Unfair dismissal changes in Employment Rights Bill

After weeks of parliamentary ‘ping pong’ between the House of Lords and the House of Commons, the government has confirmed major changes to the unfair dismissal proposals within the Employment Rights Bill. Rachel Davies, associate in Lodders’ Employment Law team, explains.

Day one rights to unfair dismissal dropped

The earlier proposal to give employees the right to claim unfair dismissal from day one of employment has been dropped. Instead, the government now proposes to reduce the qualifying period from the current 24 months to six months of continuous service before an employee can bring an unfair dismissal claim in the Employment Tribunal.

Existing day one protections against discrimination and automatically unfair grounds for dismissal will remain unchanged. Other proposed ‘day-one’ rights, such as parental leave and sick pay, are still expected to go ahead.

The original plan to introduce unfair dismissal rights from day one faced strong opposition from business owners, with concerns that it could undermine the purpose of probationary periods and negatively affect recruitment.

Although reducing the qualifying period to six months is still a significant reduction from the current two-year requirement, it is nevertheless expected to lead to a rise in Employment Tribunal claims.

In addition, to ‘further strengthen’ these protections, the government is proposing to remove the cap on compensation for unfair dismissal.

Unfair dismissal compensation cap set to be lifted

The latest government amendment proposes removing Section 124 of the Employment Rights Act 1996 – the provision that currently places a statutory cap on unfair dismissal compensation. This currently stands at £118,233 or 52 weeks of pay, whichever is lower.

If this becomes law, it will mean that compensation for unfair dismissal will no longer be capped at all, creating a very different risk landscape for employers.

Although the change has not been heavily publicised, its practical impact could be significant. Employers should start reviewing how dismissal decisions are made, managed and documented, particularly for higher-earning or long-serving employees where potential compensation could be considerable.

It could also mean a shift in the type and scale of claims brought. Tribunals may see more disputes relating to long-term career loss, loss of high-value benefits (such as bonuses, equity or PHI), pension loss, and mitigation of loss. Cases may also become more complex, requiring more detailed evidence from both sides.

Now is a good time for employers to sense check internal processes, ensure managers are appropriately supported, and confirm that dismissal procedures are being followed carefully and consistently.  Employers will need to be ready for a more financially exposed environment when dealing with exits.

Expert advice on unfair dismissal

Lodders’ experienced employment law experts provide the full breadth of employment law advice and support, working with a variety of clients, from owners and managers of SMEs to large corporations.

For tailored advice on how the unfair dismissal changes in the Employment Rights Bill may impact your business, please contact Lodders’ Employment team today.