British workers set for unlimited compensation in unfair dismissal claims

Under the revised plan, employees will be able to bring unfair dismissal claims after six months of continuous service, replacing the current two-year threshold.

While commitments stated from the dispatch box are not legally binding, they carry substantial political influence among MPs.

The Guardian first reported the planned announcement after discussions between Government ministers and figures including former deputy prime minister Angela Rayner and former employment minister Justin Madders.

The policy represents a shift from Labour’s original proposal, which had sought to give workers the right to claim unfair dismissal from their first day of employment.

Business groups previously objected to those plans, warning they could discourage companies from hiring new staff.

Until last week, the Government had intended to remove the qualifying period entirely during 2027, with a nine-month statutory probation period included as a compromise for employers.

However, negotiations with trade unions and business representatives led to a change in approach.

The proposed probation period has now been dropped and replaced with the six-month qualifying requirement.

At present, employees gain protection against ordinary unfair dismissal once they have completed two years of continuous work, requiring employers to demonstrate a valid reason for termination and follow a fair process.

Ms Rayner, who worked with Mr Madders on the original employment rights package, had tabled an amendment calling for implementation in 2026.

After discussions with ministers this week, she agreed to withdraw the amendment.

She later backed the compromise on social media, noting that a January 2027 start date would provide protections for employees hired from July 2026 onwards.

She said the agreement would deliver "real change for workers."

Talks between ministers and the two former frontbenchers were central to reaching the revised plan, with the Government agreeing to set a clear implementation date after initially leaving it open-ended during last week’s policy update.

The Government also plans to remove the current limits on compensation for ordinary unfair dismissal.

Successful claimants can currently receive awards capped at either their annual salary or £118,223, whichever is lower.

Ministers intend to amend the bill during its final parliamentary stages to remove these caps entirely.

This would align compensation for ordinary unfair dismissal with that available in automatic unfair dismissal cases, such as those involving discrimination or whistleblowing, where no financial ceiling applies.

The commitment was not included in the original bill published in October last year or in Labour’s general election manifesto.

It emerged last week during negotiations aimed at securing agreement between some trade unions and business organisations.

The change has prompted differing reactions across politics and industry.

Business groups have welcomed the decision to step back from day-one dismissal rights, arguing the initial proposals risked hindering recruitment.

By contrast, the Unite union, which donates significant funds to Labour through affiliation fees, has condemned the compromise.

Several left-wing Labour MPs have also criticised the move away from the party’s earlier plans.

Despite the divisions, ministers are proceeding with other workplace reforms as scheduled.

New day-one entitlements to statutory sick pay and paternity leave are still expected to come into force from April 2026.