Employment Rights Bill: day-one unfair dismissal rights dropped

The UK Government has dropped its commitment to make the right to claim unfair dismissal a day-one right. Instead, the qualifying period is to be reduced from two years to six months. Plans to lift the current compensation cap have also been announced.

The original proposal: day-one right and statutory probationary period

Currently, employees usually need two years' service to claim unfair dismissal, and the compensatory award is capped at the lower of £118,223 or 52 weeks' gross pay. There are no rules about probationary periods. In terms of the Employment Rights Bill the Government originally proposed to:

• Remove the qualifying period so that ordinary unfair dismissal claims could be made from day-one of employment; and
• Introduce a new 'statutory probationary period' (which had been expected to be nine months) during which there would be a 'lighter-touch' process allowing for fair dismissal subject to different standards of reasonableness.

The new proposal: 6-month qualifying period and uncapped compensation

The Government faced considerable resistance to its plan to remove the qualifying period for ordinary unfair dismissal claims - it is one of a number of points of disagreement between the House of Lords and House of Commons which have delayed the Bill becoming law. In an effort to progress matters, the Government held a meeting with business and union representatives which resulted in agreement and a press release on 27 November 2025 indicating that the qualifying period for unfair dismissal will be reduced from two years to six months. As a result, the proposals for a statutory probationary period have been dropped. Protection against discrimination and automatically unfair dismissal (e.g. those relating to whistleblowing or health and safety) will remain as day-one rights.

The press release also indicated that the compensation cap on unfair dismissal awards ‘will be lifted’. The Government wants to remove both the 52-week cap and the overall compensation cap. This did not form part of the original Bill or Labour's election manifesto. The basic award for unfair dismissal would remain unchanged but having an unlimited compensatory award would be a significant change. 

In the latest employment tribunal statistics the mean award for unfair dismissal was £13,749 and the median award was £6,746. Therefore, in many cases, the lifting of the compensation cap would not have any direct impact. Tribunals would still be required to base compensation on the individual’s financial loss, taking into account factors such as contributory fault and whether the employee has taken steps to mitigate their loss. 

However, having an uncapped compensatory regime would inevitably lead to uncertainty for employers in terms of financial risk. It would influence settlement negotiations, with claimants potentially overstating their potential losses, and impact the length and complexity of remedies hearings with additional evidence on issues such as pension loss. It could also lead to an increase in high earners bringing claims in the employment tribunal, adding to the strain and delays the system is already facing.

Timescale for the changes

The Government is hoping that by making this concession the Bill will be passed before Christmas, although since this blog was first published, the House of Lords has rejected removing the compensatory limit. The Bill will return to the House of Commons on 15 December to consider this one outstanding point.

It's being reported that the changes to unfair dismissal rights will come into effect from 1 January 2027. This means that anyone employed from July 2026 would be able to claim unfair dismissal after six months' continuous service. It seems likely, but has not been confirmed, that any agreed changes to the compensatory regime would also apply from the same date.

If the original timetable for implementation does not slip, day-one rights to statutory sick pay, paternity leave and unpaid parental leave will be introduced from April 2026. 

In practice

Reducing the qualifying period for unfair dismissal from two years to six months (and removing the compensation cap, if that is agreed) is a significant change. It is likely to impact dismissals where the effective date of termination is on or after 1 January 2027. Employers will want to start reviewing their recruitment, probationary period and performance management processes now. For example:

• Audit your current recruitment practices and consider whether your recruitment process is sufficiently robust to attract and identify the best candidates for vacancies.
• Review induction and training programmes to ensure that new employees know the standards expected of them.
• Consider whether your existing probationary period complements the reduced six-month qualifying period or whether a shorter period is required to enable decisions on continued employment to be made prior to employees gaining qualifying service.
• Review your contract terms. Are benefits contingent on employees completing their probationary period, and what is the impact of reducing probationary periods? Can you make payments in lieu of notice (to secure earlier dismissal dates when necessary)?
• Evaluate the current operation of probationary periods across the business. If performance is not being properly managed and extensions to probationary periods are routinely made, consider whether managers need additional guidance, training and/or support.
• Identify when employees will gain unfair dismissal rights, and review your dismissal processes. 

To keep up to date with the changes see our Employment Rights Bill page and timeline.

Workbox by Brodies, our HR and employment law site, has detailed information and resources covering the full spectrum of HR issues arising from the Bill’s reforms. To arrange a short demo, please get in touch.

Since this blog was written, the Employment Rights Bill has been passed: for information on the updated position on unfair dismissal rights read our later blog.