Government U-Turn on Day 1 Unfair Dismissal Rights: What Employers Need to Know

Just when many businesses thought the dust had settled after this week’s Budget, the Government surprised us again with a significant update to its employment law reform plans.

Following steadfast resistance in the House of Lords, the proposal to introduce “Day 1” unfair dismissal rights for all employees has now been dropped. Instead, the Employment Rights Bill will proceed with a six-month qualifying period in its place.

While this still marks a major shift from the current two-year qualifying period, it represents a notable step back from the Government’s original manifesto commitment. Behind the scenes, this adjustment appears to be a strategic move to keep wider employment law reforms on track, while responding to growing concern from businesses and industry leaders.

For employers of all sizes, the six-month qualifying period will come as a partial relief. It preserves a window of time to properly assess whether a new employee is the right fit for the role before unfair dismissal protection applies – bringing with it additional legal responsibilities and risk.

However, it’s important not to underestimate the impact of this change. Reducing the qualifying period from two years to six months will still significantly increase the legal exposure of employers. In many roles – particularly senior leadership positions, specialist professionals, and trainees – six months may not be long enough to fully evaluate performance, capability, or cultural fit. This compressed timeline is likely to add pressure to probation processes and performance management procedures, and may also lead to a rise in Employment Tribunal claims.

💡 If you’d like tailored advice on how these upcoming changes may affect your organisation, please get in touch.

Unfair Dismissal Compensation: Another Major Shift on the Horizon

Alongside the qualifying period change, it also appears that the Government intends to revise the compensatory award cap for unfair dismissal claims. The current limit on this part of the compensation is 52 weeks’ pay or £118,223 (whichever is lower). Reports suggest that the 52 weeks’ cap element will be removed, leaving only the upper monetary cap.

This could have significant implications. For example, an employee on £20,000 per year could – under very specific circumstances – potentially receive a compensatory award around six times that annual salary. Crucially, an employee’s annual salary will not impact on the cap, creating greater uncertainty and higher financial risk for employers.

What This Means for Your Business

While we must wait for the final legislation to be enacted before the full impact is confirmed, it’s clear that these developments represent a significant policy shift from the Government’s original position. Together, the reduced qualifying period and potential changes to compensation limits will reshape how employers approach:

• Probation and performance management
• Dismissal procedures
• Risk management and legal exposure
• Workforce planning and recruitment strategy

Now is the time for organisations to review their current practices and ensure their processes are robust, compliant, and future-ready.

How Omny Group Can Support You

Change in employment law doesn’t have to feel overwhelming. At Omny Group, we work alongside businesses to translate complex legal developments into practical, people-focused strategies. Our expert employment law team can help you prepare for these changes with confidence – from reviewing contracts and policies to strengthening probation and performance frameworks.

If you’d like tailored advice on how these upcoming changes may affect your organisation, we’re here to help.