The Employment Rights Bill has now received Royal Assent

It’s happened, the Employment Rights Bill has successfully completed its passage through Parliament and as of 18 December 2025, it is now officially the Employment Rights Act 2025.

The Act progressed through the legislative process with some difficulty, with the most recent concerns raised in the House of Lords regarding the removal of the statutory compensation cap for unfair dismissal claims. However, following assurances from the Government and requests from business organisations to conclude the legislative process, peers withdrew their final amendment, allowing the Bill to pass in its current form.

The removal of the cap on compensatory awards for unfair dismissal is one of the most significant changes introduced by the Act. During Lords debates, the Government confirmed it will publish an impact assessment examining the consequences of removing the cap before the relevant provisions come into force.

David Pannick KC made a notable contribution to the debate, arguing that concerns around uncapped compensation are overstated. He highlighted that discrimination claims have long been uncapped without leading to excessive or disorderly awards, suggesting there is no reason to expect a different outcome for unfair dismissal claims.

For employers, the Act confirms that substantial reform is on the horizon with the removal of the compensation cap increasing potential financial exposure, particularly in cases involving higher earners. However, assessments suggest there may be a lead-in period before the changes take effect, giving employers time to prepare, review policies and monitor developments around commencement and implementation. We now await further details of the expected consultations and impact assessment for the removal of the unfair dismissal compensation cap.

Need advice on how the Employment Rights Act 2025 could affect your business? RHA Legal Services provides on-tap advice regarding the very latest in matters affecting your business. Contact our membership team to sign up, which will provide immediate access to the Backhouse Jones team of employment law specialists, helping you understand the risks, review your dismissal procedures and to help you prepare for the removal of the unfair dismissal compensation cap.