Huge changes ahead for Unfair Dismissal – are you ready?

I am sure you will have seen the recent news that the Government has decided to abandon its plan for ‘day one’ unfair dismissal rights and will instead be introducing a six month qualifying period. This has rightly made the headlines – but there are some key points linked to this announcement that haven’t received the attention they deserve.

The change of plan was largely due to the pushback received from the House of Lords and employer organisations about the difficulties that bringing in ‘day one’ rights would potentially cause. The Employment Rights Bill had already been going back and forth between the House of Commons and the House of Lords for several months (a process known as ‘ping pong’) and there hadn’t been much sign of progress. Rather than risk their flagship legislation being delayed even further, the Government decided that it would be better to go with a qualifying period of six months (although they have said that they aren’t abandoning the idea of day one rights and will try to introduce it later).

The qualifying period has varied over the years since the law on unfair dismissal was first introduced in 1971. The longest the period has been is 2 years (as it is now) but it we have had a six month qualifying period before – in 1974 (and for the following five years).

Having a shorter qualifying period means that the number of claims is expected to rise significantly, which is of concern given that both ACAS and the Employment Tribunals are already struggling to cope with their existing workload.

1 January 2026

The Government is intending for the change to take effect from 1 January 2026, which is incredibly quick. It is subject to the Bill being approved by the House of Lords, but it is expected that the Lords will be much more likely to accept, now that the concession on the qualifying period has been made.

If employers have an employee with more than six months’ service who isn’t the right fit then they will need to act quickly, which is awkwardly timed given the Christmas break coming up.

The new qualifying period of only six months means it will be even more important for employers to monitor new joiners’ performance at an early stage to ensure that they are right for the role.

Removing the statutory cap on compensation?

Another point that not all of the mainstream media have picked up on is that while the Government has been making the arrangements to change the qualifying period, they also seem to be seeking to make another very important change – removing the statutory cap on the compensatory award.

At the moment, the cap on the compensatory award in ‘normal’ unfair dismissal cases is either one year’s gross pay or £118,223, whichever is the lower. The upper limit increases each year, but always with an overall maximum.

When announcing the changes to bring in the six month qualifying period, the Government also said that they would be removing section 124 of the Employment Rights Act 1996, which is the part which contains the limit on the compensatory award. If they really do intend to remove it, then this would be a seismic change, and one that would be being made with no prior warning or consultation.

There had been speculation that the Government might scrap the limit of one year’s gross pay, and just have an overall limit (as was the case pre 2013), but no one seems to have anticipated they would seek to remove the cap completely.

The main group who would benefit from the cap being removed is high earners. One of the reasons that we rarely see highly paid people such as footballers bringing unfair dismissal claims at the moment is because their earnings dwarf the potential maximum awards and it is often not worth their while. That would all change if there is no limit on potential compensation – which would of course lead to more claims, and those would clog up the Tribunal system even more.

So far the Government has said very little about this, and it remains to be seen whether this point makes it through the House of Lords. We will be watching with interest to see how things develop, and will of course keep you updated.

[Update: In the evening of 10 December the Bill was debated in the House of Lords, and it was rejected. This was largely due to the removal of the cap on compensation – there was concern about the late stage at which the change had been introduced and the lack of consultation. The Bill will now ‘ping pong’ back to the House of Commons, so we will need to wait see whether the Government is willing to move on this and whether the Bill gets passed before Christmas.]

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.