Employment Rights Act: Finally here

The Employment Rights Bill represents the biggest change to employment law in decades and will impact employers of all sizes and all sectors. This update will therefore be relevant to all HR professionals and managers across all sectors.

The Employment Rights Bill finally passed in the House of Lords yesterday (Tuesday 16 December 2025) and will now become the Employment Rights Act (“the Act”). 

Removal of the unfair dismissal compensation cap

The final sticking point had been the removal of the cap on unfair dismissal compensation. The House of Lords had previously insisted on an amendment that would obligate the government to conduct a “review” of the cap within three months of the Bill passing rather than removing it. However, this was rejected when the Bill returned to the House of Commons on Monday 15 December 2025.

The Bill returned to the House of Lords yesterday. During the debate the government committed to publishing an impact assessment of removing the compensation cap on unfair dismissal before implementing the unfair dismissal provisions of the Act. The House of Lords therefore withdrew their final amendment and accepted the government’s amendment removing the compensation cap on unfair dismissal awards, allowing the Bill to pass.

However, it is not clear what, if anything, will happen if the impact assessment concludes that removing the compensation cap is a bad idea.

What happens next?

The Bill will now receive Royal Assent, which is expected to happen imminently. The effect of Royal Assent is that it confirms the final version of the Bill and sets a specified date on which it will become law. However, as we set out in our previous article, most of the changes set out in the Act require commencement regulations to bring them into force (including the unfair dismissal provisions), and many require further substantive regulations, together with associated consultation before they can be brought into effect.

Therefore, some of the biggest changes including to collective redundancy consultation, guaranteed hours contracts and unfair dismissal won’t come into force until 2027. Equally, the final detail of the secondary legislation may be impacted by the responses to the various consultations. Therefore, whilst we now know that the Bill will become law, there’s still a lot to be determined.  

We’ll continue to monitor developments and provide further updates in due course. In the meantime, you can access our Employment Rights Act hub to keep updated.