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Once Washington joins the Continental Congress, every non-veteran soldier or dragoon who wins a combat is automatically upgraded.
In Colonization, George Washington is one of the Founding Fathers, from the military category. When Washington is in your Congress, all of your soldiers or dragoons who win a battle will always be upgraded to the next available level.
Normally, after combat, there is a chance of upgrading -- from petty criminal to indentured servant; or indentured servant to free colonist; or free colonist to veteran soldier; or veteran soldier to Colonial Regular (only after declaring Independence).