The Employment Rights Bill (‘ERB’) made it close but failed to pass the House of Lords on 10 December 2025. The disagreement ultimately rested on one point – the last-minute Government amendment proposing to remove the compensation cap (currently the lower of 52 weeks’ pay or £118,223) for unfair dismissal claims.
The Government is doing all it can to get the ERB over the line before Christmas and the ERB has been scheduled to return quickly to the House of Commons on 15 December 2025, and is expected to return to the House of Lords before the end of that week.
Background
As mentioned in our earlier article, on 27 November 2025, the Government announced that, to help the ERB pass and to keep to the Government’s planned implementation timeline, it had reached a compromise with unions and business representatives. As part of this compromise, the Government confirmed it was dropping its plans to make ordinary unfair dismissal claims available from day one of employment and instead that it would reduce the current two-year qualifying period to six months.
As part of this announcement, the Government said that it would “lift” the cap on compensation for unfair dismissal. There was much confusion about what “lift” meant, until Government amendments published in advance of the debate in the House of Commons made clear that the Government was intending to remove the cap on compensation entirely. That amendment was passed on 8 December 2025 in the House of Commons but faced a battle in the House of Lords on 10 December 2025.
The Government was successful in respect of all other remaining areas of disagreement on the text of the ERB other than the amendment proposing to remove the cap on compensation for unfair dismissal (see here). For this amendment, the Government suffered a narrow defeat of 244 to 220 votes with opposition peers arguing that such a significant amendment should not have been introduced at a late stage without consultation or an impact assessment. Instead, Conservative peers put forward an amendment in lieu proposing a review of the compensation cap limit within three months of the ERB becoming law, including consultation with all key stakeholders.
Next Steps
The ERB goes back to the House of Commons quickly on 15 December 2025, and it is being reported that it will then return back to the Lords on Tuesday. Currently, it appears that the Government is not seeking a compromise position and looking to simply remove the compensation cap (see the latest amendment paper here).
Will we see a shiny new Employment Rights Act 2025 before Christmas? And if so, will it remove the compensation cap for unfair dismissal? We will have to watch this space, but we should know fairly soon!
