The bill had been a game of ping-pong between the House of Commons and the House of Lords for some months.
Schools have broken up for Christmas and I’ve already received lots of out of office messages announcing that people are away from the office till 5 January 2026 so I’m catching you quickly, before you go.
The Employment Rights Bill finally received Royal Assent last week and became the Employment Rights Act 2025.
The only immediate change as a result of the bill becoming an Act is the repeal of the provisions introduced by the Strikes (Minimum Service Levels) Act 2023.
The bill had been a game of ping-pong between the House of Commons and the House of Lords for some months, with the upper house repeatedly rejecting the bill’s provisions to introduce day one rights not to be unfairly dismissed. Eventually this month a compromise was reached. The qualifying period for unfair dismissal will be six months.
The last time the qualifying period for unfair dismissal was six months was in 1974, before increasing to one year in 1979. It has been either one year or two years since then, depending on which political party is in power in Westminster. It was one year from 1999 to 2012 and has been two years since 2012.
In 2012 when it increased to two years from one, the longer qualifying period only applied to employees commencing employment after the change took effect, meaning employees had different qualifying periods of unfair dismissal depending on when they started.
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It is the UK Government’s intention to bring in the new qualifying period of six months from 1 January 2027. This will come round sooner than you think.
In order to make sure that there will be no difference in rights depending on whether someone was employed before or after the change, anyone who already has six months service at the time the change is effected will immediately have the protection.
“How long have they been employed” will still be the first question that employment lawyers and HR professionals will ask about employees but they won’t need to ask whether they were employed before or after 1 January 2027.
The government’s intention is to make it that the qualifying period can only be changed by primary legislation rather than just secondary. It has been relatively easy for governments to change the qualifying period over the years but this will not be the case going forward.
The cap on the compensatory award is also to be removed.
If there is a finding of unfair dismissal the tribunal awards a basic award calculated in the same way as redundancy pay and on top of that a compensatory award based on actual losses suffered.
The sooner someone finds another job at the same rate of pay the lower the value of their compensatory award because they have been effective at mitigating their loss. Employees can’t decide to just not look for other work – they are required to show evidence of mitigation. The compensatory award element is capped for unfair dismissal but not for discrimination cases.
When I first qualified the cap stood at £12,000 but in 1999 increased to £50,000. This moved the dial up for employment law because until that point a penalty of £12,000 was seen as a fine by many larger employers who were prepared to pay it to be able to quickly unfairly dismiss someone, particularly when the employee was well paid.
The cap has increased each year in line with inflation, with the introduction of an additional cap of a year’s annual pay (or the statutory cap if annual pay is higher). This year the cap is £118,223.
The UK Government has committed to publishing an impact assessment on the consequences of removing the unfair dismissal compensation cap before implementing the unfair dismissal sections of the new act.
There is already no cap on compensatory awards for discrimination and yet the tribunal statistics for 2023/2024 show that the median award for disability discrimination in this period was £17,218 and for race discrimination £10, 253. The median unfair dismissal award was just £6,476, a long way from even a year’s gross pay at minimum wage let alone the applicable maximum cap that year.
So does it matter whether there is a cap or not given these median awards?
Yes, for a number of reasons.
Median awards don’t tell the full story. Some awards are small, and some are very large with the largest award for disability discrimination being made in May 2024 for £4.6m.
Employees on high wages exceeding the current cap with large losses will settle quickly if a sum approaching the cap is offered to them. There is no point arguing that your losses are higher if the tribunal is unable to award you those full losses anyway. Settlement figures will go up when the cap goes up and more high earners will take their cases to tribunal.
It does seem to me that the removal of the cap is going to benefit higher earners the most. People who work in low paid sectors and who are probably not able around this time of year to set up their out of office messages till 5 January often find other work quickly because, simply put, they have no choice if they are to provide for themselves and their families.
The impact assessment on ditching the compensatory cap for unfair dismissal is therefore going to make for interesting reading.
