A Compromise or a Concession? Will day-one unfair dismissal rights be undermined by 6-month probationary periods?

Welcome to my latest LinkedIn newsletter! In each issue, I will share Employment Law insights on important topics with my connections and followers.?I would like to give special thanks to Sayakki Pransverwar for her help writing this article.

Labour’s eagerly awaited Employment Rights Bill is expected to be introduced in October 2024. The new legislation promises seismic changes to employment law in the UK, including bringing in day-one rights for unfair dismissal, parental leave and sick pay rights.

The new government promises “basic individual rights from day one for all workers”.

In reality, many hard-hitting employment rights already apply from the first day of employment – the national minimum wage, working time rights, and the right not to be discriminated against are perhaps the most significant examples.

The Labour government is seeking to extend that same level of protection to some rights that currently require a qualifying period – the right not to be unfairly dismissed and family-friendly rights are the most important examples.?

The article focuses on the implications of introducing a day-one right not to be unfairly dismissed.

Under UK employment law, the employer must have a fair reason (such as capability, conduct or redundancy) for dismissing an employee, follow a fair procedure (inform, consult, implement performance plans) and act ‘reasonably’ in the circumstances of the dismissal.

Currently, aside from a few exceptions (if the dismissal is because of whistleblowing, pregnancy, union membership or other protected categories or for exercising the right to request flexible working), an employee who is dismissed only has the right to claim unfair dismissal in the employment tribunal, if they have two years of qualifying service.? This is commonly referred to as ‘ordinary’ unfair dismissal.

Employers would argue that dismissing an employee after two years of service becomes more ‘onerous’, ‘time-consuming’ and ‘costly’. Therefore, employers often dismiss employees without a fair reason or following a fair process before their two-year anniversary. This leaves employees, notably lower earners and junior employees, in insecure employment. For this, among other reasons, the Labour government proposes abolishing this qualifying period and allowing all employees (which may in time be extended to all ‘workers’) to bring unfair dismissal claims from the first day of their employment.

The current two year qualifying period for ‘ordinary’ unfair dismissal rights has been dubbed an “arbitrary system” which keeps employees waiting for basic rights.

Labour is determined to scrap the two-year waiting time to strengthen workers' rights and protections. This change is not drastic compared to the rest of the world. Many countries, such as France, Italy and the Netherlands, do not impose a minimum service requirement for unfair dismissal claims. This change could see the UK catch up with countries with stronger employment protection rights.?

Labour’s intentions to promote employee security through these seemingly radical changes appear extremely promising (for employees!)– but how will this play out in practice?

Will this boost worker security and the economy?

Labour’s “new deal for working people” aims to provide more security for employees, increase productivity, and, in turn, boost the economy. Security is expected to promote a culture of trust within the workforce, improve employee morale, enhance productivity, and build loyalty between employers and workers.

Arguably, removing barriers to employees moving roles will result in more movement in the labour market, increasing competition, creating new companies and, with them, more jobs.

It is argued that freeing up the movement of employees will result in employers having a larger talent pool. Employees accessing new roles (and likely better-paid roles) will, in turn, feed the economy and replenish the severely depleted public coffers.

However, employers are concerned. A day one right to unfair dismissal, they fear, will encourage job-hopping, meaning employers could be left struggling to retain talent. Talent that may have cost a lot to recruit, onboard and train. In highly competitive industries or international roles, employers may have to increase starting salaries and introduce formal or informal retention bonuses to keep employees.

Introducing day-one unfair dismissal rights could, some say, have unintended consequences.

Employers may be more wary of hiring or introduce more onerous hiring practices, negatively impacting some aspects of the workforce, leading to less diversity. Employers and their advisers will undoubtedly look to mitigate the implications of day one unfair dismissal rights.

Employers may seek to circumvent the possible effects of day one unfair dismissal rights by using alternative, temporary options such as agency workers, umbrella companies, self-employed contracts or fixed-term contracts.

Employers may be reluctant to hire younger, less experienced staff or make hasty decisions to dismiss new staff who are taking longer to perform than expected, even with 6 month probationary periods (see more below).?

Will day one unfair dismissal rights flood Employment Tribunals?

In its plan, Labour has committed to bringing employment tribunals up to standard and providing a quicker and more effective resolution to claims. However, for many, including employment lawyers, their first instinctual reaction to the new rules was: This is going to flood the already overwhelmed employment tribunals, which is completely contrary to Labour’s stated aim.

Removing the qualifying period means more employees will have the right to claim unfair dismissal, which surely will lead to the Tribunals being inundated with claims.

At first glance, this might seem like a likely outcome; however, it might streamline Tribunal processes.? Although we may see an increase in the number of straightforward unfair dismissal claims being lodged at employment tribunals, it could lead to a decrease in complex and, therefore, lengthy, multi-pronged weaker claims being pursued, which allow a claim to be raised without a qualifying period.

Claims, such as discrimination or whistleblowing, are often lodged in the absence of the right to bring an unfair dismissal claim. Providing rights to unfair dismissal from the first day of employment might encourage employees to pursue legitimate claims rather than relying on often weaker, automatically unfair claims and complex discrimination or whistleblowing claims, making tribunal procedures more efficient and shorter.

The Compromise - Utilising Probation as a mitigation tool

Many employment contracts include a probationary period, usually lasting 3 to 6 months. However, few employers fully utilise this time to properly onboard, train, assess and give feedback to new hires.

With day one unfair dismissal rights, these probationary clauses are expected to become more common, and performance assessments will become more formalised, with longer durations for carrying out these assessments.

Employers can, therefore, continue to use probationary periods to assess performance and reduce the chances of making hiring mistakes.

The Labour government has strongly indicated that while it intends to remove the qualifying period for unfair dismissal, it will allow flexibility to dismiss during a contractual probationary period of no more than 6 months.

If this is the case, probationary periods will become a crucial element of the employment relationship, requiring careful consideration and drafting. However, the devil will, as always, be in the detail.

The benefits of the day one right against unfair dismissal can only be realised if, along with a maximum probational period, a new ‘fair’ reason is introduced in the Employment Rights Act (section 98 (4) if of interest), allowing for dismissal during a probationary period and backed up with some clear Acas guidance on fair probationary processes and practices.

In reality, which employees will benefit from day one unfair dismissal rights??

Although these changes in rights apply to all employees ((which may be extended to all ‘workers’), it is limited. Agency workers, those working via umbrella companies, self-employed contractors or fixed-term workers will miss out on this benefit, unless and until the Government redefines ‘workers’ which is likely to be some way off.

It is also questionable whether the change will even impact some employees, especially senior employees. Extensive screening and vigorous recruitment procedures already exist when hiring senior executives. Settlements are monetarily and reputationally more appealing for senior staff than public forums such as the Employment Tribunal for asserting employment rights. Entitlements to shares and bonuses are often vested over long periods, and restrictive covenants, including non-competes, will continue to disincentivise employees from changing roles. ?

While the above undermines the argument for introducing day-one unfair dismissal rights to promote more movement in the senior end of the labour market, it does support the aim of strengthening workers' rights and protections, especially for vulnerable workers in insecure employment.

Day-one unfair dismissal rights will undoubtedly be more beneficial for lower—and middle-level employers.

What should be on the employer's to-do list?

While we wait and see the full extent of Labour’s proposals, employers will likely tighten their recruitment processes to ensure better hiring decisions. Many employers will also review their employment contracts, particularly probationary clauses, to consider introducing them for all future new hires and potentially extending shorter probationary periods at all levels to a maximum of 6 months.

As a result, HR and Employment Law teams will be tasked with formalising probationary periods to ensure performance and conduct are proactively monitored and assessed and with drafting ‘fair and transparent rules and processes’ for use throughout the probationary period—processes and procedures that can withstand the scrutiny of an Employment Tribunal.

Existing employees should be mindful of any changes being implemented to their contract and make sure they are not signing up for anything that could curtail their newly acquired employment rights going forward, at least without any financial or professional incentive being offered.

What next?

Labour has promised “a full and comprehensive consultation on the implementation of our New Deal,” and employers will be able to respond to it.?All we can do for now is watch this space and see how the new Labour government navigates its “New Deal” for the working people.

Feel free to Get In Touch if you are an employee experiencing problems at work, [email protected]

For more information on my employment law practice see my Penningtons profile here. https://bit.ly/RubyDinsmore ..

You can also find more information on the advice we at Penningtons provide for senior executives here: https://bit.ly/Senior-Executive-Employment

Ruby Dinsmore Employment Lawyer (UK)

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