Beyond the Employment Rights Bill - Government drops 'day one' unfair dismissal

In a surprising move, the UK government has officially retreated from its manifesto commitment to make unfair dismissal a ‘day one’ right. The government confirmed in a press release yesterday afternoon that, following conversations with trade unions and businesses, it will instead reduce the qualifying period for unfair dismissal from two years to six months. This follows a protracted ‘ping pong’ process between the Houses of Commons and Lords on the Employment Rights Bill (the Bill), with unfair dismissal as a ‘day one’ right being one of the key sticking points. The government hopes that its compromise will allow the Bill to reach Royal Assent without further delay. 

More surprisingly, the press release also states that, ‘to further strengthen these protections… the compensation cap for unfair dismissal claims will be lifted’. It is not clear from that wording whether the cap (which currently sits at £118,223) will be removed entirely or simply increased. It would be unprecedented for unfair dismissal compensation to be uncapped like it is for discrimination and whistleblowing claims. Given that the complete removal of the cap has not been foreshadowed in any recent announcements or the manifesto (other than in a 2022 Green Paper in which the Labour Party hinted at removing statutory limits to compensation should they win the election), we assume for the time being that the intention might be to increase the cap rather than remove it entirely. Another possible interpretation is that the intention is to remove the 52-week limit on compensation (under which claimants can only claim the higher of a year’s pay or the compensation cap), meaning that all claimants, irrespective of salary, could have access to the total compensation cap of £118,223 if the tribunal deems it appropriate to award it. 

What this announcement means for employers: 

• In comparison to the proposal that employees would be able to claim unfair dismissal on the first day of employment, the six-month minimum service requirement will allow employers to retain a level of flexibility to dismiss new hires in the early stages of employment. Obviously, that flexibility will be reduced from the current position, so it will become even more important to ensure that onboarding and probation processes are robust and performance management processes are well-run, and that any issues arising in the early days of employment are addressed quickly.
• Given the employment tribunal backlog continues to increase month on month (the latest published figures showed 491,000 open cases at the end of March 2025), the ability for more employees to claim unfair dismissal will likely add to this caseload, meaning further delays and slower-moving cases. This is made more acute by the increase to time limits for bringing a claim from three months to six months (as of October 2026) and the increase in the Acas early conciliation period from 6 to 12 weeks.
• Employers now face uncertainty while we wait to understand if the government does intend to remove the compensation cap (given it’s not clear what is meant by ‘lift’). If it is removed, the burden on the employment tribunal would likely be even further increased, particularly in respect of higher-earning employees who may not previously have seen tribunal claims as a risk worth taking. It may have a knock-on effect of reducing the number of claims brought on grounds of unlawful discrimination (given that is currently one of the few routes via which claimants can seek uncapped compensation) but in practice claimants may still try to cover all possible bases when pleading their claims.
• The statutory probationary period still remains in the bill, although we assume that this will be removed if unfair dismissal is no longer a day one right. We still recommend that employers take time to review their probationary processes now. 

It was confirmed this week that the Bill will go back to the Commons on 8 December. Achieving Royal Assent before parliamentary recess will still be a tough ask – particularly as unfair dismissal was not the only deadlock subject between the Houses – but the government’s compromise on unfair dismissal is clearly designed to prevent further delays. 

For information on the Bill and its implications on employers, please see a summary of the key changes here and download our detailed briefing here. Please contact your usual Freshfields contact should you wish to discuss anything in this blog post.