With the Employment Rights Bill receiving Royal Assent this week, the focus now shifts to what employers should be doing to prepare for its' implementation. While the widely anticipated 'Day 1 unfair dismissal rights' did not materialise, the impact of the changes is, nonetheless, wide-ranging and significant. We have outlined below the major implications and the necessary steps to prepare for them:
1. Reduced Qualifying Period for Unfair Dismissal Protection (from two years to six months)
Typically, probationary periods last up to six months and may include a provision to extend beyond that by an additional three months. Given the significantly tighter timeframe introduced by these changes, it would be advisable to reduce the standard probationary period to three months (with the option to extend). Employers should also ensure that managers are actively encouraged to manage and assess employee performance through regular reviews, particularly during the critical three-to-six-month phase of qualifying service.
We anticipate that many employers may inadvertently breach the one-week implied notice period, which takes effect after one month's service. Any dismissal occurring in the final week of a six-month probationary period will, once the one-week implied notice is factored in, confer unfair dismissal protection upon the employee. Consequently, any dismissal should ideally take effect no later than one week prior to the employee accruing six months' service.
2. Removal of the Cap on Unfair Dismissal Claims
A last-minute development during the Employment Rights Bill's passage through Parliament is the removal of both the 52-week's salary cap and the current statutory cap of approximately £118,000. This leaves employers exposed to uncapped compensation claims, particularly from highly paid employees. While this change is currently subject to an impact assessment, it is being strongly advocated by trade unions, and employers should anticipate it forming part of the legislation once enacted.
Importantly, the common law approach adopted by Employment Tribunals remains. Employees will therefore still have a duty to mitigate their loss, and there will inevitably be a greater emphasis on POLKEY reductions (an assessment by the Employment Tribunal judge to reduce compensation based on the likelihood the employee would have been fairly dismissed regardless). A clear outcome of the cap's removal is that employers will need robust evidence of performance or conduct issues before entering into any settlement negotiations. Dismissals without a basis in one of the fair reasons will become significantly more expensive.
To prepare for these changes, employers have at least a year to augment their approach to performance management. During this period, they can also continue to implement dismissals under the current regime. The new law is currently set to take effect in January 2027 at the earliest.
3. Collective Consultation Rule Changes
The current law mandates employers to consult with employees for a period of 30 days regarding any envisaged redundancies affecting 20 or more employees (and for 45 days in relation to 100 or more) at a single establishment. Although the Government has conceded on the proposal to remove the single establishment test, it also promised a review of the existing thresholds. Employers should therefore anticipate that consultation will now be much more likely for any significant restructuring plans. Furthermore, the penalty for failing to consult will be doubled under the new rules, increasing from 90 to 180 days per affected employee, which will make buying out the consultation with a settlement proposal significantly more expensive.
Currently, the full impact of these changes remains unclear. Historically, employers have sometimes been able to avoid collective consultation by reducing the scale of redundancies at a single establishment to below 20 or by staggering dismissals over periods exceeding 90 days. It remains to be seen whether this approach can continue. To mitigate risk, any employer contemplating large-scale redundancies or changes to employees' terms and conditions should aim to carry out these exercises as soon as possible next year, before the new legislative changes take effect.
4. The Ban on Fire and Rehire
The proposal for an outright ban on 'fire and re-hire' has evolved into a more limited prohibition, specifically targeting changes that impact employees' core employment terms, such as pay, working hours, shift times, pension, and rest breaks. Additionally, 'fire and replace' is now outlawed, meaning employers can no longer dismiss employees with the intention of hiring cheaper alternatives to perform the same tasks.
In advance of these changes coming into effect, employers would be well-advised to review their existing employment contracts. They should consider implementing or strengthening flexibility clauses that permit reasonable changes to contracted terms (including hours of work, rest breaks, and benefits), provided appropriate written notice (e.g., one month) is given. At the very least, it is prudent to introduce such provisions into contracts for new employees.
5. Other Forthcoming Changes
Fladgate has provided a comprehensive guide detailing the remaining changes that are set to be introduced. These include provisions addressing 'day one' requests for flexible working, guaranteed hours, the strengthening of harassment rules (placing a duty on employers to take "all" reasonable steps to prevent bullying and harassment), and broader access to trade union recognition and strike action. The Government will now be responsible for drafting the detailed legislation and overseeing the implementation of these new rules, with the first changes anticipated in the Autumn of 2026. As these new rules are fully fleshed out, we will provide further updates on future developments.
