The Employment Rights Bill becomes an Act

The Employment Rights Bill cleared the final Parliamentary hurdle on the 16th of December, when the House of Lords agreed to the Act.

The Government had to make a major concession to unfair dismissal rights to get the Bill through the House of Lords, with day one unfair dismissal rights abandoned.

Instead, workers will have protection against unfair dismissal after a six-month qualifying period.

The six-month qualifying period is expected to take effect on the 1st of January 2027.

This follows concerns that day-one unfair dismissal rights could worsen the existing tribunal backlog and discourage businesses from taking on new employees.

The Government has confirmed that further consultation will be carried out on the details and implementation of this reform.

The Government had planned to introduce a new legal probation period alongside the day-one right, which was likely to have been nine months, but plans for this have also now been abandoned.

This would have allowed for “light touch” dismissals during that period for reasons other than redundancy.

While a 6-month qualifying period rather than a day-one right to unfair dismissal will give businesses some relief, it is still a significant reduction from the current 2-year qualifying period.

A significant point is that the Government intends to extend protection immediately from the 1st of January 2027 to employees who already have six months’ employment.

This means that anyone who is employed between now and July 2026 will gain unfair dismissal rights with effect from the 1st of January 2027.

Employers should therefore start looking at their probation procedures and how to improve performance management during the early days of employment in preparation for the upcoming legal changes.

In addition, a major change is the removal of the unfair dismissal compensation cap.

The cap on unfair dismissal compensation is currently limited to the lower of 52 weeks’ pay or £118,223.

The basic award (calculated in the same way as redundancy pay) will remain capped.

With the removal of the cap, employees who succeed in unfair dismissal claims will be entitled to full proven financial losses, with no upper limit.

Whilst the change to the six-month qualifying period is expected to take effect from the 1st of January 2027, the timing of the cap removal for unfair dismissal compensation is yet to be confirmed and remains subject to parliamentary approval.

It would make sense for this to happen at the same time as the change to the qualifying period, and we expect it to apply to all claims issued on or after the implementation date.

This change will lead to higher financial exposure for employers, as compensation will be open-ended.

We expect to see numerous public consultations before the provisions of the Act come into force gradually over the next two years.

These changes reduce the time before unfair dismissal risks apply. Contact us to make sure your probation and early performance processes are ready.