How will the Employment Rights Bill change unfair dismissal laws?

The Employment Rights Bill (the Bill) aims to modernise UK unfair dismissal laws by introducing new protections for employees and clearer processes for employers.

Currently, employees must have two years’ continuous service before they can claim unfair dismissal. Having been one of the most newsworthy headlines arising out of the Bill, it promises to remove this qualifying period, making unfair dismissal a “day one” right for all employees. These reforms are expected to have a wide-reaching impact on how dismissals are managed and challenged in the UK.

Rather than varying the two year qualifying period for unfair dismissal through secondary legislation (which would have allowed for a much quicker change) the government has chosen to implement this reform via primary legislation. This approach makes it significantly more difficult for future governments to reintroduce a qualifying period. This change is expected to take effect in 2027, following further consultation and the introduction of detailed regulations.

Statutory probationary period and light touch process

A key feature of the Bill is the introduction of an “initial period of employment”, during which a restricted version of the right to claim unfair dismissal will apply. The exact length of this initial period will be set by regulations, but the government has indicated a preference for nine months. During this time, the standard of reasonableness for dismissals will be relaxed, allowing employers to use a lighter-touch process effectively creating a statutory probationary period.

The light touch process will also apply if an employee is given notice of dismissal during the initial period but continues to be employed beyond it, provided their termination date falls within three months of the end of the initial period. For example, if an employee has a three-month notice period and the employer gives notice in month eight (assuming a nine-month initial period), the employment will end in month eleven which is still within three months of the initial period’s conclusion.

This light touch process will still require employers to have a fair reason for dismissal (albeit those reasons are more limited as discussed below) and to follow any procedural steps set out in the regulations. There have been hints that the process would need to include holding a meeting with the employee and allowing them to be accompanied by a trade union representative or colleague.

There is currently no guidance on how the process will work if an employee is absent or uncooperative during the initial period. This could present challenges, especially if an employee is absent for a period of time and the employer is unable to complete the process before the initial period ends potentially triggering the full, standard unfair dismissal procedure.

The Bill also changes the rules around written reasons for dismissal. Employees dismissed during the initial period or given notice during that period with their termination falling within three months of its end, will not be entitled to a written statement of reasons for dismissal. However, employees dismissed while pregnant or on statutory maternity or adoption leave will retain the right to a written statement, even during the initial period.

Fair reasons

As set out above, the light touch process will require employers to show that the reason for the dismissal is a fair reason. The fair reasons are where the dismissal is related to:

• the employee’s conduct or capability
• a statutory restriction e.g. the employee losing their right to work
• some other substantial reason (SOSR) related to the employee

In relation to SOSR, this must be a reason connected to the employee. For example, a breakdown in working relationships. However, SOSR is unlikely to cover situations such as a reorganisation that is not a redundancy situation or the non-renewal of a fixed-term contract. In these cases, the lighter touch process would not apply, and the full fair dismissal procedure would be required from day one of employment. This is an area to watch closely when the final regulations are published, as further clarification may be provided.

It remains unclear whether an employer will have demonstrated one of the fair reasons for dismissal simply by following the light-touch process steps, or whether those reasons can be challenged as incorrect or not genuine. If the latter is true and employees are able to bring claims regarding whether the employer has shown a fair reason during the initial period of employment then the light-touch process is unlikely to reduce the current burden on the employment tribunal system.

Redundancy

Redundancy is notably excluded from the list of fair reasons, meaning employees made redundant during the initial period of employment retain the full right to claim unfair dismissal from day one. Consequently, employers must conduct a full consultation process and demonstrate a fair reason for dismissal from the outset to avoid such claims in redundancy cases. It is important to note, however, that the Bill does not alter the entitlement to a statutory redundancy payment, with employees still needing to have completed two years’ service to qualify.

Employees who have not yet started work

The Bill introduces new measures clarifying that individuals who have accepted a job offer but not yet started work are generally not protected by unfair dismissal laws. However, exceptions remain with dismissals pre-start date potentially challenged if they are automatically unfair such as those related to pregnancy or planned family leave. Dismissals based on political opinions or affiliations also remain potentially challengeable, though not automatically unfair. A notable change is that dismissals due to spent convictions may now be contested without the previously required two years’ service, although this protection only applies once an employment contract is in place and does not extend to candidates who are not hired for this reason.

Compensation

A key feature of the proposed changes is the ability to apply a reduced cap for unfair dismissal compensation occurring during the initial period of employment. The Secretary of State will be empowered to set a cap on the compensatory award, which is expected to be lower than the current cap applicable to ordinary unfair dismissal claims. However, this reduced cap will not apply to automatically unfair dismissals or to ordinary unfair dismissals such as redundancy.

Reinstatement or re-engagement will remain available remedies for tribunals in cases of unfair dismissal during the initial period. However, where an employer fails to comply with a tribunal order for reinstatement or re-engagement, an additional compensatory award may be made.

Dismissals that occur outside the initial period of employment will continue to be governed by existing unfair dismissal laws and compensation limits, rather than the proposed light-touch regime.

What to expect following implementation

• potential reduction in flexibility for dismissing new hires during early employment stages resulting in an increased importance of robust onboarding and performance management
•  emphasis on a tighter use of probation periods, with clear expectations, regular feedback, and documented progress
• greater focus on recruitment process effectiveness. Employers may become more risk-averse, potentially reducing recruitment or offers. There may be less willingness to hire candidates with non-traditional backgrounds or experiences, impacting diversity and inclusion
• possible increase in redundancies just before the changes take effect. Some dismissals may be labelled as performance-related to utilise the light touch process
• businesses involved in frequent TUPE transfers should seek advice. Redundancy is excluded from the light touch process. Full redundancy processes may be required for all transferring employees, increasing costs and complexity
• anticipate a rise in tribunal claims, which could further strain the current backlogged system

Actions to take now

• begin assessing the potential impact of upcoming changes on your workforce. Review your typical number of dismissals within the first two years and first nine months of employment. Analyse how many of these dismissals are due to redundancy and also consider whether any planned restructures could be affected by the upcoming changes

Evaluate your managers’ experience and familiarity with:

• recruitment practices
• performance management processes
• identify if training or refresher sessions are needed for managers
• review and update relevant policies as necessary
• re-examine your notice periods. A dismissal can fall within the light touch process if notice is given during the initial period of employment, but employment must end within three months of that period. If notice periods exceed three months, consider using payment in lieu to ensure employment ends in time. Decide whether to maintain a longer notice period or opt for a shorter period during the first year of employment
• continue to monitor the progress of the Bill and related consultations. Utilise resources such as our Employment Rights Bill hub for updates, parliamentary tracking, and insights.

The Bill is still progressing through Parliament and may be amended before becoming law. Employers are advised to monitor developments closely, review their probation and dismissal procedures, and prepare for a significant shift in risk and compliance requirements.