Unfair dismissal U-turn: Employment Rights Bill latest

In a surprise move, the Government has announced that it is abandoning its manifesto commitment to remove the qualifying period for unfair dismissal claims, which was a centrepiece of the Employment Rights Bill.  Instead, the current 2-year qualifying period will be replaced with a 6-month qualifying period. 

The plan to allow employees to claim unfair dismissal from day one of employment had proved controversial in the House of Lords and was threatening to delay the passing of the Bill, so it's perhaps understandable that the Government has opted for a compromise solution.  Employers might be tempted to sigh with relief; not only will this mean fewer changes to existing practices around probation periods, but it will also avoid the need to get to grips with the “modified fairness test” which was due to apply during the first nine months of employment.   

However, there is a sting in the tail.  The Government has clearly had to make trade offs in order to secure support from trade unions and other employee bodies.  It has stated that it will ensure that the 6-month qualifying period can only be increased by an Act of Parliament rather than with regulations (making it harder for future governments to change it back) and, more importantly, that it will lift the cap on compensation for unfair dismissal.   

Currently, compensation for unfair dismissal (aside from a “basic award” equating to a statutory redundancy payment) is capped at the lower of 52 weeks' pay or £118,223.   For many senior executives, this means that their maximum compensation for unfair dismissal is significantly less than a year's pay.  Arguably, this incentivises those individuals to bring discrimination or whistleblowing claims arising from their dismissal.  If the overall cap is removed, that may remove this perverse incentive to bring additional claims, but would also fundamentally change the dynamic of many senior-level exit negotiations.   On the other hand, removing the 52 week limit would increase the scope for lower-paid employees to argue that they should be compensated for a longer period of loss, particularly relevant in a difficult recruitment climate.  It would also give real teeth to the ability of Tribunals to increase compensation by up to 25% for failure to follow an applicable ACAS Code - at present, any such increase is still subject to the cap on compensation. 

It remains to be seen precisely what the Government intends and we expect that it will consult about its proposals.  However, while in Opposition the Labour party had published policy papers criticising the cap on unfair dismissal compensation, and a complete removal would be consistent with the general thrust of its approach to employment law.   However, commentary on social media from individuals involved in discussions with the Government suggests that the Government may intend only to remove the 52 week limit. 

Unfortunately, the removal of the cap (or removal of the 52 week limit) would also make prompt settlement more difficult to achieve in many unfair dismissal claims. The amounts at stake may make it more worthwhile for both parties to fight it out at the Employment Tribunal rather than resolving disputes at an early stage.  With even straightforward unfair dismissal claims easily taking two years to reach trial, the prospect of a larger Employment Tribunal backlog is an unappealing one for claimants and respondents alike.  We can only hope this aspect is considered when the Government consults about the proposed changes and that any change is accompanied by measures to ease the current unsustainable backlog.