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Government drops ‘day one’ unfair dismissal pledge and proposes removal of compensation cap
The Government has confirmed that it is abandoning its original plan to make unfair dismissal a day-one right. Instead, ministers now intend to reduce the qualifying period from two years to six months—a major policy shift designed to break parliamentary deadlock and keep the Employment Rights Bill on track for Royal Assent.
The Government’s changes do not end there. Possibly in an effort to appease Trade Unions, the Government has proposed removing the statutory cap on the unfair dismissal compensatory award. The unfair dismissal compensatory award is currently capped at 52 weeks’ earnings or £118,223 (whichever is the lower). The proposed amendment would remove both of these compensatory ceilings.
What was originally proposed?
Ahead of the 2024 general election, Labour committed to introducing day-one unfair dismissal rights. This proposal appeared in the draft Employment Rights Bill published in October 2024, alongside a suggested ‘initial period of employment’ - expected to last nine months - during which a lighter-touch process could be used for dismissals (other than redundancy).
There was no proposal to change the compensatory award for unfair dismissal in the Employment Rights Bill as originally published.
Why the change to six months?
The House of Lords repeatedly rejected the day-one provisions. To avoid further delay, the Government has now adopted a compromise: a six-month qualifying period. It has also announced that the qualifying period will no longer be alterable via statutory instrument. Any future change will instead require primary legislation, meaning the six-month threshold is likely to remain in place for the foreseeable future.
What about the compensatory cap?
The Government’s amendments include a provision stating that s124 Employment Rights Act 1996 (the current provision setting out the caps on the compensatory award for unfair dismissal) should be omitted in its entirety. This is an unexpected development. It did not form part of Labour’s manifesto commitments and was not included in the initial drafts of the Employment Rights Bill.
The Employment Rights Bill was debated in the House of Lords on 10th December 2025. The Lords agreed with the move to a six-month qualifying period for unfair dismissal but voted down the proposal to remove the compensatory award cap in its entirety. The Lords proposed an amendment which would mean that the cap would stay in place, with a consultation being carried out on it prior to any removal. This proposal has been sent back to the Commons for further consideration.
What does this all mean for HR?
Nothing will change immediately. The Government is targeting an implementation date of 1st January 2027 for the six-month qualifying period. On the statutory cap point, things are less certain. It does not currently have the backing of the House of Lords. Some commentators have suggested that there may be a climb-down on the removal of the cap, an agreement to consult about it before removing it, and a tweak to the legislation to allow the Government to remove it by statutory instrument if it decides, following consultation, that it still wants to press ahead. This process may well take until beyond January 2027 and the removal of the cap may be pushed down the road.
Regardless of what happens now on the removal of the cap, the Government’s proposal shows a clear ‘direction of travel’. HR teams should start preparing for the new regime:
Review probation processes. A six-month qualifying period means decisions on performance, conduct and fit must be made early. Policies should be refined so managers are prompted to act well before the six-month point.
Build in timing safeguards. Allow flexibility in review schedules to avoid eligibility being reached due to rearranged meetings or delays.
Consider the ‘statutory week’. A dismissal without notice adds one statutory week to service; an intended pre-six-month dismissal could unintentionally cross the threshold.
Prepare for higher-value claims. If the 52-week cap goes, employees are more likely to claim. The current ceiling makes unfair dismissal unattractive to high earners – this disincentive will be removed. Settlement negotiations will become more difficult as employers will not have the statutory cap to fall back on as a ceiling. There will be a greater risk when dismissing older workers or those with long-term health conditions impacting their ability to work – future loss of earnings claims could be career-long. Robust processes and clear medical evidence will be needed. In all cases, the collation of early evidence around mitigation will be essential.
The shift away from day-one rights offers employers breathing space - but the move to a six-month threshold, especially when combined with the proposed removal of the statutory compensation cap which may be coming down the road, still represents a substantial change requiring early planning.
Government announces minimum wage rises for 2026
The government has announced the following increases to the national minimum wage rates, to take effect on 1 April 2026.
21 and over - from £12.21 to £12.71ph
18-20 - from £10 to £10.85ph
16-17 and apprentices - from £7.55 to £8ph
These increases will require HR teams to review pay structures and budgets, particularly where rises may create pressure on differentials and compression between pay bands.
HR and payroll systems need to be ready to react - companies that undergo a compliance check from HMRC can be named and shamed on a published list if they are found to have breached. The list shows the number of employees affected as well as the total underpayment found by HMRC. These underpayments can also be accompanied by a fine for 200% of their value.
Acas Early Conciliation Period extended from six to twelve weeks
From 1st December 2025, the Acas Early Conciliation period has been extended from six weeks to twelve. What is early conciliation? What has prompted the extension of the period and what will it mean in practice?
What is early conciliation?
Early conciliation via Acas is a dispute resolution mechanism used in employment disputes. It gives both sides a chance to resolve matters before a claim is issued. There is a requirement to undertake early conciliation before issuing almost any employment tribunal claim, including discrimination, whistleblowing, unfair dismissal and unlawful deductions from wages.
Although contacting Acas is mandatory, engagement with the process is voluntary for both employers and employees. If an employee is interested in conciliation, Acas will contact the employer to see if they are willing to take part. If they are, then the parties can use the conciliation period to reach an agreement without prejudicing time limits in the tribunal. It is this conciliation period which has changed – doubling from six weeks to twelve weeks.
What is the impact of the extension of the conciliation period?
If you notify Acas on or after 1 December, the conciliation period will be up to 12 weeks.
The drive behind this change is clear: the early conciliation system is currently overstretched, with reports of conciliators not having the capacity to contact the parties to conciliate at all during the current six-week window. An extension of the conciliation period gives more time for discussions to be held and for settlement to be reached before a claim needs to be issued. This will have the knock-on effect of reducing the number of issued claims, giving the equally overstretched tribunal system welcome breathing space.
The change could be good for employers: allowing more time for disputes to be resolved amicably and without the need to resort to the tribunal – where positions tend to become entrenched and costs quickly mount up. However, there is another angle: this change, especially when combined with the Employment Rights Bill’s proposal to extend the time limit for bringing tribunal proceedings for six months, could mean that some claims are not issued in the tribunal until nine months after the relevant events crystallised. Given the recall issues which can arise with the passage of time, it is important that HR teams gather evidence and recollections at an early stage and do not wait for the extended early conciliation period to expire, or for a claim to land.
How to handle retirement discussions: Top tips for HR
Talking about retirement with employees can feel like a legal and practical minefield – and with good reason. Handled poorly, these discussions can lead to broken trust, constructive dismissal and age discrimination claims.
Start with care – and avoid assumptions
The Acas guidance is clear: don’t raise retirement unless the employee does first. This was highlighted in Tapping v Ministry of Defence, where HR asked a civil servant in his 60s about his retirement plans after he raised a grievance about how his health condition was being managed. The tribunal found that this amounted to unjustifiable direct age discrimination, as a younger employee wouldn’t have been asked the same question.
Top tip: Instead of asking older employees about retirement, ask all employees – of all ages – about their short-, medium- and long-term career plans in regular check-ins or appraisals. This avoids singling anyone out and keeps conversations inclusive and legally safe.
What to cover if retirement is raised
If the employee raises the topic, it's fine to explore their plans. You might discuss:
Current performance
Training or support needs
Career goals and timescales
Organisational plans and role development
Options like phased retirement or flexible working
Stay open and non-committal unless and until formal notice is given – people’s plans change, and assumptions can lead to risk.
Think before offering a retirement payment
Where retirement is raised, some employers consider offering an ex gratia payment as a gesture of goodwill. But be cautious: ex gratia payments are not always tax-free just because they’re linked to someone leaving. Any lump sum (including an ex gratia payment) paid to an individual who retires or is nearing retirement on termination is potentially taxable under s393 and 394 ITEPA and, therefore, would not benefit from the £30,000 exemption. Under these sections, any ‘relevant benefits’ (including sums paid on, after or in anticipation of retirement) received by an individual under an employer-financed retirement benefits scheme, count as employment income. The word ‘scheme’ has a wide meaning. In Forsyth v HMRC, the First-tier Tax Tribunal confirmed that a compromise agreement (as settlement agreements were then known) could be a ‘scheme’.
If you’re considering a payment on exit, take tax advice and remember, there’s no legal requirement to make a retirement payment at all.
Non-competition provisions in employment contracts: key challenges to enforceability principles
Restrictive covenants are provisions in a contract which restrict the behaviour of the parties even once the contract has come to an end. In an employment context, restrictive covenants can be used to limit an employee’s freedom to work for a competitor, or to solicit or deal with customers for a period of time after they have left work.
Restrictive covenants operate as a restraint of trade – limiting what an employee can do on the open market. For this reason, they will only be enforceable if they go no further than is reasonably necessary to protect an employer’s legitimate business interests. Non-competition provisions – clauses which stop an employee from working for a competitor for a period of time – are the most restrictive form of covenant and, for this reason, need to be very tightly drafted and tailored to avoid being found to be unenforceable.
In the recent case of Tom James UK v Max Potter, a Court ruled that a non-compete clause in an employment contract was unenforceable. Mr Potter was a personal tailor. Tom James UK Ltd is part of one of the world’s largest tailoring companies. Mr Potter worked for Tom James for a number of years. He resigned from his role in May 2025. However, when Tom James sought to enforce the 12 month non-compete clause in his contract of employment, the Court held that it was unenforceable. It was found to be too wide. Relevant factors included:
A 12-month period of restraint was too long – others can go to work for competitors within six months without the business suffering any harm
The restriction was not geographically limited – preventing the employee from being a tailor anywhere in the world
The clause was in all contracts – there was no consideration of its specific suitability and applicability to Mr Potter
The clause was too wide – it didn’t just prevent Mr Potter from working for a competitor as a tailor, it prevented him from doing any job for a competitor
Employers are reminded that the inclusion of post-termination restrictions in the contract of employment should be considered on a case-by-case basis. A ‘one size fits all’ approach should not be adopted. Restrictions must be drafted as tightly as possible and clearly focused on the business interest which the employer is aiming to protect.
Why employers need to make sure that employees take a break from the workplace
All workers in the UK have the right to take paid holiday. This right is set out in the Working Time Regulations 1998. It is important that workers take time away from work to rest. It is a false economy to have employees who are exhausted – a lack of true rest can have an impact on health, wellbeing, performance and attendance.
Under the Regulations, all workers are entitled to take 5.6 weeks away from work on a paid basis each year. Crucially, it is not enough for employers to just signpost this right and then leave employees to get on with it. Under the Regulations, employers have a positive obligation to encourage employees to take holiday.
Regulation 13 says employers must:
recognise a worker’s right to annual leave.
give the worker a reasonable opportunity to take the leave they’re entitled to or encourage them to do so.
inform the worker that any leave not taken by the end of the leave year, which cannot be carried forward, will be lost.
If the employer fails in the above, Regulation 13(17) provides that any annual leave accrued and not taken, or taken but not paid for, must be carried forward to the next annual leave year.
Practically speaking, employers can take the following steps to help to meet these obligations:
Have a written holiday policy in place which makes this position clear and is easy to understand.
Make booking and taking holiday as easy as possible. Use automated forms. Avoid complex systems of approval.
Make sure that support is available so that workers are not discouraged from taking time off owing to workload issues.
Review the holiday year structure, and schedule reminders to workers to be sent at certain points in the year to remind them of the amount of leave which is still available for them to take.
Towards the end of the holiday year, send a communication out reminding employees to book their holidays to the end of the year and reminding them that any leave not taken by then will be lost.
Inform line managers of these rules so that they do not refuse leave and end up in a situation where the worker is unable to take it before year-end.
Court of Appeal rules that employees can claim against employer and co-workers for ‘detriment of dismissal’ in whistleblowing claims
The Employment Rights Act 1996 includes two different claims which whistleblowers can bring relating to their employment:
Automatic unfair dismissal under s103A where the reason or principal reason for dismissal is whistleblowing.
Detriment under s47B where an employee is subjected to detrimental treatment which is materially influenced by whistleblowing.
Unfair dismissal claims can be brought against the employer only. Detriment claims can be brought against the employer and/or against workers or agents of the employer (with a claim against the employer for vicarious liability for the acts of those workers or agents). There is a lower causation test for detriment: the employee only needs to show that the person causing the detriment was materially influenced by whistleblowing. There is also the possibility of claiming injury to feelings (which is not available for unfair dismissal claims).
So, what happens where an employee is unfairly dismissed, claims automatic unfair dismissal against their employer (s103A), but also claims that the act of dismissal by a worker or agent of the employer is a detriment, and claims against the employer for that too (s47B)? On the face of it, it would appear that the legislation itself bars this: s47B(2) states that there can be no detriment claim where the person is an employee and the detriment relied upon is dismissal (presumably because this situation is already protected under s103A).
However, this question was looked at recently by the Court of Appeal in the joined appeals in Wicked Vision v Rice and Barton Turns v Treadwell. The Court of Appeal was asked to decide whether employees could amend their unfair dismissal claims under s.103A to include whistleblowing detriment claims under s.47B, where the detriment complained of was the dismissal.
The Court of Appeal held that an employee can bring a whistleblowing detriment claim under s47B based on their dismissal, where the dismissal is treated as an act of a co-worker and the employer is vicariously liable under section 47B(1B), despite the apparent bar in section 47B(2).
The Court noted that it would have interpreted s.47B(2) as preventing all detriment claims that in substance amounted to a dismissal by the employer. However, it was bound by the earlier Court of Appeal decision in Timis v Osipov, which held that s.47B(2) does not bar a detriment claim against a co-worker responsible for dismissal, nor the vicarious liability of the employer for that co-worker’s act under s.47B(1B). Therefore, even where the detriment alleged is the dismissal itself, the claim can proceed under s.47B(1A) and (1B).
The Court acknowledged that the statutory construction has produced inconsistency across courts, and that a definitive resolution would require either a Supreme Court ruling or legislative amendment. Nonetheless, it concluded it was bound by Osipov, and both employees could proceed with detriment claims based on dismissal.
And Finally...
In a case of ‘you can’t blame a guy for trying’, in the recent case of Saul v Rashbrook, a solicitor put forward a rather far-fetched claim for unpaid commission. The whole concept of commission is rooted in the idea that a person receives a ‘cut’ of the value of sales that they have secured for the business. Mr Rashbrook’s contract said he would earn commission on work he carried out once he had billed more than three times his salary. He claimed that he had been underpaid commission as his employer had not taken account of the work that other people had done on his files, when working out if he had reached the three times annual salary threshold. The Employment Appeal Tribunal held:
Contract clauses should be construed neutrally and given their natural and ordinary meaning.
The clause clearly said commission was only due for “work carried out by the Employee” as a solicitor.
This meant that only work done by Mr Rashbrook himself counted toward the commission threshold.
Once the fees for work done by others were removed, he hadn’t met the required threshold of three times his salary.
Mr Rashbrook’s claim was, unsurprisingly, dismissed.