At the same time, the Government proposes to remove the existing cap on compensation for unfair dismissal. However, this is now part of the latest battle ground between the Commons and the Lords. Yesterday the Lords voted again to reject the removal of the cap on compensation awards. This is the last outstanding issue on the Bill and it must now return to the Commons for further debate. It is possible that will happen before Christmas but is yet to be confirmed.
What changes should employers be making in response to these developments?
What is changing and when?
At present, most employees only acquire the right to claim ordinary unfair dismissal once they have completed two years' continuous service. Day-one protections already exist (and will remain) for discrimination and automatically unfair reasons such as whistleblowing or health and safety activities. However, in many cases employers have taken comfort from a relatively long "window" in which they can dismiss employees, provided they avoid discriminatory or automatically unfair grounds.
Under the latest iteration of the Bill, the government has accepted a House of Lords amendment replacing the planned "day one" unfair dismissal right (and associated "lighter touch" initial period) with a simpler six-month qualifying period. Once the legislation is in force, staff will generally be able to bring an ordinary unfair dismissal claim after six months' continuous service.
To further strengthen employee protection, the Government proposed to remove the current compensation cap for ordinary unfair dismissal (the lower of 52 weeks' gross pay or the statutory minimum), allowing tribunals to award uncapped compensation (i.e. loss of future earnings). The House of Lords have rejected this and it will return to the Commons for further debate.
Additionally, the unfair dismissal qualifying period will be "locked in" so it can only be varied by an Act of Parliament, rather than secondary legislation, meaning any future government wishing to lengthen or shorten the period will face a higher bar and greater parliamentary scrutiny.
The political trade-off for moving from the original proposal of day-one rights to a six-month qualifying period has been to bring forward implementation to 1 January 2027. In practice, this will mean that someone employed on 1 January 2027 will have to complete six months before they gain ordinary unfair dismissal rights. However, someone employed on 1 August 2026 will gain their ordinary unfair dismissal rights on 31 January 2027.
What does this mean for employers?
If the Government changes prevail, the Bill will represent the most significant shift in ordinary unfair dismissal protection for many years. Key implications include:
Earlier exposure to unfair dismissal claims
The ability to dismiss relatively freely at any point up to two years' service (subject to discrimination and automatically unfair reasons) will go. From 1 January 2027, employees with six months' service can bring an ordinary unfair dismissal claim, unless employers have a fair reason for dismissal and have followed a fair process.
Potentially higher financial risk per claim
Removing the compensation cap would align ordinary unfair dismissal more closely with discrimination and whistleblowing claims, where compensation is already uncapped. While average awards remain modest, high earners and those with long periods out of work may see significantly higher potential awards, changing the dynamics of litigation and settlement.
Greater stability and less room for future tinkering
Making the qualifying period changeable only by primary legislation suggests that six months is intended to be a long-term baseline. Employers should plan on the basis that this new threshold is here to stay, rather than assuming it might easily shift again with a change of government.
What are the practical considerations going forward?
There are steps employers can start taking now to future-proof their processes and be ready for the six-month qualifying period and possible uncapped compensation:
Review probation periods and early-stage processes
Consider whether existing probation periods, review points and notice provisions are still appropriate if unfair dismissal protection will bite at six months. You may, for example, want more structured reviews, clearer performance objectives and earlier interventions where concerns arise, so that any decision taken before and, particularly, after six months is evidence-based and procedurally fair.
Strengthen performance management and documentation
Where performance or conduct issues emerge, managers should be trained to address them consistently and to keep clear records from an early stage.
Revisit restructuring and "trial period" practices
Redundancies, reorganisations and non-renewals of fixed-term contracts that fall around the six-month mark will need particularly careful handling. Employers should revisit selection criteria, consultation practices and the use of trial periods to ensure these can withstand unfair dismissal scrutiny earlier in the employment relationship.
Train managers on the new landscape
Many managers will still be operating on the assumption that "you can dismiss for any reason in the first two years". That message will be out of date under the new regime. Targeted training should explain the six-month qualifying period, the continuing importance of avoiding discriminatory or automatically unfair reasons from day one, and the need for fair, well-documented processes even at relatively early stages of employment.
Questions?
If you would like help reviewing your contracts, policies, performance management process or restructuring plans in light of the proposed six-month qualifying period and changes to unfair dismissal compensation, we are here to help with clear, practical advice tailored to your organisation.
Get in touch with our Employment team on 01722 412 412 or email Anthony.Edwards@wilsonsllp.com