Unfair dismissal

In breach of the Salisbury Convention, the House of Lords continued to vote down the Government’ key manifesto commitment to a day one right to claim unfair dismissal. In view of the risk that workers would lose out on important rights the Government reached a deal reducing the qualifying period to claim unfair dismissal from two years to six months but with the cap on ordinary unfair dismissal compensation removed. The new rights will apply to employees who already have six months service on 1 January 2027 with other employees gaining protection once they have six months service.

The six-month qualifying period does not alter the position of employees who have been automatically unfairly dismissed such as on trade union grounds or for reasons of pregnancy, which remains a day-one right.

The power to vary the unfair dismissal qualifying period is removed and the six-month qualifying period is prescribed in the Act. This means that it will be harder for future governments to change the qualifying period as it will require a change to primary legislation. 

Cap on unfair dismissal compensation removed

The current cap on compensation for claims for unfair dismissal is the lower of 52 weeks’ gross salary or a statutory cap (currently set at £118,223).

Securing the removal of the cap on the compensatory award from January 2027 brings unfair dismissal compensation into line with claims for discrimination, where compensation has not been subject to an imposed limit since 22 November 1993.

Tribunals will be able to assess compensation according to an employee’s actual financial loss. This means long-serving employees who are unfairly dismissed are properly compensated for the losses they have incurred, including pension loss. Removing the cap should also discourage unscrupulous employers from adopting bad practices such as providing damaging references or even failing to provide one at all. Employers who continue with such practices after January 2027 are likely to find that they will have to pay more compensation as a result so that the employee is not out of pocket.

 

Visit our main Employment Rights Act Hub for further information.Â