Employment Edit: 8 January 2026

Legal Updates

Unfair dismissal compensation

The final point of debate in the Act’s passage through Parliament before Christmas related to the government’s proposal to remove the compensation cap on unfair dismissal claims (currently the lower of 52 weeks’ gross pay or £118,223). The House of Lords, which had originally voted against this proposal, withdrew its objections and approved this reform on 16 December 2025. It is not yet clear when the compensation cap will be removed – it seems likely that this will happen at the same time as the reduction of the qualifying period (likely to be January 2027), but this is not guaranteed.

The consequences of the removal of the cap could include:

• much greater emphasis on mitigation evidence in unfair dismissal claims, in order to demonstrate when the claimant ought to have mitigated their losses.
• more investigation into certain types of losses, such as pensions losses.
• an increase in the number of claimants alleging career-long or long-term losses arising from their dismissal.
• more complex exit negotiations with high-earning employees and executives or those with significant employment-related benefits.

Single sex facilities

In a judgment which hit the headlines last month, an employment tribunal dismissed indirect sex discrimination claims raised by a claimant in relation to her employer’s policy to permit the claimant’s colleague (a trans woman) to use the female changing rooms at the same time as upholding some of the claimant’s harassment complaints.
 
The case is highly fact sensitive and, as a first instance decision, is not binding on other tribunals. It is, however, one of the first decisions on this topic following the April 2025 decision in For Women Scotland in which the Supreme Court determined that the terms ‘man’, ‘woman’ and ‘sex’ in the Equality Act 2010 refer to biological sex. Some notable points and findings from the judgment include the following:

• The tribunal concluded that it is “potentially but not necessarily lawful” under the Equality Act 2010 to permit a trans woman to use a female-only space in the context of work.
• In the tribunal’s view, the Equality Act 2010 must be interpreted in a way which allows an employer some discretion to balance differing protected characteristics (such as the protected characteristics of gender reassignment and sex and/or conflicting philosophical beliefs) and human rights. In order to assess whether an employer has appropriately balanced those protected characteristics and rights, the tribunal applied a four-pronged test from existing caselaw (the case of Bank Mellat):
  1. Is the objective of the measure sufficiently important to justify the limitation of a protected right?
  2. Is the measure rationally connected to the objective?
  3. Could a less intrusive measure have been used without unacceptably compromising the achievement of the objective?
  4. Whether, balancing the severity of the measure’s effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter?

• Factors that could be relevant to assessing points (c) and (d) above could include the views of other staff as expressed to the employer, the stage of transition that the trans person has reached, the wishes of the trans person and the extent of the facilities that are available to the employer.  

• On the facts of this case, prior to the claimant’s complaint about the policy, the tribunal held that the employer’s decision to allow the trans colleague to use the female changing rooms was the least intrusive measure and the employer had appropriately balanced the effects on the rights of other people. Similarly, once the employer had changed the rota so that the claimant and her colleague were not on shift together, the decision to allow the colleague to use the female changing rooms was the least intrusive measure and the rights of others had been appropriately balanced. However, after the claimant complained about the policy and before the employer changed the rotas, continuing to allow the colleague to use the changing rooms was not the least intrusive measure – the employer ought to have considered one of several alternative changing areas that the colleague could have used on an interim basis. The employer’s failure to temporarily revoke the colleague’s permission to use the female changing rooms amounted to harassment on the grounds of sex.  

• The indirect discrimination claim failed as the tribunal found that there was insufficient evidence to demonstrate group disadvantage. 

The claimant has indicated that she intends to appeal the decision. Separately, and to further underline the fact-sensitive nature of these claims, a different tribunal decision (Kelly v Leonardo UK Limited) which looked at an employer’s toilet access policy was published weeks before the Peggie case – in the Kelly case, the claimant’s complaints of harassment related to sex, indirect and direct sex discrimination were all dismissed. We will keep you posted on key developments in future Edits.
 
(Peggie v Fife Health Board and others)

Statutory payment increases

The Department for Work and Pensions recently announced increased rates of statutory sick pay and statutory pay for various types of family-related leave. From April 2026, the new rates will be:

• Statutory sick pay – £123.25 per week; and
• Statutory maternity, adoption, shared parental and paternity pay – £194.32 per week. The same rate of pay will apply to statutory parental bereavement pay.