Breaking: day one unfair dismissal rights binned but compensation limits are going up

Late yesterday afternoon, the government issued a press release announcing that it has abandoned its manifesto pledge to introduce a day one right for employees to claim ordinary unfair dismissal. Instead, employees will need  six months continuous employment before they can bring a claim.

When will the six month qualifying period come into force? 

The government could do this very quickly under existing legislation. S108 of the Employment Rights Act sets out the current two-year qualifying period. But that can be amended via regulations under s209 of the same Act. And it's a relatively painless process. In 2012, for example, the coalition government increased the qualifying period from one to two years following a single resolution in both the Houses of Commons and Lords.

But the government isn't going to approach it in this way. The Employment Rights Bill will remove s108 altogether. This means that the six month qualifying period will be fixed in the Bill. Any future government will only be able to change this via primary legislation. 

Governments have to make political choices about what to prioritise and, depending on what else is going on, six months could remain in place for many years.

Is the compensation limit for unfair dismissal claims changing? 

Buried in the press release was another announcement - and one that no-one was expecting. It said this: 

‘To further strengthen these protections, the Government has committed to ensure that the unfair dismissal qualifying period can only be varied by primary legislation and that the compensation cap will be lifted.’

The wording is open to a number of interpretations. Does it mean that the government wants to remove the compensation cap altogether, just parts of it or increase it? It's rumoured that the intention is to remove the 52 week limit but retain the upper cap (currently £118,223). But we really will have to wait and see on that one.

Implications for employers

This is a sensible compromise and one that has already been welcomed by businesses. Although a little on the tight side, you should know whether the person you appointed is a good fit within their first few months. You'll need to think about this ahead of the employee's six month milestone to ensure that any dismissal takes effect before then.  

This means that you may have to review your standard probationary period and notice clauses. It's relatively common to see six month probationary periods. If six months is your standard, you'll need to reduce these to five months to avoid missing the deadline. You can usually dismiss someone before the end of their probationary period, but it's much cleaner to have a shorter period, and include within it the right to terminate earlier if it's obvious things aren't working out. 

Employees must receive at least one week's notice after they have worked for a month. Bear in mind that if you dismiss an employee without providing the statutory minimum notice, the effective date of termination is extended as if the statutory notice had been given. So, if you dismiss someone without notice three days before their six month milestone, one week will be added to the date of their dismissal and they will qualify to bring a claim. The only exception to this is where you have grounds to dismiss someone for gross misconduct.

It's also sensible to include a clause which allows you to immediately terminate the contract by paying an amount in lieu of notice to avoid a breach of contract claim.

We'll keep you updated on developments. The Bill returns to the House of Commons on Monday 8 December and all business stops for Xmas on 18/19 December. Quite whether that gives the government enough time to get this Bill through the process remains to be seen. 

There's no doubt that this compromise resolves the House of Lords' objections to day one unfair dismissal rights, but that's not the only thing they are concerned about. The Lords have raised fundamental objections about the workability (or more precisely, lack of workability) of the major changes affecting zero-hour and low-hour workers contained within the Bill. 

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