Greater protection for employees, more complexity for employers, and a need for careful planning over the next two years.
Greater protection for employees, more complexity for employers, and a need for careful planning over the next two years.
Following some late parliamentary ping-pong, the Employment Rights Bill has now received Royal Assent, marking the most significant overhaul of UK employment law in a generation. Below is a summary of the key changes in the Employment Rights Act 2025 ("ERA 2025").
Unfair dismissal: shorter qualifying period and uncapped compensation
The change that has been making the headlines is the reduction of the qualifying service period for ordinary unfair dismissal claims from two years to six months. This will take effect retrospectively from 1 January 2027, meaning any employee with six months' continuous service by that date will be protected.
The ERA 2025 also removes the statutory cap on unfair dismissal compensation (previously the lower of 12 months' gross pay or 118,223). The basic award remains unchanged, but the risk profile for dismissals, particularly of senior or high-earning employees or those with defined benefit pension schemes, will increase significantly. The Government has reportedly committed to publishing an impact assessment before the cap is removed. The timing of the removal of the cap has not been confirmed, but we are expecting it to come into force at the same time as the change to the qualifying service period for...
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