What’s happening?
Unfair Dismissal
Two-year qualifying period
At present, employees require two years of continuous service to bring an ordinary unfair dismissal claim. The government originally proposed to abolish this two-year qualifying period under the Employment Rights Bill (ERB) and introduce a ‘day one’ right to unfair dismissal protection, alongside a ‘statutory probationary period.’
However, these proposals faced strong opposition from employers and the House of Lords, delaying the finalisation of the ERB. The government has now announced a major shift in its approach and has agreed to reduce the qualifying period for ordinary unfair dismissal to six months. On Wednesday 10 December, the House of Lords agreed to this amendment, which will now form part of the ERB when it becomes law.
Compensation cap
The government also announced plans to remove the compensation cap for unfair dismissal claims entirely. Currently, compensation is limited to the lower of one year’s gross pay or £118,223 (a figure reviewed annually).
However, on 10 December, the Lords rejected this proposal. This issue now returns to the House of Commons, where MPs must decide whether to insist on the cap being removed or agree to carry out a review of the compensation limits, to include consultation with employer’s organisations and trade unions. With only 24 votes dividing the issue in the House of Lords, it seems likely that some sort of negotiation will take place in an attempt to push the Bill through before Christmas.
Other Government Amendments
Guaranteed Hours
The Government has also agreed that employers will be under a duty to offer guaranteed hours when applicable, instead of it becoming a right to request. This means that qualifying workers and agency workers will need to be offered guaranteed hours at the end of every reference period (which is likely to be 12 weeks but still to be defined). Qualifying workers will mean those on a zero hours contract and those on a ‘low hours’ contract.
Trade Union Reform
The House of Lords have agreed to the removal of the 50% minimum turnout requirement for industrial action to be voted on by a trade union.
Also, trade unions will be able to automatically opt members in to contributing to political funds unless they opt out. These opt-out notices would have effect from the earlier of 1 January of the year after they have been provided, or on a date set out in the union’s rules.
Why is this important?
Unfair Dismissal
Two-year qualifying period
The significance of reducing the qualifying period for unfair dismissal rights from two years to six months is substantial for both employees and employers.
Employees will gain protection much earlier in the employment relationship, increasing the scope for ordinary unfair dismissal claims. Employers will need to review existing processes, particularly in relation to onboarding and performance management, to ensure any dismissals after six months’ employment are carried out fairly to reduce the risk of successful claims.
Compensation cap
Depending on the final wording in the Bill, employees could receive compensation exceeding one year’s salary if their losses justify it. This change would increase potential liability in cases where employees have significant future loss of earnings, making settlement negotiations and risk assessments more complex.
Other Government Amendments
Guaranteed Hours
For employees, this amendment addresses concerns about job security for zero-hours and low-hours workers who often face unpredictable income and scheduling.
This will result in significant obligations on employers to monitor when workers reach the minimum hours limit. It is important that employers comply with this new obligation, or they risk facing statutory claims, reputational damage and potential penalties.
Trade Union Reform
Removal of the 50% minimum turnout requirement means strikes can be authorised with a simple majority of those who vote, making industrial action easier to initiate. This could lead to more frequent strikes, increasing operational disruption and bargaining pressure on employers.
Allowing unions to automatically opt members in will likely increase political funding, strengthening their influence. However, the intention is to simplify the political funds process to strike a balance between administrative burden on trade unions and members continuing to have a choice on whether they contribute.
What should you do?
- Unfair Dismissal: Any dismissal after six months, even if it is in the contractual probationary period, will risk an unfair dismissal claim. Employers should ensure their contractual probation periods and review processes are consistent and robust. Early intervention, particularly in relation to performance management, and keeping clear documentation on the steps taken, will be key to defending claims.
- Guaranteed Hours: Employers should implement robust systems to track hours worked and manage contract updates efficiently.
- Trade Union Reform: Employers will need stronger contingency planning and strategies to manage the risk of more frequent strikes and the new opt-in policy.
Stay tuned for further details on the implementation date and any accompanying guidance from the government.
Take Advice: If you require advice on how these changes may affect your business or would like support preparing for implementation, please contact [email protected] who can put you in touch with one of our specialist employment lawyers. All comments and information were accurate at the time of publication and may not reflect current developments. They should not be relied upon without seeking appropriate professional advice.
