Businesses to rush redundancies ahead of new Employment Rights changes
Businesses plan to carry out a “clean up” of redundancies by the end of the year in anticipation of the Employment Rights Act coming into force next January.
The government’s plan to remove the unfair dismissal cap in its Employment Rights Act will lead to more claims, especially among higher-earning employees.
To avoid expensive layoffs in 2027, businesses are expected to make significant headcount changes by the end of Q4.
Speaking to City PM, Stefan Martin, partner at Hogan Lovells, explained: “The change to the unfair dismissal qualification period next year, removing the cap, will affect employers.
“I think [businesses] will make the plan ahead of year-end to ensure that if they are doing some sort of cleaning up before January 2027.”
The controversial Employment Rights legislation was signed into law in December after weeks of the Bill ping-ponging from the House of Lords to the Commons over controversial ‘day one’ rights.
Labour’s ‘day one’ U-turn
The government agreed earlier this month to drop its pledge of ‘day one’ rights in exchange for certain protections kicking in after six months. But in order to appease unions after dropping its ‘day one’ manifesto pledge, Labour ditched the compensation limit.
Currently, compensation for unfair dismissal is capped at £118,223 or one year’s salary, but the Employment Rights Act will remove this cap.
“Where that cap is taken off, that could become quite a significant issue where you’re talking about really high earners,” Martin added.
However, the growing difficulty in finding employment will have a knock-on effect on lower earners, those earning around £30,000 per year, as they can be out of work for longer.
“When you take the cap off, in theory, the compensation awarded could be unlimited. The person claiming could look for 80,000 rather than 40,000 they earned because they don’t think they will get another job for two years,” he added.
This comes as figures released today showed the jobless rate crept up to 5.2 per cent between October and December, according to the Office for National Statistics (ONS), the highest level since early 2021 and slightly ahead of market expectations.