The Government has abandoned its plan to give workers protection from unfair dismissal from day one, confirming the right will now start after six months of employment.
Labour had made the controversial manifesto commitment to offer all workers the right to claim unfair dismissal from their first day of employment as part of changes under the Employment Rights Bill.
However, the Government has now changed tack after valid concerns were raised by business groups, who argued the policy could discourage firms recruiting.
From 2026, ministers plan to reduce the qualifying period for unfair dismissal claims to six months, down from the current two years. It also intends removing the compensation cap for unfair dismissal claims.
The changes have been considered in the House of Commons, and are now with the House of Lords approval, although it has not been confirmed when the reforms would take effect.
Liam Kenealy, director in the employment team at Wake Smith Solicitors looks at the changes.
The planned changes, and the reasons for, are:
- The government is now reducing the qualifying period from 24 months to six months offering a more workable package in practice, while maintaining existing day-one protection against discrimination and automatically unfair grounds for dismissal.
A six-month qualifying period is much more practical and allows businesses to align probation periods for workers.
The government said the change was necessary to prevent delays to a number of other amendments within the Employment Rights Bill which were being delayed in the House of Lords, due to their significant opposition to the changes to unfair dismissal.
- Lifting the compensation cap. Currently, claimants are limited to receiving no more than a year’s gross pay which cannot be more than £118,223 if they were dismissed on or after 6 April 2025.
Removing any limit on how much compensation could be awarded could result in senior executives on high salaries being more likely to bring claims for unfair dismissal.
When the previous government consulted on employment rights, it considered the cap was too high and may have led to unrealistic expectations among both employees and employers as to the likely level of a tribunal award. These expectations may also have had a negative impact on hiring.
Liam Kenealy commented: “Employers will welcome the U-turn on day one rights because, although the length of service needed to pursue a claim for unfair dismissal is still going to be reduced, they will at least still have a six-month cushion to assess an individual’s suitability for the role they have been recruited into.
“The proposed changes to the unfair dismissal qualifying period and compensation cap will place even greater importance on employers getting their recruitment processes right and put a bigger emphasis on assessing the performance of new employees in those early months. Employers who are already doing this should see little impact from the change from two years to six months.
“The lifting of the compensation cap could have more of an impact. In a job market where it is becoming harder to find employment, employees could face longer spells out of work, which in turn could lead to increased compensation.
“It will therefore force employers to make sure, if they are dismissing employees, they have a fair reason and follow a fair process. Again, for those employers who are already doing this, there will be minimal impact, but it will be those employers who get this wrong, that will feel the effects of these planned changes.”
Your next move?
If you want assistance on any employees issues in your workplace, contact the employment team at Wake Smith to discuss your options.
Our team can support employers by reviewing job architectures and advising on operational changes to maintain both compliance and competitiveness. We also help organisations communicate pay changes transparently to reduce employee relations challenges.
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