Unfair Dismissal Compensation Cap Abolished

Last week, the government made a quiet but significant announcement by publishing an “Unfair Dismissal Factsheet” on its webpage relating to the Employment Rights Act 2025.

The factsheet provides the following clarifications.

First, the statutory cap on unfair dismissal compensation, currently the lower of one year’s pay or £118,223, will be abolished with effect from 1 January 2027. More notably, the government has stated that it does not intend to consult with trade unions or employers prior to removing the cap. This position is directly contrary to the assurances given in the House of Lords in December to secure the Bill’s passage.

Second, the government has confirmed that it remains committed to introducing the six-month qualifying period for unfair dismissal protection on 1 January 2027. It has now clarified that employees with six months’ service or more as at that date will immediately benefit from protection, while those with shorter service will acquire protection upon reaching six months’ continuous employment.

We will be discussing these updates and the wider implications of the Employment Rights Act 2025 at our Spring Summit on 12th March 2026. Find out more and RSVP for your free ticket here.