Employment Rights Act 2025
A couple of key changes we can expect from January 2027 regarding unfair dismissal worth a mention
Reduction in qualifying period
The qualifying period for ordinary unfair dismissal will be reduced from 2 years to 6 months.
Removal of the compensation award cap for unfair dismissal
The current compensatory award of £123,543 or 12 months' pay (whichever is the lower) will be scrapped and compensation will instead be an amount the employment tribunal considers just and equitable in all the circumstances taking into account the loss suffered by the employee as a consequence of their dismissal.
These changes are a signature shift in the balance between employers and employees in terms of greater rights to commence claims at an employment tribunal and deterring employers from dismissing employees within 2 years with no right to redress for ordinary unfair dismissal claims.
Lawyers advising respondents/employers have been suggesting potential ways around the legislation such as changing their HR policies to cut probation periods to 3-4 months in order to dismiss employees before their benefit from the new rights after 6 months employment. Some medium and larger employers and who recognise trade unions for bargaining purposes would have collective agreements in place which would make it harder for employers to use this tactic. More employers will be encouraged to recognise unions in the workplace under other sections of the legislation. Changes to the compensation award cap will benefit higher paid or senior employees and strengthen the ability of lawyers representing these claimants in negotiating more generous compensation packages with employers aware of the risk and cost of litigation, and a greater willingness to settle and avoid stressful, time consuming, unpredictable and costly litigation.
Access to justice has always been about balance. Before 2024 the government increasing introduced legislation restricting individual employment rights and collective employment rights. We are now in a period of redressing some of that imbalance.