Author: Ilinca Mardarescu

An “Unfair Dismissal Factsheet” was added to the government’s page on the Employment Rights Act 2025.  This sets out two very important changes which come into effect in January 2027.   While this didn’t attract much attention at first, the changes are significant.

Let’s break it down…

1. The statutory cap on unfair dismissal compensation is being removed

The current cap on unfair dismissal compensation will be abolished. This means, there will no longer be a maximum limit on how much compensation an employee can be awarded for unfair dismissal.

What is the cap now?

At present, compensation for unfair dismissal is capped at the lower of:

One year’s gross pay, or

£118,223 (current statutory limit)

From 2027, this cap will no longer apply.

Removing the cap means:

Compensation awards could be significantly higher

Financial risk for employers will increase

Tribunal claims may become more valuable and more contested

2. The six-month qualifying period is still going ahead

The government has also confirmed that the new six-month qualifying period for unfair dismissal will come into force in January 2027.

How this will work:

Employees who already have six months’ service will automatically gain unfair dismissal protection from that date.

Employees with less than six months’ service will gain protection once they reach six months.

This is a major change and a world away from the current two-year qualifying period.  

What does this mean in practice?

For employers:

Higher financial exposure in unfair dismissal claims

Greater importance on:

• Clear procedures
• Proper documentation
• Fair decision-making from much earlier in employment
• Increased need for training managers on dismissals and performance management

For employees:

• Earlier access to unfair dismissal protection
• Potentially higher compensation where dismissals are found to be unfair
• Stronger legal position in workplace disputes

What should you be doing now?

Although these changes don’t take effect until 2027, they are significant enough that businesses and HR teams should start planning ahead now, including:

• Reviewing contracts and policies
• Re-thinking probation and dismissal processes
• Budgeting for increased employment tribunal risk

If you have any queries, or would like to discuss your situation, please contact our Head of Employment Ilinca Mardarescu.

T:    01753 486 777

E:    imardarescu@astonbond.co.uk

After much speculation, the Employment Rights Bill finally passed on 16 December, has just received Royal Assent.  It is now the Employment Rights Act 2025.

While some of the headline changes don’t take effect until 2026, the smart move is to review your practices and policies sooner rather than later.

So, a quick recap on some of the provisions and what is changing:

–           Statutory Sick Pay – no more 3-day waiting period (from April 2026)

• Unfair dismissal protection starts at 6 months (not 2 years)
• Stronger workplace harassment protections
• “Fire and rehire” restricted
• Immediate rights to paternity and parental leave from day one
• Ban on most exploitative zero-hours contracts
• Stronger rules on shift cancellations and guaranteed hours
• Expanded rights for trade unions – more facility time, fewer strike restrictions
  
  
  

The government has committed to publishing an impact assessment on the impact of removing the unfair dismissal compensation cap before implementing the unfair dismissal sections of the new Act, so we will have to wait until next year for this.  However, starting the new year on the right foot is always a good idea. 

If you would like to book in for a review in early 2026, contact us now.