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Employment Rights Bill: from “day one rights” to six months, and another headache for small businesses

ended 13. December 2025

The Employment Rights Bill is back in the Commons on Monday 15 December 2025 after yet another round of back and forth with the House of Lords over plans to scrap the cap on unfair dismissal compensation. Peers are kicking off because removing the cap was not in the manifesto, was not consulted on and could turn fairly standard dismissals into very expensive tribunal claims.

Labour came into power on a very clear message about a New Deal for Working People and the Make Work Pay plan. The pitch was simple: basic rights from day one, including unfair dismissal protection, plus clamping down on exploitative zero hours contracts and fire and rehire.

Fast forward and the headline has shifted. The current version of the Bill moves ordinary unfair dismissal protection from a two year qualifying period to six months, with the new regime due to start in January 2027. Existing day one protection for discrimination and automatically unfair reasons stays, but that big day one unfair dismissal promise has gone. Independent trackers are already saying this part of the pledge looks off track and will probably be marked as not kept.

On top of that, the government wants to remove the statutory cap on unfair dismissal compensation. Right now it is the lower of 52 weeks pay or £118,223. Lifting that cap is exactly what the Lords keep blocking. Ministers are now signalling they are prepared to keep recalling MPs and peers and push the Bill through over the Christmas period to get it done before Parliament rises.

For small businesses, all of this lands at the same time as a Budget that has already pushed up costs through higher minimum wages, business rates and general payroll pressure. On paper there is some support in there, but most owners I speak to are feeling the squeeze, not the love.

Meanwhile, the government is all over social media and press releases saying it is backing small businesses and shouting about support packages and Small Business Saturday. So you have the slogans and the hashtags about backing small firms, and you have a Budget plus an Employment Rights Bill that many SMEs will experience as more cost, more risk and more complexity. Saying one thing and doing another. Sound familiar?

Questions for you

Have you held off on any restructures, dismissals or contract changes while you wait to see what actually lands in the Employment Rights Bill?

Does moving from day one to a six month qualifying period feel like a sensible compromise, or a broken promise that still ramps up your risk?

If the cap on unfair dismissal awards goes, how will that change how you handle probation, performance management and settlement conversations?

Do you think the Lords are right to keep pushing back on uncapped compensation, or should they step aside and let Labour get its workers rights package through?

Looking at the Budget and this Bill together, do you feel genuinely backed as a small business, or do the policies and the social media posts not quite match up?

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5 responses from the Newspage community

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Editor
Kate Underwood
Founder & Chief People Strategist at Kate Underwood HR and Training
Westminster has backtracked on day one unfair dismissal, then tried to shove the Bill through fast so nobody can poke holes in it.
They’ve quietly dropped the original day one plan and landed on a six-month qualifying period instead. That’s a big policy wobble, not a tweak. And it’s happened because the Lords have pushed back and the Government wants this wrapped up, pronto, with as few changes as possible. Meanwhile, business owners and HR are left trying to keep up with the Employment Rights Bill, the Budget, the cost of living crisis, and still rebuilding from Covid. Real businesses do not have time for constant rule changes and political point scoring. They need clarity that sticks, not HR whiplash every time Westminster changes its mind.
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Kate Allen
Owner at Finest Stays
Labour can post all the pro–small business slogans it likes, but that doesn’t mean its policies actually support us. Scrapping the unfair dismissal cap would only make employers more nervous about hiring, on top of NI hikes and the growing sense that everything is shifting against SMEs.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
This Government has managed the peculiar feat of simultaneously claiming to champion small business whilst legislating precisely the opposite, a contradiction so glaring that even the most charitable interpretation requires suspension of disbelief. The Employment Rights Bill returns to Parliament on Monday after the House of Lords has repeatedly rejected the removal of the statutory cap on unfair dismissal compensation, a rejection rooted in the perfectly reasonable observation that transforming fairly standard dismissals into potentially unlimited financial liabilities was neither promised in Labour's manifesto nor properly consulted upon.

Small business owners, meanwhile, watch Ministers appearing on social media celebrating Small Business Saturday and praising entrepreneurial Britain, then they turn their attention to a Budget that has already compressed their margins through higher National Insurance contributions, rising business rates, and accelerating minimum wage obligations.
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Colin Crooks MBE HonDsc
CEO at Intentionality
"The UK ranked a dismal 5th from bottom in the OECD for employment protection. This Bill shouldn't panic good businesses because they're already running proper processes, giving regular feedback, and setting clear expectations from day one. That's not a burden, it's basic professional management.
The pandemic cost us hundreds of thousands of experienced workers. Over a third of 50-59 year-olds who left cited stress and work-life balance. If we want them back, we need workplaces that demonstrate respect from the start.
But removing the compensation cap entirely creates unknowable, uninsurable risk that will hit small businesses hardest. Increase it to £150k if needed, but uncapped awards turn routine employment disputes into potential business-ending liabilities. The Lords are right to push back on this."
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Patricia McGirr
Founder at Repossession Rescue Network
Uncapped unfair dismissal awards have turned small business hiring into legal roulette. Most small employers support strong worker protections and already shoulder most of the risk. This Bill takes it further. Six months barely gives you time to know if someone is right for the job, and removing the compensation cap lets tribunals write cheques small firms must cash blind. Big corporates can absorb that hit. Small businesses cannot. When every hire carries unlimited downside, hiring stops. Jobs do not disappear, they are never created, and the workers this law claims to protect may never even get through the door.