The latest on the Employment Rights Bill

The Employment Rights Bill (ERB) failed to clear the House of Lords on Wednesday 10 December and the process of Parliamentary ping-pong continues. Here is the latest on what has and has not been agreed:

Key issue still in dispute: unfair dismissal compensation

In a last-minute amendment, the Government sought to remove the cap on compensation for unfair dismissal. Many members of the Lords objected to such a major change being introduced so late in the Parliamentary process. There was also uncertainty over what had been agreed by business representatives.

The Lords rejected the Government's proposal by 244 votes to 220 and instead proposed a review of compensation limits. The Bill will now return to the House of Commons for the fourth time.

What has been agreed

The Lords agreed to the remainder of the Government's amendments, which will now form part of the ERB when it becomes law:

• Unfair dismissal protection: employees will qualify for protection after six months' service (down from two years) – How is the law on unfair dismissal changing under the Employment Rights Bill?
• Guaranteed hours: employers will be under a duty to offer guaranteed hours when applicable, instead of it becoming a right to request – Employment Rights Bill: spotlight on changes to zero-hours contracts
• Trade union reform: industrial action will require a simple majority of those voting – the existing threshold of at least 50% will be removed. Trade unions will be able to automatically opt members in to contributing to political funds – Trade union reforms under the Employment Rights Bill: what employers need to know

What happens next?

Only one issue stands in the way of the ERB receiving Royal Assent and becoming an Act before Christmas. It now returns to the House of Commons, where MPs must decide whether to insist on the unfair dismissal compensation cap being removed or agree to carry out a review of compensation limits.

With only 24 votes dividing the issue, it seems likely that some sort of negotiation will take place in an attempt to push the Bill through before Christmas. Let's see what this week brings…

For a summary of what is being introduced by the ERB, see our key changes at a glance. Full details can be found on our Employment Rights Bill hub.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2025