Unfair dismissal – six month qualifying period and no cap on compensation

Facts

One of the ERB's flagship proposals was to make protection from unfair dismissal a "day one" right by repealing the current requirement for an employee to have two years' service to claim ordinary unfair dismissal.

However, in a surprise announcement on 27 November 2025, the government agreed to drop this proposal and instead opt to make protection from unfair dismissal subject to a six month qualifying period. On 5 December 2025, the government published its proposed amendment to the ERB's unfair dismissal provisions. This provides for:

• The current two year qualifying period for unfair dismissal protection to be replaced with a six month qualifying period.
• The power for the government to amend the qualifying period by regulations to be removed, so that any future changes must be made by primary legislation.
• The statutory cap on unfair dismissal compensatory awards (which is currently set at 52 weeks' pay, or £118,223, whichever is lower) to be removed entirely.

The original proposal for day one unfair dismissal protection also involved the introduction of a so-called "initial period of employment" (IPE), during which a lower level of protection would apply. However, the government's amendment makes clear that this will not be taken forward. The government is therefore anticipated to push for implementation of the changes to unfair dismissal protection earlier than 2027, on the basis that there is no need for further consultation or substantive regulations, although no specific date has yet been announced.

The amendment will be considered by the House of Commons on Monday 8 December, and then by the House of Lords on Wednesday 10 December, along with the few other provisions of the ERB that remain subject to debate as part of the parliamentary ping pong process.

What does this mean for employers?

The fact that unfair dismissal protection will apply after six months, rather than from day one, is (in the context of the Employment Rights Bill) a positive development for employers, and the removal of the IPE concept means there will be no new regime to adapt to. However, it will become more difficult for employers to dismiss employees with six or more months' service due to the need to identify a fair reason and follow a fair process.

Employers are likely to face more claims from employees alleging unfair dismissal. Indeed, the complete removal of the cap on unfair dismissal compensatory awards will give employees a much greater incentive to litigate. It is likely to make disputes more expensive for employers, especially in managing employees' expectations when it comes to potential settlements, and may mean that more claims are litigated than resolved.

Effectively unfair dismissal claims are now on an equal footing with whistleblowing and discrimination claims in terms of uncapped losses. This will have a sizeable impact on unfair dismissal damages more generally and we can expect more focus on assessment of loss, especially where claimants have final salary schemes or valuable benefits, or are asserting career long losses. If a claimant also argues that there has been a breach of the ACAS Code entitling them to an uplift in damages of up to 25%, the damages potentially payable by employers could be significant, especially if the claimant is a high earner. 

Against the backdrop of an already overstretched tribunal system, this change is highly likely to lead to lengthier hearings, especially on remedy.

It is notable that the removal of the cap on compensatory awards was not a government manifesto commitment and has not to-date been the subject of any consultation. It remains to be seen whether the House of Lords will accept this proposal or whether they will push back in the ongoing parliamentary ping pong process. 

For further information on the ERB more generally, please see our ERB tracker. We will continue to keep clients updated on key developments.