Employment Rights Bill – update on 12 December 2025, ping-pong continues
The Employment Rights Bill returned to the House of Lords on Wednesday 10 December for further debate and, for a brief moment, it appeared close to passing. While several contentious issues were resolved, peers rejected the Government’s proposal to remove the compensatory award for unfair dismissal claims. Consequently, the Bill will go back to the House of Commons for further debate.
The only outstanding issue that prevents the Bill from progressing concerns the maximum compensation limit for unfair dismissal claims. As we reported on Tuesday 9 December, removal of the cap would have significant implications for employers. On Wednesday, Baroness Lloyd of Effra voiced the Government’s concern that current compensatory caps incentivise claimants to construct complex cases which allege discrimination to access uncapped compensation. The Government believes that removing the cap for ordinary unfair dismissal claims would remove the incentive to construct discrimination claims, making it easier for tribunals to reach a judgment quickly and reducing burden on the tribunal system. Practitioners have voiced their concerns about the significant impact of this proposal and the potential unintended consequences. In a vote of 244 to 220, the Lords opposed removing the cap, instead introducing an amendment requiring the Government to conduct a review/consultation into the compensation limit. It is probable that the Government's defeat on this point stemmed from two factors:
- The introduction of such a fundamental alteration at a very late stage in the process – it was not a manifesto commitment and came as a significant surprise to all following the progress of the Bill when it came to light two weeks ago. Lord Sharpe of Epsom described the late addition of a major new policy at ping-pong as “unnecessary, inappropriate and constitutionally troubling”; and
- Ambiguity regarding the specific agreements reached in discussions between government, trade unions and business representatives. These discussions were held in order to deal with the impasse over the day 1 right to claim unfair dismissal, which had been repeatedly blocked by the House of Lords, however, commentary has suggested that business representatives were not aware that the Government intended to remove the compensatory cap entirely.
Although the Government will no doubt be disappointed with the outcome of the most recent House of Lords session, particularly as they have made concessions to their manifesto commitments to get to this point, they are keen to push ahead and have scheduled to revisit this matter on Monday 15 December.
Despite the setback regarding the compensatory cap, the Government achieved consensus with the Lords on several other crucial amendments.
- Guaranteed hours: The Lords accepted the Government's changes on guaranteed hours, no longer insisting that employees should have a ‘right to request’ an offer, instead agreeing to the obligation being placed directly upon the employer to provide one.
- Trade union political funds: The Lords have agreed to the system of union members contributing to trade union political funds, unless they opt out, with guidance to be published on this issue.
- Industrial action threshold: The Government’s stance on industrial action ballots prevailed by a narrow margin (223 to 219). The Lords voted to agree to the removal of the requirement for a 50% turnout threshold.
We will continue to monitor developments closely and provide updates next week.