Unfair dismissal and redundancy

Only employees who have been continuously employed for two years are entitled to bring an unfair dismissal claim under s108 of the Employment Rights Act 1996. In addition, there is a limit to the compensation a tribunal can award to any employee who successfully brings an unfair dismissal claim.  This cap is the lower of either 52 weeks’ pay or a cap which is increased each year.

Under the ERA, employees will be entitled to bring an unfair dismissal claim after six months’ continuous service. This was changed in the final weeks prior to the ERA obtaining Royal Assent – the House of Lords blocked the Government’s intention to get rid of a qualification period and instead introduce a ‘light touch’ procedure during a statutory probationary period.  Both those aspects have not made it to the final version of the ERA.

In addition to this change a further key provision was introduced to the ERA; there will be no limit to the compensation awarded to employees who succeed in their unfair dismissal claims.  It’s important to note that this only relates to the compensation payable and not the statutory payment (calculated according to weeks’ pay, age and length of service) – the latter remains in place and will not change.

Finally, the Government has ensured that these provisions cannot be changed by secondary legislation i.e. through regulations.  If a future Government wants to increase the qualification period (or remove it) the measure will have to be debated in Parliament and the ERA 1996 amended.

The July 2025 Roadmap has confirmed this change will take effect from 2027, however, an announcement by a Government spokesperson in December 2025 stated that it would be in force from 1 January 2027. This contradicts the Government’s assurance that all new legislation would come into force in either April or October and so we await confirmation on this revised date.

Despite calls for the ‘outlawing’ of the dismiss and re-engage process (fire and rehire), it is still lawful. Provided of course it follows a fair process and takes account of relevant collective redundancy provisions.

The provision in the ERA (amended by the House of Lords in July 2025) means that the dismissal of an employee for failing to agree a ‘restricted variation’ or because the employer intends to employ another person on varied terms who would carry out substantially the same role will be automatically unfair. A restricted variation is one which relates to pay, hours and holiday (and any other aspects that will be covered in further regulations). The only exception to this is when an employer can demonstrate that the reason for the variation is ‘financial difficulties’. However, demonstrating financial difficulties will not be sufficient – the employer must also demonstrate that sufficient consultation has been carried out prior to the dismissal either with a trade union or an employee representative and whether an employee has been offered anything in return for the variation. Whilst a dismissal for refusing to agree a variation which is not restricted will not be automatically unfair, it will still carry a risk of unfair dismissal. Under the ERA, a tribunal will consider the reason for the variation, the consultation process etc. when considering the fairness of such a dismissal. The Act expressly notes that the Tribunal will consider the need for the variation and the extent of the consultation prior to the dismissal. The ERA further prohibits the engagement of agency workers should permanent employees be dismissed for failing to agree a variation. An employee will be automatically unfairly dismissed if the reason for their dismissal was to replace them with an agency worker. The only defence will be if the employer can demonstrate the financial difficulties test.

For public sector employers more detail regarding, ‘financial difficulties’ will relate to ‘the financial sustainability of carrying out the employer’s statutory functions’. For local authorities, the financial difficulties exception will pally if the financial difficulties have resulted in a ‘relevant intervention direction’ relating to the financial management or governance of the authority.

The July 2025 Roadmap (updated in February 2026) has confirmed this change will take effect from January 2027.  This change was originally due to be introduced October 2026 but has been pushed back.

The Government issued a consultation on 21 October 2024 which closed on 2 December 2024. Under this consultation, the Government proposed to offer interim relief to an employee who is bringing an unfair dismissal claim for failing to agree to a variation in their contract of employment.

A further consultation was opened on 4 February 2026 (closed 1 April 2026) on whether a restricted variation will extend to changes in shift patterns and whether the restricted variation concerning calculation of pay will extend to any changes in expenses payments and benefits in kind.  More information can be found here

Employers are required to collectively consult their workforce should they intend to make 20 or more employees redundant in ‘one establishment’ within 90 days. Where 20 or more redundancies are planned, it must consult for 30 days prior to any dismissals and where 100 or more redundancies are planned then 45 days of collective consultation. This means that an organisation can avoid collective consultation if they can demonstrate that the redundancies are not all taking place in one establishment but are spread across the organisation and so do not meet the 20+ threshold. When an employer fails to collectively consult in accordance with the current legislation, an affected employee is entitled to a protective award. The tribunal can award up to 90 days’ pay for each affected employee. Recently, following the ACAS code on fire and rehire coming into force, tribunals can uplift that award by up to 25% if it finds that the employer has unreasonably failed to follow the code.

In the first draft of the ERA, it removed the provision relating to ‘one establishment’, which meant all redundancies across an organisation would be taken into account, and all would be counted towards the threshold of 20 redundancies regardless of whether they are in different areas, parts of the business etc. However, following the March 2025 amendments, this has changed. Collective consultation will now be triggered EITHER when 20 or more redundancies are planned within 90 days at one establishment OR when redundancies are planned within 90 days across more than one establishment and the number of redundancies is at least the threshold number of employees. This threshold number will be set by regulations. We understand that these regulations will set out criteria for assessing the threshold number (e.g. by reference to a particular percentage of employees). This marks one of very few concessions by the Government in favour of employers. For large employers, having the 20 thresholds for consultation apply across the whole entity could have meant that consultation was needed on most occasions when redundancies occurred even if they were unrelated and part of the day-to-day of running a large organisation.

In addition, the amendments also confirm that the consultation required under must be carried out with appropriate representatives, however, it need not be carried out with all representatives together nor does the same agreement have to be met with all representatives. This presumably means that each establishment may come to a different agreement according to the needs of each establishment. The number thresholds will be mirrored in the obligation under s193 of TULRCA to notify the Secretary of State regards collective redundancies and similarly under s198A and the trigger for consultation obligations in a TUPE transfer.

The ERA (as amended in March 2025) will increase the cap on the protective award. Tribunals will be able to award up to 180 days where an employer has failed to properly consult under TULRCA.

The July 2025 Roadmap has confirmed that this change relating to the threshold for collective redundancies will take effect from 2027. The increase to the protective award took effect on 6 April 2026.

The Government issued a consultation on 21 October 2024 which closed on 2 December 2024.

Under this consultation, the Government proposed to increase the protective award and either remove the cap completely or increase it from 90 days to 180 days. In addition, it consulted on whether interim relief should be given for employees who are fighting protective award claims.

As noted above, following the consultation, the protective award has been increased to 180 days’ pay, however, there will be no right to interim relief in fire and rehire situations.

The report following the consultation can be found in the key documents section of the ERA hub.

The Government published a consultation on 26 February 2026 (closes 23 April 2026) on an organisation wide trigger for collective redundancy.  In the consultation the Government sets out different types of potential calculations but expresses its preferred method as a fixed number of between 250-1000.  More details can be found here.