In a significant pivot from its initial proposals, the UK government has announced major changes to the forthcoming Employment Rights Bill (ERB). The headline “day one” right to claim unfair dismissal has been dropped in favor of a reduced qualifying period of six months. Furthermore, the proposed “statutory probationary period” has been scrapped, returning control of probationary arrangements to employers.
While this represents a victory for business lobbying groups who warned of the stifling effect of the original proposals on recruitment, it is not a return to the status quo. The reduction of the qualifying period from two years to six months fundamentally alters the risk profile of hiring and managing new staff.
This blog post explores the details of this compromise, analyses the legal nuances regarding compensation caps, and provides a strategic roadmap for how our clients should prepare for this new employment landscape.
The Context: A Legislative Rollercoaster
Since the introduction of the Employment Rights Bill, the legal community and HR departments across the country have been bracing for what was described as a “once-in-a-generation” overhaul of worker rights. The central pillar of this reform was the removal of the two-year qualifying period for unfair dismissal protection, effectively granting employees protection from the moment they started a new job.
To balance this, the government had originally proposed a “statutory probationary period,” a rigid, government-mandated window during which dismissal would be procedurally easier. This “give and take” approach was intended to protect workers while acknowledging that employers need time to assess suitability.
However, these plans faced fierce opposition. Business leaders argued that “day one” rights would discourage hiring, while legal experts warned that a statutory probation period would create a complex “two-tier” dismissal system that would inevitably clog the already overburdened Employment Tribunals.
The government’s latest announcement is a direct response to this impasse. It is a compromise designed to break the legislative deadlock in the House of Lords and provide certainty to the market.
The New Regime: Six Months, Not Day One
The most immediate change is the qualifying period.
- Current Law: Employees need two years of continuous service to bring a claim for ordinary unfair dismissal.
- Original Proposal: Day One rights.
- New Compromise: A six-month qualifying period.
Legal Analysis:
While “six months” sounds like a simple middle ground, it necessitates a complete overhaul of how businesses handle the first half-year of employment. Historically, the two-year window provided a significant “safety net” for employers. It allowed companies to take a chance on a candidate, knowing that if the cultural fit or capability wasn’t right, they could part ways relatively easily (barring discrimination or whistleblowing, which have always been day-one rights).
Under the new six-month rule, that safety net is drastically shrunk. Employers will now have a very narrow window to assess competence and fit. By the time a standard three-month probation review happens, you are already halfway to the point where full dismissal rights attach. If you extend probation by another three months, you effectively run the clock down to the deadline.
Probationary Periods: Control Returns to the Employer
Perhaps the most positive news for our clients is the scrapping of the “statutory probationary period.” The government initially planned to legislate how probation should work, potentially imposing fixed lengths and mandatory processes.
By dropping this, the government has conceded that businesses are best placed to determine what “probation” looks like for their specific sector. A law firm, a construction company, and a tech start-up all have different ramp-up times for new hires.
What this means for you:
You retain the flexibility to design your own contractual probationary periods. However, their legal significance has changed. Previously, a contractual probation period was largely an internal performance management tool with limited legal weight regarding dismissal rights (until the two-year mark). Now, your internal probation period must align tightly with the new six-month statutory deadline.
Strategic Advice:
We strongly recommend reviewing all employment contracts. If your standard contracts state a “six-month probationary period,” you are leaving yourself no margin for error. We advise clients to consider:
- Shortening initial probation periods to three or four months to allow time for assessment and, if necessary, dismissal before the six-month statutory right kicks in.
- Implementing “mid-probation” reviews at the 8-week mark to identify issues early.
The Compensation Cap: A Detail in the Fine Print
One area that demands close attention is the government’s statement that the compensation cap for unfair dismissal will be “lifted.”
Currently, unfair dismissal compensation is made up of:
- Basic Award: Calculated on age and length of service (statutory formula).
- Compensatory Award: Capped at the lower of 52 weeks’ gross pay or the statutory cap (currently £118,223).
The term “lifted” is ambiguous. It could mean:
- Scenario A (The Nightmare): The cap is removed entirely, allowing unlimited liability for unfair dismissal claims, similar to discrimination claims.
- Scenario B (The Likely Compromise): The “52 weeks’ pay” limit is removed, but the absolute monetary cap (£118k+) remains.
Legal intelligence suggests Scenario B is more likely. The government aims to help lower-paid workers who, under the current system, are capped at their low annual salary even if their losses are higher. However, removing the absolute cap entirely would drastically increase insurance premiums and settlement expectations.
Regardless of the interpretation, “lifting” the cap signals that the cost of getting a dismissal wrong is going up. This increases the leverage of claimants in settlement negotiations.
The Impact on Employment Tribunals
We must also look at the procedural reality. We are currently seeing Tribunal hearings listed for late 2026. The system is creaking under a massive backlog.
Reducing the qualifying period to six months will inevitably increase the volume of claims. Many dismissals that currently happen between month 6 and month 24—which go uncontested—will now be eligible for litigation.
The Risk of “Spurious” Claims:
However, there is a potential silver lining. Currently, because employees with less than two years’ service cannot claim ordinary unfair dismissal, aggressive claimant solicitors often try to “shoehorn” termination disputes into categories that do have day-one rights: discrimination or whistleblowing. These claims are complex, expensive to defend, and uncapped.
By giving employees a “standard” unfair dismissal route after six months, we might actually see a decrease in discrimination claims. While the total number of claims may rise, the complexity and cost of defending them might stabilise if they are “garden variety” unfair dismissal cases.
Practical Roadmap for Employers
As we await the final drafting of the Bill, we advise our clients to take three immediate steps:
1. Revolutionise Your Recruitment
With the safety net reduced to six months, “hire slow, fire fast” becomes the necessary mantra. You can no longer afford to take a punt on a “maybe” candidate with the idea that you can easily let them go in a year if it doesn’t work out.
- Action: enhance vetting processes, use skills-based testing, and ensure cultural fit assessments are robust before an offer is made.
2. Train Managers on “Day One” Management
The biggest risk to your business is not the law, but the line manager who avoids difficult conversations. If a manager waits until month 5 to document poor performance, it is too late.
- Action: Invest in training for all hiring managers. They need to understand that the “probationary” clock is ticking loudly. They must have the confidence to have frank performance conversations in weeks 4, 8, and 12.
3. Audit Your “Paper Trail”
Tribunals run on evidence. If you dismiss an employee at month 5 for poor performance, but their month 3 review says “Good start, keep it up,” you will lose that Tribunal case.
- Action: Review your appraisal systems. Are they honest? Do they prompt managers to record negatives as well as positives? Your documentation must support the narrative of why the employee didn’t pass probation.
Conclusion
The shift to a six-month qualifying period is a sensible compromise that balances worker security with business flexibility. It avoids the rigidity of a state-mandated probation period while acknowledging that two years was arguably too long a period for an employee to wait for basic protections.
However, for employers, the margin for error has shrunk. The days of letting a mediocre hire “coast” for a year are over. The focus must now shift to rigorous recruitment and active, courageous management during those critical first six months.
The Employment Rights Bill is subject to further parliamentary scrutiny. We will continue to monitor these developments and provide updates as the legislation is finalised.
