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Tania GoodmanPartner - Head of Employment
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Employment Rights Bill – Touchdown: Uncapped Risks Ahead
After much debate and prevarication, the Employment Rights Bill received Royal Assent today. For some, this may feel like an early present, however, the changes will not take effect immediately and will instead be phased in during 2026 and 2027.
2 minute read
Published 18 December 2025
Employment Rights Bill – Touchdown: Uncapped Risks Ahead
After much debate and prevarication, the Employment Rights Bill received Royal Assent, today. For some, this may feel like an early present, however, the changes will not take effect immediately and will instead be phased in during 2026 and 2027.
1 January 2027
Unfair Dismissal
One of the most significant changes is the removal of day one unfair dismissal protection, which will instead apply after six months’ service from 1 January 2027.
This will still require employers to maintain a laser-sharp focus on the performance of new joiners during their probationary period and may lead many employers to shorten probation periods in order to allow sufficient time to dismiss within the six-month window. For some employees, this may feel as though a PIP is being invoked from day one, which is hardly conducive to positive employee relations.
No Cap on Unfair Dismissal Compensation
There are, however, compelling reasons for employers to take a cautious approach. Perhaps the most significant is the removal of the cap on unfair dismissal compensation.
This is a major development. The current cap of one year’s gross salary (subject to the statutory maximum of £118,223) will no longer apply. As a result, compensation is likely to be assessed in a manner more akin to discrimination claims, significantly shifting the balance in settlement negotiations in favour of employees.
Higher earners, in particular, may be able to pursue claims for full recovery of loss of earnings without any statutory cap limiting their potential award. While the precise implementation date has not yet been confirmed, this change is widely expected to take effect from 1 January 2027.
It is difficult to see how an already overstretched Employment Tribunal system will cope with an increase in high-value claims of this nature, particularly those that can no longer be settled easily. Such cases are typically more complex, require longer hearings, and risk absorbing significant tribunal resources over multiple days.
October 2026
Fire and Rehire – Relaxation of the Ban
There is some light at the end of this legislative roller coaster with a relaxation of the proposed ban on fire and rehire, which many had feared would make it almost impossible to vary terms and conditions of employment. Under the amendments, automatic unfair dismissal will apply only where changes relate to:
- pay
- working hours
- shift times
- time off
- pension rights
In addition, it will be almost impossible for employers to dismiss staff on a large scale purely to replace them with self-employed contractors, temporary workers, or agency staff.
Limitation Period for Employment Tribunal Claims
Employees will have six months, rather than three, to issue claims in the Employment Tribunal. In addition, the ACAS Early Conciliation period was extended from six weeks to 12 weeks from 1 December 2025.
Taken together, this means a former employer may not be notified of a claim for up to nine months or longer after the relevant events. While these changes are widely thought to be intended to assist the overstretched tribunal service, we anticipate they will instead increase the administrative burden and lead to a sharp rise in claims for the reasons outlined above.
Tips for Employers to Prepare
- Tighten probation and performance management to identify and address issues within the first six months.
- Increase scrutiny of dismissals and settlements, particularly for higher earners, due to uncapped unfair dismissal compensation.
- Plan for greater tribunal risk and cost, including longer claim time limits and delayed notifications.
- Review contractual change strategies to ensure compliance with revised fire-and-rehire rules.
There are a number of other changes on the horizon, and we will continue to keep you informed as key provisions approach implementation.
If you would like further information or support in preparing for these changes, please do not hesitate to contact us.
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Employment Rights Bill – Touchdown: Uncapped Risks Ahead
After much debate and prevarication, the Employment Rights Bill received Royal Assent today. For some, this may feel like an early present, however, the changes will not take effect immediately and will instead be phased in during 2026 and 2027.
Published 18 December 2025
Key Contacts
Employment Rights Bill – Touchdown: Uncapped Risks Ahead
After much debate and prevarication, the Employment Rights Bill received Royal Assent, today. For some, this may feel like an early present, however, the changes will not take effect immediately and will instead be phased in during 2026 and 2027.
1 January 2027
Unfair Dismissal
One of the most significant changes is the removal of day one unfair dismissal protection, which will instead apply after six months’ service from 1 January 2027.
This will still require employers to maintain a laser-sharp focus on the performance of new joiners during their probationary period and may lead many employers to shorten probation periods in order to allow sufficient time to dismiss within the six-month window. For some employees, this may feel as though a PIP is being invoked from day one, which is hardly conducive to positive employee relations.
No Cap on Unfair Dismissal Compensation
There are, however, compelling reasons for employers to take a cautious approach. Perhaps the most significant is the removal of the cap on unfair dismissal compensation.
This is a major development. The current cap of one year’s gross salary (subject to the statutory maximum of £118,223) will no longer apply. As a result, compensation is likely to be assessed in a manner more akin to discrimination claims, significantly shifting the balance in settlement negotiations in favour of employees.
Higher earners, in particular, may be able to pursue claims for full recovery of loss of earnings without any statutory cap limiting their potential award. While the precise implementation date has not yet been confirmed, this change is widely expected to take effect from 1 January 2027.
It is difficult to see how an already overstretched Employment Tribunal system will cope with an increase in high-value claims of this nature, particularly those that can no longer be settled easily. Such cases are typically more complex, require longer hearings, and risk absorbing significant tribunal resources over multiple days.
October 2026
Fire and Rehire – Relaxation of the Ban
There is some light at the end of this legislative roller coaster with a relaxation of the proposed ban on fire and rehire, which many had feared would make it almost impossible to vary terms and conditions of employment. Under the amendments, automatic unfair dismissal will apply only where changes relate to:
- pay
- working hours
- shift times
- time off
- pension rights
In addition, it will be almost impossible for employers to dismiss staff on a large scale purely to replace them with self-employed contractors, temporary workers, or agency staff.
Limitation Period for Employment Tribunal Claims
Employees will have six months, rather than three, to issue claims in the Employment Tribunal. In addition, the ACAS Early Conciliation period was extended from six weeks to 12 weeks from 1 December 2025.
Taken together, this means a former employer may not be notified of a claim for up to nine months or longer after the relevant events. While these changes are widely thought to be intended to assist the overstretched tribunal service, we anticipate they will instead increase the administrative burden and lead to a sharp rise in claims for the reasons outlined above.
Tips for Employers to Prepare
- Tighten probation and performance management to identify and address issues within the first six months.
- Increase scrutiny of dismissals and settlements, particularly for higher earners, due to uncapped unfair dismissal compensation.
- Plan for greater tribunal risk and cost, including longer claim time limits and delayed notifications.
- Review contractual change strategies to ensure compliance with revised fire-and-rehire rules.
There are a number of other changes on the horizon, and we will continue to keep you informed as key provisions approach implementation.
If you would like further information or support in preparing for these changes, please do not hesitate to contact us.
Key Contacts
- Tania Goodman
Partner - Head of Employment
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Article contributor
Tania
GoodmanPartner - Head of Employment
Specialising in Employment law for employees and Employment law for employers
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