In brief
In detail
After weeks of Parliamentary ping-pong between the House of Commons and the House of Lords, the Government has rowed back from one of its flagship manifesto pledges. Rather than introducing unfair dismissal protection from the first day of employment, they will reduce the current two-year qualifying period to six months. The announcement follows discussions chaired by the Government between business representatives and trade unions. This stakeholder engagement reflects recognition that the original day-one proposal generated significant concerns about workability and its potential impact on recruitment.
The compromise abandons the proposed statutory probationary period which would have allowed employers to apply a "light touch" dismissal regime for a period of possibly nine months after hiring an employee. Instead, new employees will simply acquire unfair dismissal rights after six months' continuous service, creating a clear cliff edge at that point.
The Government's press release also pledges to "lift" the current compensation cap for unfair dismissal (currently the lower of £118,223 and one year's pay). This could mean removing the cap completely, although this is yet to be formally clarified.
Practical implications for employers
Recruitment confidence restored to some extent
Employers had raised serious concerns that day-one unfair dismissal rights would fundamentally alter recruitment risk, making them more cautious about hiring. A six-month qualifying period gives employers some comfort in this regard, although some may feel that six months is a relatively short assessment period.
Review your probationary processes now
It is not yet clear whether the Government's previously announced 2027 implementation timeline for changes to the unfair dismissal regime will still apply, or whether it will decide to introduce the measures it has just announced sooner. Employers may therefore wish to consider reviewing their recruitment and probationary period processes now, in preparation for the new regime. Standard probationary periods of three to six months will need to be managed diligently. When someone is terminated shortly before reaching 6 months' employment, employers should also bear in mind a quirk in the rules on calculating length of service that add on an extra week, which will need to be factored into the timing on whether or not to dismiss someone on probation.
The impact of changes to the compensation cap
The Government's announcement that it will "lift" the unfair dismissal compensation cap introduces uncertainty. The risk landscape changes significantly for employers, especially if this means removing the cap completely. Combined with the reduction in service requirement to six months, uncapped compensation is likely to encourage significantly more claims. This could have a material knock-on effect on the employment tribunal system, which already has significant backlogs.
How Mishcon de Reya can help
If you would like more information or support on the changes being introduced by the Employment Rights Bill, please get in touch with your usual Mishcon contact or with a member of the Employment team.