Lords digging its heels in, the Government U-turned last week and agreed to a six-month qualifying period. However, it also announced that it was planning to ‘lift’ the cap on compensation – but failed to provide any detail of what this meant.
The Government has also confirmed that it is committed to protecting this change by making sure that the unfair dismissal qualifying period can only be amended through primary legislation. This will make it more difficult to amend in the future. Previously, the qualifying service could be changed through a statutory instrument, which is a simpler process.
The compensation cap
The Government’s press release on 27 November, in which they announced the U-turn on qualifying service, also mentioned an intention to lift the cap on compensation. This came as a surprise addition and led to significant speculation as to what this means.
Under the current regime, for any successful unfair dismissal claims, compensation for unfair dismissal is limited to (the lower of) 52 weeks’ gross pay or a statutory cap (currently £118,223).
This does not apply in discrimination or whistleblowing claims – where compensation is uncapped.
On 5 December, it was confirmed that the statutory compensation cap is to be removed in its entirety. This is surprising since it was not a government manifesto, nor has it been the subject of consultation. During the debate in the Commons’ on 8 December there was significant push-back from Conservatives and Liberal Democrats on the lifting of the compensation cap. Sarah Olney (Liberal Democrat MP for Richmond Park and Spokesperson (Business) stated, “abolishing the cap was not agreed in recent negotiations between employer groups, trade unions and the Government. Most businesses would have been happy for the cap to have been increased, but completely scrapping it, without any consultation or negotiation, has understandably left employers feeling deeply worried and facing yet another nasty surprise”.
This will be considered by the Lords on 10 December 2025, and it is possible that the amendment will be resisted.
If the cap is lifted, this could result in significantly higher compensation for all employees than under the current regime, and will be a concern for many employers.
We await further clarification on this.
Timing
On 8 December 2025, it was confirmed that the qualifying period for ordinary unfair dismissal claims will be reduced to 6 months from January 2027 and that the Government will adopt a ‘commencement approach’, suggesting that this approach would extend protections immediately from 1 January 2027 to employees who already have six months’ service or more.
This concession (from day one rights to a six-month qualifying period) from the Government was preceded by significant opposition to the proposed reform. On 11 November 2025, the ONS reported that the UK unemployment rate had risen to 5% for the three months to September 2025 – the highest it has been since late 2020 at the height of the COVID pandemic. Many expressed concern that providing individuals with day-one rights or a shorter qualifying period would prove to be another nail in the coffin of the economy. There was also concern that employers could be more cautious about hiring new recruits, and this, coupled with already rising unemployment rates, was a concern.
This, when considered in light of the already stretched Employment Tribunal Service (which is currently seeing an unprecedented amount of backlogged claims), could put more strain on an already struggling service. However, despite these concerns, the six-month qualifying period has been well received as a good compromise between day one rights to unfair dismissal and the current two-year qualifying period and offers fresh opportunities for employers to strengthen their employment practices.
What does the 6-month qualifying period and removal of the compensation cap actually mean for employers?
- Employers will have shorter timeframes to identify any issues:
Managers will need to be trained to identify any performance or conduct concerns earlier and address them with the employee. They should also ensure that they have good record-keeping of any such concerns and their discussions.
- Employers will need to maintain good record keeping and demonstrate how they have addressed any performance concerns, the feedback they have provided and what support they have offered to the employee.
- Consistency and fairness in the treatment of employees will be very important.
- The complete removal of the cap on unfair dismissal compensatory awards will give employees a much greater incentive to litigate. Disputes are likely to become more expensive, particularly for higher earners and it will be much more difficult to manage employees’ expectations when negotiating settlements.
- If the compensation cap is removed, remedies for unfair dismissal will compete with those in discrimination or whistleblowing claims – as far as they are uncapped.
- If an employee successfully argues that there has been a breach of the ACAS code, they could potentially claim up to 25% uplift on their damages, which could lead to sizeable awards.
Action points
- Review your workforce and any planned dismissals, restructures or redundancies.
- Make sure managers are trained on recruitment practices and performance management processes.
- Review and update any policies which may be affected by these changes.
- Review notice periods and contracts to comply with the six-month qualifying period.
- Keep an eye on the progress of the Bill by regularly checking our Employment Rights Update here
To book an appointment or to discuss this further, please contact the Employment Law team on [email protected], 01732 770660
This article is for general information purposes only and does not constitute legal or professional advice. All information was correct at the time of publication; however, the law may have changed since then. For the most up-to-date advice, please contact us directly. We do not accept any responsibility or liability for actions taken based on the information in this article.
