What will be the impact of day one unfair dismissal rights?

Dominic Ponniah, the co-founder and chief executive of Cleanology, a commercial cleaning company, calls it “unworkable”. Ben Willmott, head of public policy at the Chartered Institute of Personnel and Development, prefers the description “uncharted territory”. They are describing the government’s plan to make unfair dismissal a right from the first day in a job. Both may be right.
What is certain is that the government is preparing to change the balance of power between employers and employees in a way that has not been done before in modern Britain. Since the 1970s, employers have been given a grace period to hire new recruits without the risk of facing unfair dismissal claims if the person doesn’t work out. The grace period variously has been six months of service, one year and, since 2012, after two years. But never from day one.
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The reform is the most significant change within the government’s New Deal package of employment law reforms, first promised in 2021 and which it has said will be presented to parliament by mid-October. Employers and their advisers are particularly concerned about the impact of the right to claim unfair dismissal from the first day in a job.
Cleanology employs 1,300 people and voluntarily has paid its cleaners the London-weighted “real living wage” since 2022, at present £13.15 an hour. Ponniah, who turns 45 this month, says the new right bumps up against the reality of employing people. Some don’t do what they say and employers need to act quickly where a new hire doesn’t work out, without getting tied up with multiple formal performance reviews, common after two years of service but not for those still working their probation. If that consultative process is not followed to the letter, the employer loses any related employment tribunal.
“For employers like us, it’s a bit of a kick in the teeth. We are trying to do the right thing. What are we supposed to do [when faced by new hires who repeatedly don’t turn up for work]? Do we wait a week and then have a disciplinary hearing that they might not turn up to, while paying someone else to do the work?”
Lisa Kay, the founder of Sole Bliss, a footwear brand, is also mulling over the changes. Her business is expanding rapidly and hopes to double its 18-strong team in the next year. A two-year risk-free period has allowed Sole Bliss to give people time to show they share the company’s values and work ethic and to fit in with the rest of the team. “In the past we have given people a chance where we were not 100 per cent.”
When day one unfair dismissal rights come in, Kay, 60, expects Sole Bliss to “take longer at interviews”, exploring unexplained gaps in CVs and double-checking references. She says it may also extend workers’ probation periods from three to six months. “You can never tell about the capability of someone or their conduct from day one.”
Ponniah already operates a six-month probation period, although most staff clear the hurdle after a third performance review at 12 weeks because they are good at their jobs. Nevertheless, he will need to make changes. “It will definitely make a difference to the way we recruit. Where we are not sure about someone, we might have said, ‘Let’s give them a go.’ Now if we have any doubts we will not. We have to be more cautious.”
Labour’s reforms include scrapping zero-hours contracts, increasing pay reporting at large companies, toughening existing duties to prevent sexual harassment at work and introducing day one rights to statutory sick pay and to maternity and paternity pay.
On its plans for day one unfair dismissal rights, it promises to find a way to accommodate probationary periods that have “fair and transparent rules and processes” so that employers can “assess new hires”. “The changes will help to ensure that newly hired workers are not fired without reason or cause and will help drive up standards in workplaces,” it has said.
Taken together, the reforms are significant. “This is absolutely the biggest change in UK employment law since the Labour government signed up to the social chapter in the late 1990s,” in the view of Tom Bray, an employment law partner at Eversheds Sutherland, the legal firm.
This month the TUC published research commissioned from the University of Cambridge that highlighted how British employment laws remain “significantly weaker” than those in other big economies such as France, Germany, Italy and Spain, although they are stronger than those in the United States.
Robert McKellar, legal services director at Peninsula, an HR and employment law specialist, offers a counter-argument: “Employees aren’t exactly short on rights as it stands. There are 88 different employment rights across 80 pieces of employment law that employees benefit from including, from day one, rights in matters such as equalities and the national living wage.”
Willmott says that while the CIPD supports a cut in the qualifying period for unfair dismissal, “there is a big difference between reducing the qualifying period and removing it completely. Employers might be less likely to take on young workers who might take longer to get up to speed, if there is less flexibility.” Small and medium-sized companies are likely to be hit hardest. Some do not use employment contracts at all, relying on verbal agreements and leaving them exposed to claims.
“HR and people management is the Achilles’ heel for most smaller companies. That really needs to be understood by policy makers. The removal of that two-year qualifying period will be a significant disruption.”
To bring in day one unfair dismissal rights, the rules around probation periods are likely to change. If the right disapplied during probation periods, there is a risk that some employers may extend them to two years. To counter that, the government could cap probation periods, for the first time.
Large employers have spent the summer trying to find out if they will need to revise their employment contracts, lawyers say. Contracts determine rights to notice in the event of dismissal during probationary periods.
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Bray says it is not clear what a “fair and transparent rule and process is. For example, will employers be able to determine the length of their probationary period or will that be set by the law? Will employers be able to extend probation in any circumstances? And during a probationary period, will employers be able to dismiss without following any procedure, or will there be some light-touch procedure?”
Compensation awards by tribunals for those in work for only a short time also need to be clarified. At present, the compensation is capped at one year’s salary or £115,000, whichever is lower.
Another factor is that the employment tribunal system will face more claims. It is already struggling. “The system is significantly backlogged. We are still seeing cases being brought in 2024 being listed for 2026 for hearings,” says McKellar. “It means that both the employer and the employee have an incredibly stressful situation hanging over them.” To move on more quickly, many employers settle even vexatious cases. McKellar says it happens in 75 per cent of the cases that Peninsula sees.
What happens next? The government has promised to consult and canvass views. “It is crucial we get the balance right,” the Department for Business and Trade said, “which is why employers will still be able to use probation periods to assess new staff and we will consult fully with business before new laws come into effect.”
Willmott wants ministers to play the long game. “It is important that there is a period of reflection to understand what would be the best approach that would prompt employers to improve their employment practices and not have negative unintended consequences that could adversely affect businesses and workers.”