Employment Rights Bill: Major amendments – Uncapped compensation and shorter qualifying period

Key changes proposed

1. Removal of compensatory award cap

• Currently there is a limit on compensation for unfair dismissal which is either 52 weeks’ pay or £118,223 (whichever is the lower). The proposal is that this cap is removed.
• If the Bill is passed incorporating this amendment, the compensation will become uncapped, bringing it in line with discrimination and whistleblowing claims.

2. Qualifying period

• The current qualifying service period required to bring an unfair dismissal claim of two-years is set to be reduced to six months.
• The change is expected to take effect from the 1st of January 2027, applying to employees who have started work from July 2026. Note however that this date is yet to be confirmed within the legislation.

Why this matters

The removal of the compensatory cap means employment tribunals will no longer be constrained by statutory ceilings when awarding damages for unfair dismissal. This change significantly raises the stakes for employers, particularly in cases involving high earners, long-serving employees, or individuals working in sectors with limited alternative opportunities.

Without a cap, claimants can now present evidence of extended financial loss, such as prolonged periods of unemployment or diminished future earnings, making the potential for substantial awards far greater than under the previous regime. In practical terms, these amendments could lead to more high-value claims.

In regard to the qualifying period, this change dramatically expands the scope of statutory protection, as it brings a far larger cohort of employees under the unfair dismissal protections. This shift means employers will need to evaluate employee’s suitability, performance, and long-term potential far earlier in the employment relationship, as the window for making these decisions before statutory protection applies will be significantly shorter.

It may also reduce the number of more complex claims employees have been bringing over recent years such as whistleblowing claims and discrimination which may have been in part because they didn’t have the required qualifying service for an ordinary unfair dismissal claim under the current regime or because they were seeking compensation beyond the cap.

If you would like us to review your HR policies or require advice on any other employment related matters, please do get in touch with our Employment team on 020 8290 0440 or employment@thackraywilliams.com.