UK Unfair Dismissal Reforms

In this month’s edition of Frontline UK, we explore one of the most significant changes in the Employment Rights Bill (the “Bill”) – the proposed repeal of the two-year qualifying period for unfair dismissal under section 108 of the Employment Rights Act 1996. This change introduces day one unfair dismissal rights from the moment an employee starts work which will likely be subject, in some cases, to a statutory probation period. The Government has confirmed that the reforms will not come into force until Autumn 2026 at the earliest, which will be reassuring for many businesses. However, this is a ground-breaking change in employment law, which employers will need to navigate carefully. In this article, we examine the current unfair dismissal regime, the proposed reforms under the Bill, areas of uncertainty, and the implications for employers.

Current Unfair Dismissal Law

Under existing law, employees must have worked with their employer for two continuous years to bring a claim for unfair dismissal, except in most cases of automatically unfair dismissal (e.g. if the dismissal is related to pregnancy or whistleblowing). This means that the reason for the dismissal must be for one of five potentially “fair” reasons (being capability, conduct, redundancy, a statutory restriction or “some other substantial reason”) and a fair process must be followed. 

Probation periods are flexible and not regulated by statute, which allows employers discretion in both their duration and terms. However, the current framework has been criticised for leaving employees vulnerable to dismissal at the start of employment, and for discouraging mobility in the job market. 

Employees also need to achieve two years’ service in order to have a statutory right to written reasons for their dismissal upon request.

Proposed Changes

The removal of the two-year qualifying period for ordinary unfair dismissal is arguably the most significant, or at least the most headline-grabbing, change proposed in the Bill. It grants employees the right to claim unfair dismissal from the first day of employment – essentially, a “day one” right. Since the right to claim unfair dismissal became law in 1971, the qualifying period to bring such a claim has ranged from between six months and two years but has never been a day one right. 

However, this change is not being implemented entirely without protections for employers in dismissing employees in the early months of employment. 

The Bill introduces a concept of an “initial period of employment”, which would, in practice, act as a statutory probation period. While the length of any such statutory probation period or “initial period” remains subject to consultation, the current government preference is for this to last around nine months. During this nine-month period, it is expected that a "lighter touch and less onerous process" can be used to dismiss employees for reasons including conduct, capability, statutory restriction or some other substantial reason related to the employee. It is anticipated that this “light touch” approach will not apply to redundancy dismissals, for which the usual process will need to be followed from day one and the right not to be unfairly dismissed would therefore apply to redundancy dismissals during the “initial period” (although note that the right to a statutory redundancy payment will remain subject to an employee having acquired two years’ service). 

Before dismissing an employee during the “initial period”, employers will need to comply with whatever steps will ultimately be set out in future regulations. The specifics of the “lighter touch” dismissal process are therefore yet to be ironed out through consultation but the government has suggested that employers will need to hold a meeting to discuss the concerns with the employee, at which an employee could be accompanied by a trade union representative or a colleague, before making a decision as to dismissal. 

Compensation for unfair dismissal during this initial period is also expected to be lower, but this remains subject to consultation.

The proposed changes also include giving all employees who are dismissed after the initial period the right to request written reasons for their dismissal, without the need for two years of service. It is expected employees will need to have completed their initial period before qualifying for this statutory right, and employers would still need to comply with such requests within 14 days.

Areas of Uncertainty

There are several areas of uncertainty that remain regarding the proposed changes, and which will hopefully be clarified following consultation, which is expected to take place next year:

• The length of the initial period, with suggestions that it could be around nine months.
• The specific steps and process required during the “lighter touch” procedure for dismissals.
• The level of compensation for successful claims of unfair dismissal during the initial period, and what cap (if any) will be introduced.

These are likely to remain unclear until the Bill progresses further in the Parliamentary process and further regulations are drafted. 

Implications for Employers

Until the areas of uncertainty are clarified, it is too soon for businesses to make any significant changes to internal employment practices, but it is clear that the proposed reforms will impact on recruitment and employee management processes including in the following areas:

• Employers will need to refine recruitment processes to ensure the right candidate is selected for a role at the outset. This could involve focussing on the effectiveness and suitability of pre-employment screening, interview and selection processes. 
• There are arguments that the proposed reforms could inadvertently have a negative impact on diversity and inclusion by encouraging risk averse hiring, with employers reluctant to give someone with a different background or experience a chance. Employers will need to keep this under review to ensure they do not face a rise in discrimination claims in trying to mitigate against a rise in unfair dismissal claims. 
• Contractual probationary periods, which as a market standard range between three to six months, may need to be adjusted to align more closely with the length of the “initial period of employment” once this is confirmed by the government. For example, if the “initial period” is nine months, employers will want to ensure they leave sufficient time to comply with the relevant “lighter touch” process in order to dismiss employees who do not meet the applicable company standards in good time. 
• Managers will need training on addressing performance concerns and conduct issues early on in employment; taking a proactive approach in this way during the “initial period” seems likely to help minimise the risk of claims. 

Look to the Future

The proposed changes represent a significant shift in UK employment law. Many employers are understandably unsettled by this and other proposals in the Bill, with concerns mainly centred around the cost and work that will be involved in updating template employment documentation and processes, training and upskilling managers, and the potential financial and increased litigation risks to their organisation.

However, the government does not plan to implement the unfair dismissal changes until Autumn 2026 (at the earliest), at which point they may only apply to new joiners, so there is no need for employers to make any radical internal changes yet. The current two-year qualifying period continues to apply for now. The Bill must pass through both houses of Parliament before it gains Royal Assent, and the proposals may be subject to amendment. 

That said, the general direction of travel is clear, so it would be wise for employers to revisit pre-employment screening and recruitment processes and consider how they might improve managing and evaluating performance during probation periods. 

Consultation is expected to begin in 2025, so employers should think about taking an active role and getting involved in the process.