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In a move that the Deputy Prime Minister, Angela Rayner, labelled as the “biggest upgrade to rights at work for a generation”, the Employment Rights Bill (‘the Bill’) was published on 10 October 2024, with its second reading taking place on 21 October 2024. One of the most notable changes will be the removal of the current qualifying period for unfair dismissal, making it a ‘Day 1’ right. The government predicts the change in law will benefit an additional 9 million employees, though it will not come into effect until at least Autumn 2026.
How is the law changing?
Currently, an employee must have two years’ continuous service with their employer to bring a claim of ordinary unfair dismissal in an Employment Tribunal. There are limited exceptions to this rule, for example where the dismissal was due to whistleblowing or discrimination. However, where none of the exceptions apply, an employer can dismiss an employee with under two years’ service relatively simply and with reduced legal risk.
The Bill proposes to remove the two-year qualifying period for ordinary unfair dismissal claims, converting it to a ‘Day 1’ employment right.
The Bill states that in most circumstances, an employee must actually have started working for the employer to be eligible to claim unfair dismissal. However, there are exceptional circumstances (including where the dismissal is connected to an employee’s political opinion or because of a spent conviction) where an employee who has a signed contract withdrawn before the start date of employment may still be able to claim unfair dismissal.
These proposals are still subject to change as the government is planning a series of consultations, with the promise that changes to unfair dismissal will not come into force until Autumn 2026. Until then, the current position will continue.
The Initial Period
The Bill introduces the concept of ‘an initial period of employment’. The duration of this period has not yet been specified but will be set out in future regulations. The government has outlined its current preference is for the initial period of employment to be nine months.
The standard reasonableness for dismissals during this period will be modified and a ‘lighter touch’ dismissal procedure will apply for employers who wish to dismiss an employee. The dismissal during this period could be for reasons such as capability, conduct, or “some other substantial reason” related to the employee. Notably, redundancy is excluded from this list, therefore employees who are made redundant during this period will have the right to claim unfair dismissal from day one (though it appears the right to statutory redundancy pay will continue to be subject to obtaining two years’ service).
It’s not yet clear what the light touch process will involve, but the government has suggested it could include holding a meeting with the employee to explain concerns about their performance, at which the employee could choose to be accompanied by a trade union representative or a colleague.
These modifications will also apply if the employee is given notice of dismissal during the initial period but continues to be employed after the initial period, as long as the employee’s termination date is within three months of the end of the initial period.
What this means for employers in practice
This change to unfair dismissal could lead to a potential increase in the number of Employment Tribunal claims, which may increase litigation costs for employers and place further pressure on the Employment Tribunal system, which already faces significant backlogs.
Whilst immediate action is not needed until we have further details of the changes, in due course, employers will need to be mindful of the following:
- Appropriately documenting any decisions relating to an employee’s dismissal.
- Formulating strategies and procedures for more robust pre-employment screenings and checks.
- Proactively managing and monitoring performance of new hires during the initial/probationary period including regular reviews.
- Ensuring issues are addressed and documented promptly during the initial/probationary period to reduce the risk of litigation.
Ongoing and future consultation plans
The government has committed to consult extensively on the changes to unfair dismissal, including regarding the length of the ‘initial period’ and the modified procedure.
The government also recognises concerns from business about a potential rise in legal liability and the impact on hiring decisions and has committed to identify ways to signpost and support employees to ensure they have proper recourse if they are unfairly dismissed, but also make clear where bringing claims might be unsuccessful.
Further, it also intends to consult on a potential lower compensation regime for unfair dismissals in the initial period.
Next steps
While these changes lead to a major shift in favour of employees, it is still difficult to fully assess the impact until any consultation is concluded and we obtain further details on the specifics. After consultation ends, employers will be given a ‘substantial period’ to prepare and adapt. This time will be needed to formulate strategies and procedures for pre-employment checks, update relevant policies and contracts and put robust procedures in place to manage performance of new hires, to reduce the risk of litigation.
To discuss any of the points raised in this article, including queries and concerns regarding the Employment Rights Bill, please do not hesitate to contact Daniel Onafuwa, Kate Gardner, or another member of the Employment Team.
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