How will the Employment Rights Bill change unfair dismissal law? And what - if anything - can employers do to prepare? Our article takes a deep dive into the issues.

The Employment Rights Bill, introduced in parliament on 10 October 2024, marks a significant shift in the landscape of employment law in the UK. Among other changes, the Bill introduces day one unfair dismissal rights. While these will not be in force until Autumn 2026, they promise to be transformative.

This article explains the proposed changes, areas of uncertainty, our thoughts on how this might change employment practice and what practical steps employers can take.

Current law

Under the existing UK framework, employees must generally have worked for their employer for a minimum period of two years before they qualify for the right to claim unfair dismissal at a tribunal. This qualifying period has varied over time, but has always been a cornerstone of UK employment law, providing a buffer for employers to assess the suitability of new hires without the immediate threat of unfair dismissal claims. However, this system has been criticised for leaving employees vulnerable at the start of new employment, and for deterring employees from switching jobs.

Employees also have a statutory right to written reasons for their dismissal upon request but they generally also need to have worked for two years to gain this right.

How the Employment Rights Bill changes the law

The Employment Rights Bill abolishes the two-year qualifying period, making unfair dismissal a day-one right. However, it also makes several changes to enable employers to dismiss employees more easily in the early months of employment. 

Initial period of employment

The Bill introduces the concept of an "initial period of employment" (IPE), during which a modified version of the right to unfair dismissal will apply. The duration of this initial period is not specified in the Bill but will be determined through regulations. The government's current preference is for a nine-month period.

The standard of reasonableness for dismissals during the IPE will be modified. These modifications will also apply if the employee is given notice of dismissal during the IPE but continues to be employed after the IPE, as long as the employee’s termination date is within three months of the end of the IPE.

The modified standards will require employers to show that the reason for dismissal is related to the employee's conduct, capability, statutory restriction, or some other substantial reason (SOSR) related to the employee. Notably, redundancy is excluded from this list, meaning that employees made redundant during the IPE have the full right to claim unfair dismissal from day one. 

Employers will also have to follow whatever steps are set out in regulations. The government has suggested that a "light touch" procedure will apply during the IPE, but the specifics of this procedure are yet to be defined. 

Written reasons

The Bill changes the framework around the right to request written reasons for dismissal, so that employees will generally need to have completed their IPE (and up to three further months of notice as long as this was given during their IPE) before qualifying for the statutory right to request written reasons.

Employees who have not started work

The Bill introduces new measures stipulating that employees who have been recruited but have not yet started work are not covered by the unfair dismissal protections. However, there are various exceptions to this rule, allowing for some employees to claim that they’ve been unfairly dismissed even before starting work:

  • The first is where the dismissal is automatically unfair, for example because the employee is pregnant or plans to take family leave.  This is not a change to the current law, as employees can already bring such claims before starting work, but those sorts of claims do not tend to be seen in practice. 
  • The second is where the dismissal is - or relates to - the employee’s political opinions or affiliation.  This is also not a change to the current law.  It’s worth noting that dismissals for this reason are not automatically unfair (so can be shown by the employer to be fair in some circumstances). 
  • The third is where dismissal is for a spent conviction. This is a change to the current law. Employees cannot currently complain of unfair dismissal because of a spent conviction unless they have worked for two years. This was always a legislative gap, although some may feel that the change in the Bill still won’t go far enough as it does not cover candidates who are not recruited because of a spent conviction. Protection would only kick in once the employee has entered into an employment contract.

Redundancy payments

It’s worth noting that the Bill does not make any changes to the right to a statutory redundancy payment. Employees will still need to have worked for two years to qualify for these.

Key areas of uncertainty

While the Bill provides a broad framework, several areas remain uncertain and will require further clarification through consultations and accompanying regulations. 

How long will the initial period of employment be?

The government's current preference is for a nine-month period but the Bill leaves it open to be determined in the regulations.

What steps will be required?

The government has hinted that this could involve 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. Whether or not there will be additional steps remains to be seen.  We expect that most employers will provide a dismissal letter even if this is not required. 

Nothing so far suggests that there will be any adjustment to the steps required in cases where an employee is absent or uncooperative in their IPE.  This could be particularly problematic if the light touch process entitles the employee to notice of a meeting to consider their dismissal.  Some employees may become uncooperative at that point if they are close to passing the end of the IPE, or be signed off sick so the employer is unable to hold the meeting in time, tipping them into a full fair dismissal procedure being needed (and possibly higher potential compensation).

Given the backlogs and resourcing problems in the employment tribunal system, we hope that the light touch procedures are developed in such a way that does not result in a significant increase in unfair dismissal claims related to process during the IPE. Those of us who recall the statutory dispute resolution procedures fear that this could end up looking like a return to that system, which spawned a great deal of litigation and was widely discredited by the time it was abolished in 2009.

What does showing this reason mean?

It is unclear if, by simply following the steps, the employer will have “shown” one of the fair dismissal reasons - or if the employer’s reasons can be challenged as incorrect or not genuine.  If employees can bring claims about whether the employer has “shown” the reason for their dismissal during the IPE, the light touch process will not reduce the burden on the employment tribunal system.

What does SOSR ‘related to the employee’ mean?

A residual category of some other substantial reason (SOSR) has been included as one of the four reasons requiring only the light touch procedure for dismissals within the IPE but this must be a reason ‘related to the employee’.  Examples might include a breakdown in trust and confidence or a customer’s refusal to work with the employee (if this is not discriminatory).

It would not, however, cover a business reorganisation. As with a redundancy situation, that would require a full fair dismissal process from day one.  

Not renewing a temporary fixed term contract because, for example, the employee was covering another employee’s family leave also looks to be out of scope of the SOSR definition. This means it would require a full fair dismissal procedure regardless of the length of the fixed term contract - unless the government includes measures in the regulations to say otherwise. 

What's the compensation regime?

Another area of uncertainty is the compensation regime for unfair dismissals during the IPE. The government has said it will consider whether tribunals should be able to award the full compensatory damages currently available. 

How will very short contracts be treated?

The Bill provides for the regulations to stipulate when two or more separate periods of employment will count as one. This may be intended to address situations such as zero hours arrangements which involve a series of short employment contracts (for example a day or a shift) but with no continuity of employment in between. If such contracts are not linked then the employer would potentially have to follow a dismissal process at the end of every short contract, only to immediately re-hire the employee.  

Potential changes in employment practices

It is too soon to assess how the Bill will prompt changes in employment practices, because this partly depends on how the areas of uncertainty are resolved. However, some of the areas of impact include:

  • Contractual probationary periods: they don’t need to align with the IPE but the IPE will be relevant. Contractual probationary periods tend to be three or six months depending on the sector and the role.  If the IPE is going to be nine months, employers will want to review how a new employee is getting on within three months and to have decided by around six months so there is time to follow the steps required even if the employee becomes uncooperative.
  • Notice period in first year: a dismissal can fall within the light touch regime even if the employee’s employment continues after the end of the IPE, as long as the employee is given notice within the IPE. However, you would need to make sure that employment actually ends within three months of the IPE. If the employee’s notice period is more than three months, and notice is being given at the end of the IPE, a payment in lieu of any additional notice could be used to ensure that employment ends in time. In practice, however, employers are likely to stick with three month notice periods (or shorter) during the first year.  
  • Processes during probationary periods: it will be important to ensure that managers stay on top of management of employees during their probationary periods.
  • Absent/sick employees: employers may jump to dismissing employees sooner than they might otherwise have done, so as not to tip over into having to follow the full fair dismissal process. This could result in more discrimination claims relating to sex and disability. 
  • Pre-employment processes: employers will want to focus on the effectiveness and robustness of their pre-employment screening, checks, interview and selection processes. It will be more important than ever to recruit candidates who are likely to be right for the role given the day one rights. We also expect more attention on the point at which employees are offered an employment contract, given the rights that kick in at contract stage, before the employee has started work.  There are arguments that the Bill will ultimately have a negative impact on diversity and inclusion because employers might become more risk averse and less likely to give someone with a different background or experience a chance. Employers will need to keep this under review.
  • Contractual flexibility: The Bill contains other measures making it automatically unfair for an employer to dismiss an employee in order to re-engage them or employ another person under a varied contract to carry out substantially the same duties. There is a very limited exception to this when the business is in financial distress. We’ll be looking at these measures in future insights but, given how broadly this provision is drafted, it is likely to operate as a significant restriction on the ability to terminate employment - and it applies from day one. It will become more important for employers to reserve flexibility to make to changes to, for example, times of work or benefits.
  • TUPE transfers: The costs associated with business transfers are likely to be materially increased due to the increased need to operate full redundancy processes across different organisations - because all employees regardless of their length of service will need to be considered. 

Next steps and what employers can do

The government has committed not to make these changes until Autumn 2026, with the two-year qualifying period remaining in place until then. Even once the changes come into force, they may only apply to new joiners after that point.

It is too soon to make radical changes, especially since there are so many areas of uncertainty to resolve. The direction of travel is clear, however, so it is worthwhile starting to look at your pre-employment screening processes and thinking about how these may need to evolve. It is also worth starting to address how employees are managed during their probationary periods and whether managers are keeping on top of the need to review an employee’s performance. You could also feed into the detailed consultations, when these begin in 2025.

For more information about what’s in the Employment Rights Bill (and what’s not), see our What’s in the Employment Rights Bill dashboard and, for more information on the Labour government’s reform agenda, visit our Labour Policy Impact Hub. 

 

Authors