In more detail

Background

Protection from unfair dismissal currently requires an employee to have two years’ continuous service; this is often referred to as “ordinary” unfair dismissal. The service requirement is disapplied in most instances of automatically unfair dismissal, such as a whistleblowing-related dismissal.

Compensation in a successful claim is currently capped at the lower of a year’s gross pay or GBP 118,223 (this figure increasing each year with inflation). This is in addition to a “basic” award (calculated in the same was a statutory redundancy payment). The cap is only disapplied in a handful of automatically unfair dismissal cases, which include whistleblowing.

The Employment Rights Bill

Last Thursday (27 November 2025) the government abandoned its plans to make protection from ordinary unfair dismissal a day-one right, instead agreeing with the House of Lords to retain a qualifying period of six months (down from the current two years). At the same time, it said it would “lift” the cap on compensation. This had never been mentioned previously and it led to a flurry of speculation on whether the government meant they would keep a cap but increase it, or remove it in part or entirely. There were reports yesterday (4 December 2025) that it meant remove entirely, and this has now been confirmed in the formal amendment proposal in the House of Commons. If passed, this would mean that compensation for loss of earnings in unfair dismissal claims will be uncapped, in the same way as for discrimination and whistleblowing claims.

The amendment paper also confirms that the concept of statutory probationary periods is to be scrapped. This is unsurprising given that it was linked to the now abandoned day-one right policy.

Notwithstanding the government’s shift on qualifying periods, its package of amendments to the Bill is by no means a done deal. Ordinary unfair dismissal protection has always had a compensation cap. Removing it would radically alter the scope of the right and this has not been the subject of any formal consultation. The House of Commons will vote on the proposal on Monday, 8 December 2025 and then it is due to return to the House of Lords on Wednesday, 10 December 2025, where we suspect that there will be some strong opposition.

If the government wins the votes in Parliament and the Bill becomes law, the current press reports are that the changes to the qualifying period and the cap will come into force in January 2027.

There also remain other stumbling blocks to the Bill being passed as the government has rejected the House of Lords’ other amendments to the Bill: (i) opt-out options for workers from the proposed Guaranteed Hours Offers (GHOs) regime; (ii) special provisions for seasonal workers in relation to GHOs; (iii) maintaining a 50% turnout threshold for industrial action ballots; (iv) continuing opt-in rules for trade union political funds contributions. The Lords have repeatedly insisted on these issues to date (see Employment Rights Bill – ping pong continues).

Potential consequences

• Removing the cap could clearly increase financial exposure in some cases. The evidence would still need to show that the claimant has suffered, or will suffer, more than the current capped level of financial loss that they could not reasonably mitigate but, if it does, those losses would be recoverable. For example, someone who is dismissed for misconduct might take a very long time to find new employment paying the same salary, even if the dismissal were unfair.
• Calculating losses could become more complex, particularly for people with complex remuneration packages such as share awards, significant pension entitlements, or bonus or commission entitlements.
• Settlement expectations could be increased as employers wouldn’t be able to fall back on the cap as an upper ceiling. This could prolong negotiations and maybe even cause some to fail. This is particularly so in cases involving highly paid individuals who have no (or no strong) claim for discrimination or whistleblowing.
• On the flip side, claimants might no longer try to argue tenuous whistleblowing or discrimination claims as a means of getting around the current cap. Removing such allegations could help streamline the litigation process slightly in terms of the issues to be decided and therefore the evidence that needs to be collated and presented. Conversely, however, the number of claims going to trial may be increased, as the sums at stake may be overall greater than at present, potentially compounding the already considerable delays in the system.

The overall takeaway for employers, if the amendments are passed, is that there will be a much reduced period of time in which to deal with performance or conduct issues for new joiners before they gain unfair dismissal rights, coupled with potentially much higher financial consequences once they do if processes are not handled correctly. This will therefore underscore the need to track and deal with such issues promptly.