Employment Rights Bill – new unfair dismissal rules

Under the new Employment Rights Bill, all UK employees will have unfair dismissal rights from day one of their employment, although there will be an exemption during a so-called statutory probationary period. This is a significant shift from the current legal position, whereby employees must have two years’ continuous service to bring a claim for unfair dismissal.

While the government has confirmed that these changes will not take effect until autumn 2026, that doesn’t leave employers much time to get themselves ready. Below, we explore how employers will be impacted and what actions should be taken over the next 12 months.

Rights from day one will create operational challenges

Currently, an employee must have two years’ continuous service to bring an unfair dismissal claim. That doesn’t mean they cannot bring a claim if they are dismissed within the first two years of their employment – they can still bring other claims such as discrimination or whistleblowing. However, for such claims to have any chance of succeeding, there must be some evidence to support them.

Therefore, in most cases, the risk associated with dismissing an employee who has less than 2 years’ continuous service is low.

The Bill removes the current two-year service year rule in its entirety. Employees will be able to claim unfair dismissal on the very first day of their employment. This creates challenges for all employers, but particularly those who employ high volumes of lower-paid employees and have higher attrition rates due to the nature of the industry.

Probationary periods to carry more significance

The government is proposing an exemption to the day one rights, called an Initial Period of Employment (IPE). There is little detail on this in the Bill, but so far, the government has indicated that this should be a nine-month period.

Some employers have removed probationary periods from employment contracts as they see little benefit in them. This might be because they are not required by law and aren’t that relevant in an employment contract. Historically, the only benefit has been to include a reduced notice period during the probationary period so that either party can decide to end the employment early without being tied in for another couple of months. Otherwise, they exist as a tool to manage expectations that during the first 3-6 months of the employment, the employee is on “probation” and is being observed to see how they fit into the organisation.

However, that will change as the Bill introduces a statutory probationary period, currently called an IPE, during which the employee will not be able to claim unfair dismissal. The timing of any notice provided by the employer or the date on which the termination takes effect will be crucial to the IPE applying in each circumstance.

Redundancy dismissals will be excluded from this exemption though, which means that if an employer is proposing to dismiss anyone as redundant within the first two years of their employment, they may still be exposed to unfair dismissal claims.

Greater risk of litigation

It is almost certain that this change will increase the risk of employment tribunal claims for employers, a point tacitly acknowledged by the government in its impact assessment on the Employment Rights Bill, which includes the cost consequences for employers. It will also create satellite litigation; employees may seek to argue that the IPE has not been complied with or that the real reason for dismissal was redundancy, to get around the exemption. A more balanced approach, in our view, would have been to reduce the period of continuous service requirement to six or even nine months, negating the increased cost of applying the IPE and the additional litigation risk it will create.

All of this points towards one common denominator – the stakes when dismissing will rise for all employers. Managing this risk will therefore carry greater importance for these businesses. Key steps to mitigate these risks will be:

1. Greater scrutiny within recruitment to identify and address potential performance issues early on.
2. Robust application of disciplinary procedures and IPE processes.
3. Improved investment in governance around employment rights compliance.
4. Implementation of controls on dismissal decisions and triage process for those which carry more risk and require a four-eyes review.
5. Review of HR operations team to ensure designated HR business partners for all parts of the organisation.
6. Investment in training for all HR business partners/managers and line managers.
7. Updated roll out of policies and employment contracts for new starters.

If you would like to discuss the impact of the Employment Rights Bill on your organisation, please contact Charlie Barnes.