Employment Rights Bill: qualifying for unfair dismissal

This article was first published on 1 December and has since been updated on 17 December to reflect the latest information.

The introduction of ‘day 1’ employment rights was a key feature of the Employment Rights Bill and a manifesto commitment made by the Government. With the Bill stuck in parliamentary ‘ping pong’ between the Commons and the Lords in recent weeks, the biggest hurdle for the Government to overcome was the introduction of ‘day 1’ rights to claim unfair dismissal, which attracted sustained criticism from many employer representatives and business groups.  

A six-month qualifying period confirmed 

It was confirmed by the Government on 27 November 2025 that it had reached an agreement with ‘key stakeholders’ to accept the amendment put forward by the House of Lords to reduce the qualifying period for claiming unfair dismissal from the current two years to six months. This concession meant that the Bill could progress and be passed into law before Christmas. 

As a consequence of this amendment, provisions in the Bill for an ‘initial period of employment’, a form of statutory probation period during which a ‘light touch’ process for dismissal would have been permitted, were also dropped. 

In its press release published on 27 November, the Government stated that it will ensure that the unfair dismissal qualifying period, which currently can be varied very easily by statutory instrument, can only be varied in the future by primary legislation. This will necessitate full parliamentary scrutiny before the qualifying period is changed again and make it harder for any future government to increase it. 

Compensation cap ‘lifted’ 

The press release also referred to the compensation cap for unfair dismissal being ‘lifted’. It was not immediately clear what was meant by this statement.  It subsequently became clear that the Government’s intention was to remove the current cap of 52 weeks’ pay for the unfair dismissal compensatory award in cases of ordinary unfair dismissal, and to remove the statutory maximum award (currently £118,223 and subject to annual uprating) – meaning that compensation for unfair dismissal will be unlimited, as it already is for discrimination and whistleblowing claims. 

The Birketts view 

As a manifesto commitment, it was politically very difficult for the Government to abandon day 1 rights to claim unfair dismissal, and it appears the changes to the calculation of compensation were offered in exchange for the unions’ agreement to this amendment.  

The shift in policy on unfair dismissal rights is a sensible compromise that will come as a relief to the majority of employers, particularly smaller employers who might have been reluctant to hire new employees knowing that they could face an unfair dismissal claim right from the start of the employment relationship. Concerns were voiced by many in the legal profession as to how an already overwhelmed tribunal service would cope with a further uptick in claims. 

The introduction of a statutory probation period during an ‘initial period of employment’ would have required employers to adapt to a new process, likely leading to confusion on the part of managers as to which process should be followed. It would no doubt have resulted in a significant body of case law to establish the applicable legal tests. However, a six-month qualifying period is still a very tight timescale for employers to properly assess the performance of new recruits, meaning that monitoring of probationary periods will be even more important.  

Of more concern is the planned removal of the current limits on unfair dismissal compensation. It means that claimants will be seeking higher awards of compensation, potentially making it more difficult and more costly for employers to negotiate the settlement of employment claims. This will particularly be the case for senior employees on high salaries and those likely to find it harder to find new employment at a similar rate of pay, perhaps towards the end of their careers. It also means that performance issues at senior levels will need to be handled much more cautiously by employers, to avoid the risk of a high-value claim after termination.  

Next steps 

The Bill returned once again to the Lords on 16 December when it was finally approved, meaning that it now passes into law. Royal Assent will take place on 18 December 2025. 

It has been reported that the change to the qualifying period for unfair dismissal will take effect from 1 January 2027, and it will have a retrospective effect, meaning that it will apply to all those with a minimum of six months’ service as at that date.