Companies braced for litigation rise amid employment law shake-up

The government’s broadening of unfair dismissal rights will apply to anyone employed from July 1 and compensation will no longer be capped, meaning “a lot more litigation”, a leading employment lawyer has warned.

Rebecca Thornley-Gibson, partner at law firm DMH Stallard, spelled out the changes under the Employment Rights Act 2025 following “quite a few U-turns and postponements” by ministers in the past year, describing the new unfair dismissal rights as “a showstopper” and the removal of the cap on compensation as “a game-changer”.

She told the Abta Travel Law Seminar: “This will affect pretty much all businesses. The qualifying period [for an employee to bring an unfair dismissal claim] has been reduced from two years to six months, with this coming into force from January 1.”

Thornley-Gibson noted the government had dropped its plan to make unfair dismissal a day-one right and “canned” a proposal for a statutory probation period.

But she said, “this will apply to anyone appointed from July 1 this year” and warned removal of the current compensation cap, based on a claimant’s salary up to a maximum £123,543, “is going to lead to a lot more litigation because it will be worth having a go”.

She suggested: “We’ll see a lot of dismissals in November-December before this comes in. It’s going to make redundancy agreements much more difficult to negotiate.”

Thornley-Gibson added: “Most employers are giving themselves a buffer of a five-month probation period to avoid an unfair dismissal claim [if they dismiss a new employee].”

The time limit for bringing an unfair dismissal claim will also increase, from three to six months, from October.

She noted a dismissal related to pregnancy, maternity, any form of discrimination or trade union activity would be automatically unfair and subject to no qualification period and warned: “You need to be really careful about dismissals.”

The act also toughens the law on sexual harassment at work.

Thornley-Gibson noted: “An obligation to take all reasonable steps to prevent harassment comes into force in October, although the government won’t issue guidance until 2027.” At the moment, she suggested “not many employers are ticking all the boxes on this”.

She also noted the number of tribunal claims “has increased massively” recently, with “AI creating a perfect storm, drafting claims with no application of facts to legal claims”.