Employment Law Update
Alan Kitto
The government has recently, and very quietly, published an Unfair Dismissal Factsheet on its Employment Rights Act 2025 webpage, clarifying how key reforms will be implemented. While the update received little publicity, it confirms two significant developments.
Removal of the Unfair Dismissal Compensation Cap
The government has confirmed that the current cap on unfair dismissal compensation. presently the lower of one year’s pay or £118,000, will be removed with effect from 1 January 2027. Notably, the government has stated that it does not intend to consult with employers or trade unions before removing the cap. This position differs from assurances previously given in the House of Lords during the passage of the legislation in December.
As we have advised previously, this will not hugely impact the majority of claims but is likely to affect claims from older employees, employees with underlying health conditions both of which may find it harder to find another job and whereas compensation was previously limited to a years of lost salary, this will no longer be the case; it will also impact those on higher salaries who may be more inclined to bring claims.
Six-Month Qualifying Period
The factsheet also confirms that the government still intends to introduce a six-month qualifying period for unfair dismissal protection from 1 January 2027. Employees who already have six months’ service or more on that date will immediately benefit from the new protection. Employees with less than six months’ service at that point will gain protection once they reach the six-month threshold.
Neither of the above changes are things we didn’t know were coming, you’ll recall we’ve issued updates on both recently, what is new is the date on which they were likely to take affect; there was much speculation that it would be as early as April of this year, but it now appears that it will be 1st January 2027.