What is the current situation?
Employees can currently only claim ordinary unfair dismissal if they have at least two years of continuous service with their employer.
There are exceptions for certain dismissals, including those related to discrimination, whistleblowing or health and safety concerns, all of which are already protected from the first day of employment. Being dismissed for one of these reasons is automatically unfair.
If a tribunal upholds a claim of unfair dismissal, it may award the employee compensation, made up of:
- a basic award (calculated by reference to the employee's age, length of service and a ‘week's pay’, capped as at 6 April 2025 at £719 and reviewed annually); and
- a compensatory award (capped as at 6 April 2025 at the lower of £118,223 or 52 weeks' actual pay and reviewed annually).
On request, employers must give written reasons for dismissal to employees with two years’ service.
So what’s changing and when?
The two-year qualifying period is being reduced to six months, meaning that employees will be able to claim ordinary unfair dismissal after six months of employment.
Employers will still have to establish a potentially fair reason for dismissal and show that they acted reasonably in all the circumstances (including following a fair process) when dismissing employees with more than six months’ service.
If requested, employers will need to give written reasons for dismissal to employees after 6 months of employment.
The Government is removing the cap on the compensatory award.
The reforms are expected to take effect in 2027.
What you need to do
The timing of some of these actions will depend on when the detail of the new laws is finalised and when the changes come into force. However, you can start to plan now:
- Review your recruitment procedures to ensure that new hires are well-suited to your organisation and the role you have employed them to do. Tighten up your application, interview and pre-employment screening process to ensure thorough due diligence on incoming employees. The costs of getting it wrong will become higher.
- Review the template contract you use for new hires to make it as robust as possible.
- Consider your current use of contractual probationary periods. Consider in particular:
- their length
- which roles you use them for
- their purpose (for example: ensuring compatibility of a new hire with their role; disapplying certain HR policies; applying a shorter notice period; access to benefits etc.)
- how effective they are currently. Do your managers proactively engage with probationary periods, for example properly managing performance/conduct/attendance during them?
- Review your probationary policy or, if you do not currently have such a policy, consider introducing one.
- Update your performance management/conduct/attendance management processes and train your managers. The changes will make it harder for you to dismiss employees after they have worked for you for six months (and the potential costs of unfair dismissal claims are rising), so you may want to make a decision about whether they are suitable within that timeframe. Do your managers need upskilling for this?
How we can help
- Sign up to our updates as the legal changes come in, so you can stay compliant and up to date.
- We have detailed HR and employment law guidance, template policies and letters on our website in the HR & Legal Resources section, which will be maintained as the changes come into force.
- Our team of employment lawyers is happy to help if you’ve got questions or need advice. And if you need hands-on support with any projects as you prepare for the changes, our HR and legal consultants can work with you to get the right steps in place and stay compliant.
- Use our ERB enquiry line - [email protected] for real-time access to legal specialists when you need quick answers about the Employment Rights Bill.
- Ask about our Audit and Impact Assessment (coming soon): A bespoke audit which identifies the level of potential risk in relation to each legal change and provides recommended actions with a timeline to keep you compliant.
- You can also shape future policy. We speak regularly with Government and feed into consultations, using input from businesses like yours.
Ongoing employment law and HR support
- For longer-term support, our retained service includes:
- Direct access to employment law experts.
- Regularly updated HR policies and templates.
- Advice for day-to-day issues and bigger picture planning.
- The chance to help shape Government policy.
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