The latest Employment Rights Bill proposals: six month qualifying period for unfair dismissal protection and complete removal of the limit on compensatory awards?

Following the recent stalemate between the House of Commons and House of Lords on a number of key provisions in the Employment Rights Bill (“ERB”), on 5 December 2025 the Government confirmed that a number of significant changes will be made to the draft Bill, including:

• The qualifying period for unfair dismissal protection will be increased, from day one of employment to after six months of employment (the current qualifying period is two years). The Government intends to introduce this change from 1 January 2027.
• The limit on the compensatory award for unfair dismissal will be removed completely (it is currently the lesser of a year’s salary or the statutory cap of £118,233).

There will also be further amendments to address the ongoing deadlock over the requirement for guaranteed hours in zero hours contracts, Trade Union political fund contributions, and turnout thresholds for industrial action ballots; as well as varied provisions regarding protections against dismissal for refusing contractual variations. Notably, the House of Lords has conceded that, rather than requiring periodic opt-in, guaranteed hours in zero hours contracts will be an automatic right (subject to any qualifying criteria).

These amendments are said to be aimed at resolving the ongoing stalemate between the Houses, which risks causing significant delay to the finalisation of the ERB, and therefore the Government’s “Implementation Roadmap” (which is outlined in this previous article). The Government are undoubtedly keen to progress the ERB through its final parliamentary stages, and for it to receive Royal Assent, before the end of the year.

However, the removal of the compensatory award cap was an entirely new proposal, which appears to have been included as a “compromise” for conceding to the Lord’s insistence that there should be a longer qualifying period for unfair dismissal protection. This measure was not part of the Government’s original employment law reform agenda, and represents a fundamental shift with potentially far-reaching consequences.

These latest proposals will be debated by the Lords on 10 December; in particular the changes to the compensation cap. It remains to be seen whether they will be accepted – particularly in light of the fact that they would constitute such a significant change.

What does this mean for employers?

• The qualifying period for unfair dismissal protection will likely drop from two years to six months from 1 January 2027; significantly expanding employee protection.
• The proposed removal of the cap on compensatory awards for unfair dismissal would be a major change, leading to:
  • unlimited financial liability for employers in respect of unfair dismissals,
  • more claims for career loss compensation,
  • an increase in claims for valuable pension / benefit / PHI losses,
  • more disputes over mitigation of losses,
  • an increase in arguments over failures to comply with the ACAS Code (and the up to 25% uplift in compensation that can result in), and
  • the need for more complex assessments of loss.

Though it remains to be seen whether this proposal will come to pass. Following publication of this article, the House of Lords rejected the proposed removal of the cap, and the Bill will now return to the Government for review.

In any event, respective of whether the limit on compensatory awards for unfair dismissal is lifted or not, the changes being brought in by the ERB will constitute a significant change for employers, and will necessitate substantial adjustments to practices around recruitment, probation periods, performance management and dismissal procedures. Employers should take this opportunity to review applicable practices and policies and consider what changes may need to be made.

If you’d like to discuss any of the issues outlined in this article, please get in touch and our team of experienced Employment lawyers would be happy to help.

The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further advice or information about management training which we offer.