The House of Commons has voted to press ahead with sweeping changes to UK employment law, reinstating unlimited compensation for unfair dismissal after peers in the House of Lords rejected the move last week. The controversial legislation, which includes a range of new workplace rights, is now set to return to the Lords as ministers aim to get it through Parliament before the Christmas recess.
The Employment Rights Bill, which covers issues from flexible working to zero-hours contracts, cleared the Commons on Monday night after a government majority of 215. The vote followed a surprise defeat in the Lords, where peers had attempted to block plans to lift the cap on unfair dismissal awards — currently set at either 52 weeks of pay or £118,223, whichever is lower.
Business groups and opposition MPs have voiced concern that removing the cap could increase costs and uncertainty for employers. Supporters of the reform argue it is an overdue step that will bring greater fairness and protection for employees, particularly those who face significant financial loss as a result of dismissal.
Push to pass new rights before Christmas break
The parliamentary process is now entering its final stage, with the bill set to return to the House of Lords for what is known as “ping pong” — the back-and-forth over amendments between the two chambers. Ministers hope to resolve the dispute in time for the Christmas break. If the Lords again rejects the bill, MPs can insist on their changes, forcing peers to choose between accepting the legislation or allowing it to fall.
Angela Rayner, the former deputy prime minister who led the drafting of the bill before her resignation, took aim at hereditary peers for voting against the government last week. “What message does this send to the public when 33 hereditary peers have tried to defeat the government by 24 votes on a manifesto promise?” she said. “Shouldn’t we go on, go through the night if we have to, and get this Bill passed?”
The government had previously reached a compromise with business and trade unions in an attempt to smooth the bill’s passage. The deal included dropping plans for “day one” protection against unfair dismissal, instead setting a six-month qualifying period. In return, ministers agreed to union demands to scrap the compensation cap for unfair dismissal claims.
Major changes for employers and employees
If passed, the legislation will mark one of the most significant updates to UK employment rights in recent years. The bill will make flexible working requests the default, requiring employers to consider applications for flexible hours or arrangements. Workers on zero-hours or variable contracts would be entitled to guaranteed hours reflecting their typical work patterns, and statutory sick pay would be available from the first day of absence for all employees.
The bill also introduces new entitlements to parental and bereavement leave, alongside stronger protections for new mothers returning to work. Employers would have a legal duty to prevent third-party harassment in the workplace and to develop gender equality action plans if they have more than 250 employees. In the adult social care sector, a new framework for “fair pay agreements” would allow for sector-wide bargaining over pay and conditions.
Other measures include consulting on statutory probation periods for new hires and clarifying how employers can manage performance concerns during early employment.
Debate over business costs, late amendments
Critics in the Lords and in business groups have argued that removing the cap on unfair dismissal compensation could increase costs for organisations and encourage more litigation. Some called for the cap to be raised rather than scrapped altogether. However, the Confederation of British Industry and the British Chambers of Commerce said it was time to move forward. They acknowledged concerns but said, “now is the time for Parliament to pass the bill”.
Peter Kyle, the Business Secretary, called on all sides to support the final passage of the reforms. Summarising the government’s position, he said, “All parties – business, trade unions, Government and Parliament – have made difficult but necessary compromises to bring this bill forward. In that same spirit of compromise, during the remaining stages of this bill I urge everyone to recognise that the elected representatives of business, trade unions and the people are committed to passing this bill without further delay.”
Supporters of the reforms argue that the removal of the cap is essential to ensure fairness for workers who face substantial loss of earnings and to bring the UK in line with international standards. Employers are being urged to review HR policies, update employment contracts and plan for new reporting and consultation requirements if the bill is passed before Christmas.
The coming days will determine whether Parliament can agree on the final details of the legislation. If the bill passes as planned, 2026 will see a wave of changes for both employers and employees, with new rights, responsibilities and expectations across the workplace.
