The Employment Rights Act 2025 will reduce the qualifying period for unfair dismissal to six months, and remove the cap on compensation for unfair dismissal.
Reduction of qualifying period to six months
Although this is not a change to the Equality Act 2010 (EqA), someone who considers their dismissal was discriminatory will often also claim for “unfair dismissal” (Losing one’s job>Unfair dismissal), as well as claiming under the EqA.
To claim unfair dismissal at the moment, a person must normally have been employed for at least two years. Under the original Employment Rights Bill, this two-year qualifying period was to be abolished, so that unfair dismissal claims could be made from “day one”. However, the House of Lords voted this down, and the government and House of Commons agreed to change it. S.25 Employment Rights Act 2025 will, when in force, allow unfair dismissal to be claimed after six months in the job.
EqA claims are not affected by this. EqA rights already apply from day one, and indeed before employment as regards recruitment.
The government has said that the six-month qualifying period will take effect from 1st January, 2027 (in place of the current two-year period). In effect, people who start employment on or before 1st July 2026 will be able to claim for an unfair dismissal occurring on or after 1st January, 2027. The government minister said this in the House of Commons, on 8 December 2025 (Hansard). The government has confirmed it since in Factsheet: Unfair Dismissal (pdf, gov.uk), and Plan to Make Work Pay and Employment Rights Act: timeline update (gov.uk) Feb 2026.
According to the Financial Times, the six-month qualifying period would bring the UK in line with international peers, whereas the current two-year period is unusually favourable to employers.
Although the government has moved away from the “day one” proposal, six months is still a 75% cut in the current two-year period. Also, rights during an initial statutory probationary period, of perhaps six to nine months, were going to be limited in any event. Doubtless because rights are not to be from “day one”, the provisions for this statutory probation period (in Schedule 3 of the Bill) seem to have been deleted.
Removal of compensation cap for unfair dismissal
S.25 Employment Rights Act 2025 will also remove the cap on the compensatory award for unfair dismissal. The compensatory award is for financial loss. Currently the cap – in s.124 Employment Rights Act 1996 – is the lower of one year’s pay or about £118,000.
The government has said the removal of this cap will take effect on 1st January, 2027: Factsheet: Unfair Dismissal (pdf, gov.uk).
Removing this cap was not in the original Employment Rights Bill. The removal was added in return for the government and unions accepting a six month qualifying period in place of “day one” rights (above). It was the last point of dispute between the House of Commons and House of Lords, until the latter accepted it on 16th December, allowing the Bill to pass.
On 15th December 2025, six business groups had signed a letter saying that despite their reservations about totally removing this cap (rather than increasing it), “now is the time for Parliament to pass the Bill”: Update from business groups on the Employment Rights Bill (gov.uk).
At the moment, unlimited compensation in statutory employment claims is available mainly for discrimination under the EqA, and for whistleblowing claims.
Since EqA claims are not subject to a compensation cap anyway, they are not affected by s.25 Employment Rights Act 2025.
Podcast about implications of removing the unfair dismissal cap: Breaking – Unfair Dismissal Compensation Cap (employmentlawmatters.buzzsprout.com), by Daniel Barnett, December 2025.
Government & Parliament links
- Factsheet: Unfair Dismissal (pdf, gov.uk), January 2026
- Press release: An update on the Employment Rights Bill (gov.uk), 27 Nov 2025.
Further links
- Podcast: Breaking – Unfair Dismissal Compensation Cap (employmentlawmatters.buzzsprout.com), by Daniel Barnett, 9th December 2025
- The Employment Rights Bill reaches the endgame (rangeofreasonableresponses.com), 11th December 2025
- Downing Street vows to force employment rights bill through Lords (theguardian.com), 11 December 2025.
