The Employment Rights Act 2025 represents one of the most significant overhauls of UK employment law in a generation. It covers a wide range of issues, from trade union rights to zero-hours contracts and collective redundancy consultation, but two changes to the unfair dismissal regime stand out as particularly consequential for private capital managers and their senior executives.
This article examines the practical implications of two landmark changes: the removal of the statutory cap on compensatory awards for unfair dismissal, and the reduction of the qualifying service period from two years to six months, both of which take effect on 1 January 2027.
Since the unfair dismissal regime was first introduced in 1971, compensatory awards have been subject to a statutory cap - currently the lower of one year's pay and approximately 120,000. That cap will be abolished entirely on 1 January 2027. At the same time, the qualifying period of continuous employment required before an employee can bring an unfair dismissal claim will fall from two years to six months. The practical effect is clear: far more people will be able to bring claims, and for senior, highly paid individuals, the potential value of those claims will be dramatically higher.
Compensation is designed to put the claimant in the position they would have been in had the dismissal not occurred. Employment tribunals...
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