UK: Government announces U-turn on day one unfair dismissal

Update: On 2 December 2025 the Guardian reported that Angela Rayner has accepted the compromise on the unfair dismissal proposals but, given retaining a six month qualifying period is a much simpler amendment than the original proposal and does not require consultation on detailed process, she will move to bring it into force "early next year"  (the original timetable was  some time in 2027).  On 4 December 2025 the Guardian reported that Ms Rayner has agreed to the new qualifying period applying from 1 January 2027. 

The Government amendment to the Bill published on 5 December 2025 would change the qualifying period to six months (without introducing any statutory probationary period) and remove entirely the cap on compensation for unfair dismissal (the overall £118, 223 cap, in addition to the 12 months' pay cap).  This latter change seems to have been unexpected by the business representatives involved in the discussions, and is a significant change to be proposing at this stage without debate or consultation.  If passed, it is likely to make ordinary unfair dismissal claims harder to settle (albeit that it is unlikely to make much difference for employees on average wages), significantly increase the value of claims for high earners and older workers with potential career loss claims (where the loss of earnings would exceed the current cap), heighten the impact of breaches of the Acas statutory code on discipline and grievance (for which compensation can be increased or decreased by up to 25%) and consequently increase the strain on the employment tribunal system.  A possible silver lining for employers is that these changes remove some of the incentive for framing a dismissal as due to whistleblowing or discrimination, although these claims retain other advantages over ordinary unfair dismissal claims (eg interim relief for whistleblowing claims, injury to feelings for discrimination and whistleblowing detriment claims, claims against individual colleagues, the threat of reputational damage).  The Government amendments being considered by the Commons on 8 December 2025 also include alternatives to the Lords amendments on the zero hours and union provisions, for example requiring consultation before certain regulations are made, in an attempt to get the Bill passed.     

Yesterday evening (27 November) the Government announced it had reached an agreement with union and business representatives to retain a six month qualifying period for unfair dismissal rights (reduced from the current two year requirement, and presumably dropping the proposal for a statutory probationary period).  This concession has been made in order to ensure that the Employment Rights Bill can proceed to Royal Assent and enable other changes to be implemented in accordance with the timeline in the government's roadmap (and, in particular, day one rights to statutory sick pay and paternity leave in April 2026 and launching the Fair Work Agency).  The Government also confirmed that the change will be made in primary legislation (so that the qualifying period cannot be quickly changed again simply by secondary legislation), and that "the compensation cap will be lifted".  Currently compensation for ordinary unfair dismissal is subject to a dual cap of 52 weeks' pay and a total sum fixed annually (currently £118,223).  The Government's statement gives no further details as to what it means by lifting the cap, but reports from business representatives participating in the discussions suggest that the intention is to remove the 52 weeks' pay cap;  the overall cash limit would be retained (although it is possible this might also be increased - and of course it is uprated in line with inflation annually anyway).  

The Government's intention will only be confirmed formally once the amendments to the Bill are published.  The Bill is now scheduled to return to the Commons on 8 December 2025 and the Lords on 10 December 2025.  The Government will presumably be hoping its concession is enough to get the Bill approved in both Houses before the Christmas recess.  Given the less than wholly positive response from unions such as Unite, and reports that Angela Rayner and other backbench MPs may be considering opposing the change, this is by no means a foregone conclusion;  it would also require the House of Lords to concede on its other objections to the zero hours reforms and certain union law changes.