Third Delegated Legislation Committee
Wednesday 11th November 2026
Skip to latest contribution
This debate has concluded
(began 20 hours, 51 minutes ago)
Watch LiveSkip to latest contribution
This debate has concluded
16:30
16:30
16:30
Speaker 3
-
Speaker 3
Thank you, Mr. Shelbrooke, and it's a pleasure to serve under your chairmanship this afternoon. I beg to move that the Employment Rights Act 2025 unfair dismissal, removal of Limit and Compensation, Consequential Amendments Regulations 2026, which were laid in draft before this House on the 12th of October, 2026, be approved. These regulations make necessary consequential amendments arising from the Employment Rights Act 2025. Commencement regulations have been signed confirming that from the 1st of January 2027, the statutory cap on compensation awards for unfair dismissal will be removed. A number of other employment law provisions do not contain their own standalone compensation limits.
Instead, they cross refer to the unfair dismissal cap. Once it is removed. Those references would no longer operate as intended. These regulations therefore replace or remove them when necessary. At present, compensatory awards for unfair dismissal are capped at the lower of £123,000, 123, five, 43 or 52 weeks gross pay. The 2025 act removes the statutory cap by repealing section 124 of the Employment Rights Act 1996. Removing the compensatory award cap forms part of a wider package of reforms to strengthen unfair dismissal protections, which will see the qualifying period reduced from two years to six months.
Together, these changes will give over 6 million employees greater security at work, while ensuring employers retain flexibility to assess and, where appropriate, dismiss new recruits during the first months of employment.
Instead, they cross refer to the unfair dismissal cap. Once it is removed. Those references would no longer operate as intended. These regulations therefore replace or remove them when necessary. At present, compensatory awards for unfair dismissal are capped at the lower of £123,000, 123, five, 43 or 52 weeks gross pay. The 2025 act removes the statutory cap by repealing section 124 of the Employment Rights Act 1996. Removing the compensatory award cap forms part of a wider package of reforms to strengthen unfair dismissal protections, which will see the qualifying period reduced from two years to six months.
Together, these changes will give over 6 million employees greater security at work, while ensuring employers retain flexibility to assess and, where appropriate, dismiss new recruits during the first months of employment.
16:31
Speaker 4
-
Speaker 4
Will the minister give way? Steve Barclay? I thank the Minister for giving way. Does she think that the consequence of these provisions will be felt more keenly in the public sector than the private sector, given the interaction of this regulation with final salary schemes, which are more generous in the public sector? Minister.
16:32
Speaker 3
-
Speaker 3
I thank him for his intervention. We don't think there'll be a necessarily significant impact on employers , because instead it is removing the cap, as we've mentioned, and I'll come on to the sort of engagement we've had as well, and I'm happy to update him on that, because there'll still be a process in place for unfair dismissal claims to be done in a very established, known way by judges. And I'm just going to continue on exactly what the C we are discussing today does in terms of effective provisions, because they replace references to section one, two, four with references to section one, two, three of the 1996 act.
That means that tribunals will continue to determine compensatory awards based on what is just and equitable in all circumstances. So compensation will remain based on evidence of actual and projected losses sustained by the claimant. And in practice, most awards are expected to remain modest, reflecting the continued application, as I've said of these well-established legal principles. And that's important because most of these provisions concern claims for detriment brought by workers when that detriment consists of their contract being terminated.
Okay.
That means that tribunals will continue to determine compensatory awards based on what is just and equitable in all circumstances. So compensation will remain based on evidence of actual and projected losses sustained by the claimant. And in practice, most awards are expected to remain modest, reflecting the continued application, as I've said of these well-established legal principles. And that's important because most of these provisions concern claims for detriment brought by workers when that detriment consists of their contract being terminated.
Okay.
16:33
Speaker 4
-
Speaker 4
I thank the minister for giving way a second time. She just said that she thinks the implication of these provisions will be modest. But is it not the case that traditionally higher paid potential claimants have been deterred by the cap? And in removing the cap, it will open the door to many more higher paid claimants and therefore their claims will not be modest, and particularly as per my previous intervention, when they relate to final salary pension schemes as well, such as in the NHS.
16:34
Speaker 3
-
Speaker 3
I thank him again for his intervention. As I've said, this change does not reset how tribunals calculate awards. They are well established. Tribunals have well established with calculate compensation that might be awarded for a particular types of losses, and they'll continue to base those awards on the actual and projected financial losses as evidence. We are committed to ensuring that all employees should receive fair compensation when they've been unfairly dismissed, and we're talking about unfair dismissal here. And as I've said, this is important because the provisions concerned the detriment brought by workers, and our long standing approach is that such workers should receive neither more nor less compensation than they have received as employees for bringing an unfair dismissal claim.
These amendments preserve that alignment after the statutory cap is removed. The regulations also amend section 140 of the Trade Union and Labour Relations Act 1992. That provision concerns compensation where a person is refused employment or the services of an employment agency for reasons related to trade union membership. The amendment ensures that compensation in these cases continues to be aligned with the unfair dismissal compensation. We're taking a different approach to sections 67 and 176 of the 1992 act. These provisions cover compensation payable by trade unions, where members of former members have been unjustifiably disciplined, excluded or expelled.
Parliament removed the compensation cap from fair dismissal, but it did not intend to increase compensation limits for trade union discipline and expulsion cases. These regulations therefore preserve the existing limits in those provisions. The regulations preserve the existing position by replacing the reference to one to section 124 with a fixed amount of 123,000 £120,000 543, which is the current cap on unfair dismissal compensation, and that amount will continue to be updated annually in line with inflation using RPI, the Retail Prices Index and the additional limit based on 30 weeks pay will remain. This ensures that removing the unfair dismissal cap doesn't change the existing compensation limits that apply in these cases.
Finally, these regulations amend the Acas Arbitration Scheme Order 2004. They remove references to section 124 so that following the removal of the unfair dismissal compensation cap, an arbitrator's powers to award compensation continue to align with those of an employment tribunal. These regulations, chair, are important and necessary step in implementing the unfair dismissal reforms that Parliament has already agreed. The unnecessary so that when the unfair Dismissal compensatory Award cap is removed on the 1st of January, the wider statute book continues to work as intended. They preserve existing policy where appropriate, and ensure that related compensation provisions remain effective, effective and I commend these regulations to the House.
Hey.
These amendments preserve that alignment after the statutory cap is removed. The regulations also amend section 140 of the Trade Union and Labour Relations Act 1992. That provision concerns compensation where a person is refused employment or the services of an employment agency for reasons related to trade union membership. The amendment ensures that compensation in these cases continues to be aligned with the unfair dismissal compensation. We're taking a different approach to sections 67 and 176 of the 1992 act. These provisions cover compensation payable by trade unions, where members of former members have been unjustifiably disciplined, excluded or expelled.
Parliament removed the compensation cap from fair dismissal, but it did not intend to increase compensation limits for trade union discipline and expulsion cases. These regulations therefore preserve the existing limits in those provisions. The regulations preserve the existing position by replacing the reference to one to section 124 with a fixed amount of 123,000 £120,000 543, which is the current cap on unfair dismissal compensation, and that amount will continue to be updated annually in line with inflation using RPI, the Retail Prices Index and the additional limit based on 30 weeks pay will remain. This ensures that removing the unfair dismissal cap doesn't change the existing compensation limits that apply in these cases.
Finally, these regulations amend the Acas Arbitration Scheme Order 2004. They remove references to section 124 so that following the removal of the unfair dismissal compensation cap, an arbitrator's powers to award compensation continue to align with those of an employment tribunal. These regulations, chair, are important and necessary step in implementing the unfair dismissal reforms that Parliament has already agreed. The unnecessary so that when the unfair Dismissal compensatory Award cap is removed on the 1st of January, the wider statute book continues to work as intended. They preserve existing policy where appropriate, and ensure that related compensation provisions remain effective, effective and I commend these regulations to the House.
Hey.
16:36
16:37
Speaker 5
-
Speaker 5
Thank you, Sir Alec. It's a pleasure to serve under your chairmanship. Removing the statutory cap on unfair dismissal compensation demonstrates yet again just how little this government understands. Business, insurance and legal specialists have warned that the removal of a legal limit on payouts, coupled with increasing the time limit for employment tribunal claims from 3 to 6 months, will trigger a substantial number of insurance claims. This will therefore likely force insurance companies to pay higher rates to their own reinsurance, which ultimately will drive up prices for business customers. Furthermore, it's been highlighted that as employment practices liability risks accelerate, speciality solutions will become increasingly valuable.
This is yet another cost of employment, encompassing both direct financial expenditures and high risk liabilities that the government expects employers to absorb without regard for the economic consequences. The domino effect of this policy is easy to predict. Employers will become more risk averse and employment opportunities will decrease. As we all know, when it becomes more expensive to hire, fewer people are employed. Furthermore, as there is no doubt that this policy will open the floodgates to claims, the already overstretched employment tribunal system will become all the more overwhelmed and inevitably lead to higher defence costs being incurred.
This is good for lawyers. It's not good for businesses. To be clear, we know the vital importance of employment rights and we unequivocally support having comprehensive protection for workers. But the point that we continue to emphasise, which the government keeps dismissing is that in order to have secure employment rights, you have to have secure employment in the first place. The government continues to inaccurately imply that we don't care about workers and their rights. Yet on this side of the House, we're the only ones fighting for policies that will actually protect jobs and get more people into work.
The removal of this cap will only deter employers, further push unemployment higher and compound the pressure on an already overextended tribunal system. And it's for these reasons that will be voting against it today. To truly support the workforce, the government must start listening to the businesses enduring the very hurdles that the government continue to introduce. Creating an economic environment where businesses can thrive is the only way to drive hiring and sustain long term job growth.
This is yet another cost of employment, encompassing both direct financial expenditures and high risk liabilities that the government expects employers to absorb without regard for the economic consequences. The domino effect of this policy is easy to predict. Employers will become more risk averse and employment opportunities will decrease. As we all know, when it becomes more expensive to hire, fewer people are employed. Furthermore, as there is no doubt that this policy will open the floodgates to claims, the already overstretched employment tribunal system will become all the more overwhelmed and inevitably lead to higher defence costs being incurred.
This is good for lawyers. It's not good for businesses. To be clear, we know the vital importance of employment rights and we unequivocally support having comprehensive protection for workers. But the point that we continue to emphasise, which the government keeps dismissing is that in order to have secure employment rights, you have to have secure employment in the first place. The government continues to inaccurately imply that we don't care about workers and their rights. Yet on this side of the House, we're the only ones fighting for policies that will actually protect jobs and get more people into work.
The removal of this cap will only deter employers, further push unemployment higher and compound the pressure on an already overextended tribunal system. And it's for these reasons that will be voting against it today. To truly support the workforce, the government must start listening to the businesses enduring the very hurdles that the government continue to introduce. Creating an economic environment where businesses can thrive is the only way to drive hiring and sustain long term job growth.
16:39
Speaker 6
-
Speaker 6
Thank you very much, Mr. Sheldrake. It's a pleasure to serve under your chairmanship. The Liberal Democrats voted against plans to remove the compensation cap as this as the legislation made its way through the House. And we will be opposing this again today. The removal of the limit of compensation was a government amendment at very late stage in the in the progress of the bill, and it was something that took a lot of people by surprise, which was why we weren't able to to support it on that occasion. And we're going to continue to oppose it now.
The the minister said in her opening remarks that she would expect compensation payout awards to remain modest. And I would really challenge her on that point, because I do not know on what basis. If you're going to remove a compensation cap, you can expect claims to remain modest. They will undoubtedly be an increase in claims from people who would now expect to receive an award of over the cap, and that will create huge amount not only of increasing the backlog, which is already immense in the tribunals, which is causing a huge amount of detriment to my constituents and I'm sure hers as well.
That will not only contribute to increasing that backlog, it will also create massive disruption for employers. And what I'm particularly concerned about is that where employers currently are paying, are taking out insurance and paying premiums to cover the cost of employment tribunals. Those costs will either go up, those premium costs will either go up enormously, or some employers will find that their costs are, quite simply, uninsurable. That will create the knock on impact that some of these jobs will simply not not be available. It will be too great a risk for for employers to take people on.
And I would say to the I'll happily give way.
The the minister said in her opening remarks that she would expect compensation payout awards to remain modest. And I would really challenge her on that point, because I do not know on what basis. If you're going to remove a compensation cap, you can expect claims to remain modest. They will undoubtedly be an increase in claims from people who would now expect to receive an award of over the cap, and that will create huge amount not only of increasing the backlog, which is already immense in the tribunals, which is causing a huge amount of detriment to my constituents and I'm sure hers as well.
That will not only contribute to increasing that backlog, it will also create massive disruption for employers. And what I'm particularly concerned about is that where employers currently are paying, are taking out insurance and paying premiums to cover the cost of employment tribunals. Those costs will either go up, those premium costs will either go up enormously, or some employers will find that their costs are, quite simply, uninsurable. That will create the knock on impact that some of these jobs will simply not not be available. It will be too great a risk for for employers to take people on.
And I would say to the I'll happily give way.
16:41
16:41
Speaker 6
-
Speaker 6
So the whole point about a tribunal is to assess whether or not somebody has been dismissed unfairly. It will undoubtedly be the employer's point of view that it's not an unfair dismissal, but the employees view that it has been. So that is the point of a tribunal. Surely the employer will have not have been intending in any way to dismiss somebody unfairly. I just want my final point. I would just like to make. Nobody intends to dismiss unfairly. That's the point of a tribunal. That's the point of the tribunal. To test whether or not an unfair dismissal has taken place or not.
I just my final point I just wanted to make to the Minister is, as we are going through this process, a kind of a fundamental shift at the moment between what humans will continue to do in the workplace versus what is going to be taken on by AI or by other innovative tech to make it harder and to make it more difficult and more expensive for employers to take on human beings to do the work will undoubtedly accelerate this, this, this, this shift that is already taking place. And, and for that reason, that is why the Liberal Democrats will be opposing this s I.
I just my final point I just wanted to make to the Minister is, as we are going through this process, a kind of a fundamental shift at the moment between what humans will continue to do in the workplace versus what is going to be taken on by AI or by other innovative tech to make it harder and to make it more difficult and more expensive for employers to take on human beings to do the work will undoubtedly accelerate this, this, this, this shift that is already taking place. And, and for that reason, that is why the Liberal Democrats will be opposing this s I.
16:42
Speaker 4
-
Speaker 4
Thank you very much, chair, and I'm sure the honourable lady, the member for Richmond Park would agree with me that it is quite rare for her and I to agree, but she is quite right to pick upon the Minister's opening remarks and the oddity of the comments that claims will be modest, because if claims are modest, then why the need to remove the cap? The removal of the cap is because, indeed some claims will not be modest, and therefore it seems self-evident that one of the consequences of these regulations will be an increase in the claims, therefore, an increase in the risk to employers and therefore a deterrent on employers, on hiring, which is the point that my hon.
Friend made from the opposition front bench. So, firstly, it seems odd to suggest that claims will be modest whilst bringing forward a removal of a cap a cap which therefore gives the scope for unlimited claims moving forward. And as I try to allude to in my intervention, for example, within the NHS, some consultants at a senior level will be well paid. They will have final salary schemes and indeed their claim could be quite significant. And indeed some NHS managers are on salaries above several hundred thousand pounds and a claim in that instance could be quite significant.
And that really brings me on following the point from the the member for Richmond Park to a second consequence of these regulations, which is not only will the quantum of claims increase, but the quantity of claims will also increase because currently, particularly for senior salaries, often they may pursue other routes, they may not make the claims because the cap is such that it creates a deterrent. But the removal of the cap actually acts as a pull factor. It's an incentive on those on the highest sides, and it's not just within areas like the NHS. Think about financial services and some of the very large claims that could flow from that, and the sense of unfairness that someone in a modest role in one of those financial services firms will feel when they see the mega payments, that may be as a consequence.
So the quantity of claims will increase. Third, I was a little surprised by the minister's opening remarks because this regulation wasn't set in the wider context of other changes the government are making, and particularly, for example, giving greater access to trade unions with employers, making it easier for employers to come in and try and harvest claims, try and encourage claims, try and create a grievance where there may not be one. And so this regulation should not be seen just in isolation. It needs to be seen alongside other changes that the government are making. And to answer the honourable lady's point, where, well, surely the answer is not to have unfair dismissal.
And she has a very respected legal career, I think, in this field. But certainly she has a lot of experience in this area and no one wants to see claims. No one wants to see action by employers. That justifies an unfair dismissal claim. But it is the case that the employer isn't guilty until proven innocent. It is the case that some will be incentivised to bring claims which may not be justified, and therefore there will be instances, not all, but there will be instances where claims are incentivized by the removal of the cap, where those claims are not valid, and ultimately , that is an additional cost to employers, in addition to the many other costs they're facing at a time of rising inflation and growing regulation.
And that's why I find myself in the uncharacteristic position of agreeing with the honourable lady, the member for Richmond Park. The quantum will increase, the quantity will increase. This will also sit alongside other changes that the government makes. And it speaks to a government that doesn't trust employers, doesn't back business, is happy to see additional costs on those businesses, and then seems surprised when, in particular, youth unemployment continues to rise, which is a direct consequence of decisions they are making, including the decision they're making today.
Friend made from the opposition front bench. So, firstly, it seems odd to suggest that claims will be modest whilst bringing forward a removal of a cap a cap which therefore gives the scope for unlimited claims moving forward. And as I try to allude to in my intervention, for example, within the NHS, some consultants at a senior level will be well paid. They will have final salary schemes and indeed their claim could be quite significant. And indeed some NHS managers are on salaries above several hundred thousand pounds and a claim in that instance could be quite significant.
And that really brings me on following the point from the the member for Richmond Park to a second consequence of these regulations, which is not only will the quantum of claims increase, but the quantity of claims will also increase because currently, particularly for senior salaries, often they may pursue other routes, they may not make the claims because the cap is such that it creates a deterrent. But the removal of the cap actually acts as a pull factor. It's an incentive on those on the highest sides, and it's not just within areas like the NHS. Think about financial services and some of the very large claims that could flow from that, and the sense of unfairness that someone in a modest role in one of those financial services firms will feel when they see the mega payments, that may be as a consequence.
So the quantity of claims will increase. Third, I was a little surprised by the minister's opening remarks because this regulation wasn't set in the wider context of other changes the government are making, and particularly, for example, giving greater access to trade unions with employers, making it easier for employers to come in and try and harvest claims, try and encourage claims, try and create a grievance where there may not be one. And so this regulation should not be seen just in isolation. It needs to be seen alongside other changes that the government are making. And to answer the honourable lady's point, where, well, surely the answer is not to have unfair dismissal.
And she has a very respected legal career, I think, in this field. But certainly she has a lot of experience in this area and no one wants to see claims. No one wants to see action by employers. That justifies an unfair dismissal claim. But it is the case that the employer isn't guilty until proven innocent. It is the case that some will be incentivised to bring claims which may not be justified, and therefore there will be instances, not all, but there will be instances where claims are incentivized by the removal of the cap, where those claims are not valid, and ultimately , that is an additional cost to employers, in addition to the many other costs they're facing at a time of rising inflation and growing regulation.
And that's why I find myself in the uncharacteristic position of agreeing with the honourable lady, the member for Richmond Park. The quantum will increase, the quantity will increase. This will also sit alongside other changes that the government makes. And it speaks to a government that doesn't trust employers, doesn't back business, is happy to see additional costs on those businesses, and then seems surprised when, in particular, youth unemployment continues to rise, which is a direct consequence of decisions they are making, including the decision they're making today.
16:47
16:47
Speaker 3
-
Speaker 3
Thank you chair, voting against this. And it's disappointing to hear from the opposition against this. I doesn't mean the compensation cap is not going to happen. What we're debating today that's already in place. What we're debating today is about keeping the statute book neat. And I hope I made that clear in my opening remarks. We discussed this at length during the passage of the bill. I'm old enough to remember last year at length. Today we're talking about keeping the statute book neat, so I will reflect on a few points and apologies if this is repetitive.
Okay, so.
Okay, so.
16:47
16:48
Speaker 3
-
Speaker 3
I remember fondly debating it on the floor of the House and, of course, in the Lords to. But on some of the points raised by position members today, as I've said, employers will continue to comply with the law and won't be directly affected by these changes. In terms of the impact on business being limited, the vast majority of unfair dismissal awards are well below the existing cap, and tribunals rarely award compensation at the maximum level, so removing the cap doesn't mean that large awards will become routine. In 2324, there were 646 awards for unfair dismissal employment tribunals, and the median award was £6,746.
So lifting the cap doesn't mean that compensatory awards will become impossible to anticipate either. Tribunals, as I said in my opening remarks, follow well-established principles when calculating the compensation that might be awarded for particular types of losses resulting from unfair dismissal. I'm glad the opposition member mentioned employment tribunals because under their watch, introducing unlawful fees, presiding over a substantial reduction in tribunal funding during austerity and leaving tribunal system facing significant capacity and workload pressures yet again, we are trying to get the support and fix the system and improve it, and that's why I've spoken at length with with the shadow minister on the work, really important work we're doing with colleagues in the Ministry of Justice to make it more resilient and to make sure that people absolutely get access to justice, because it is about fairness and it is about security, and for employees to know that they'll get the justice they absolutely deserve.
They made it harder for workers to access justice where strengthened the right to make justice possible. And I'm going to choose not to bite on our wider approach of employment rights, because I could take the remaining of however long we have left. Chair talking about why that legislation is important and why I'm proud that this government is leading on it instead. Instead, as I have explained, the decision to remove the unfair dismissal compensation cap has already been made by Parliament. That decision has been made. These regulations, which we are voting on today, make the consequential amendments needed to ensure the related compensation provisions continue to operate correctly.
Once the statutory cap on unfair dismissal compensation is removed, they are necessary to maintain consistency across the statute book and preserve existing policy where appropriate. I therefore commend these regulations to the House.
So lifting the cap doesn't mean that compensatory awards will become impossible to anticipate either. Tribunals, as I said in my opening remarks, follow well-established principles when calculating the compensation that might be awarded for particular types of losses resulting from unfair dismissal. I'm glad the opposition member mentioned employment tribunals because under their watch, introducing unlawful fees, presiding over a substantial reduction in tribunal funding during austerity and leaving tribunal system facing significant capacity and workload pressures yet again, we are trying to get the support and fix the system and improve it, and that's why I've spoken at length with with the shadow minister on the work, really important work we're doing with colleagues in the Ministry of Justice to make it more resilient and to make sure that people absolutely get access to justice, because it is about fairness and it is about security, and for employees to know that they'll get the justice they absolutely deserve.
They made it harder for workers to access justice where strengthened the right to make justice possible. And I'm going to choose not to bite on our wider approach of employment rights, because I could take the remaining of however long we have left. Chair talking about why that legislation is important and why I'm proud that this government is leading on it instead. Instead, as I have explained, the decision to remove the unfair dismissal compensation cap has already been made by Parliament. That decision has been made. These regulations, which we are voting on today, make the consequential amendments needed to ensure the related compensation provisions continue to operate correctly.
Once the statutory cap on unfair dismissal compensation is removed, they are necessary to maintain consistency across the statute book and preserve existing policy where appropriate. I therefore commend these regulations to the House.
16:50
16:51