Development at a glance: 6 month qualifying period from 1 January 2027
Lifting of statutory cap proposed (tbc and date unspecified)
The Government has proposed a radical amendment to the Employment Rights Bill (based on an ERB amendment paper published today), namely lifting the statutory cap on the unfair dismissal compensatory award. This would mean not only removing the 52 weeks' earnings limit placed on an employee's future loss of earnings, but also the statutory cap (currently £118,223) which is imposed if the employee's 52 weeks' earnings exceed this figure.
At this stage, this is only a proposed amendment, but Government backed amendments are more likely to become law than say a Lords amendment. The ERB will be debated early next week in the House of Commons and we will confirm the outcome as soon as we have more information. We don’t yet know if and from when this would be effective. But it is unlikely it would apply to dismissals where people have already left by the implementation date.
It is understood today's proposal was offered as a concession to trade unions last week, who were unhappy with the Government rowing back on its promise to introduce day-1 unfair dismissal rights. Instead of introducing the right to claims unfair dismissal from day 1, the ERB now provides for the right to claim unfair dismissal after 6 months' service. This change is proposed to be effective from 1 January 2027.
The previous proposal for a 'light-touch' dismissal process during the first 9 months of employment has been dropped altogether. In some respects, this simpler approach on the qualifying period is to be welcomed.
Employers need to know that the unfair dismissal law landscape as we knew it will change with the ERB, and this will have a number of ramifications for taking on and exiting staff. In short:
- The 6-month qualifying period will make it more important than ever for employers to have probationary periods (typically of 3 or 4 months) and to be proactive about assessing performance and suitability during that time.
- Recruitment decisions, and selecting the right candidate in the first place, will become more critical, so selection and recruitment processes are likely to need more attention.
- If unfair dismissal compensation is not limited, conducting dismissals fairly will become key and employers will have to up their game in this regard.
- Strategically, the high earners, older workers and those with disabilities who cannot easily mitigate their loss, will stand to win from this change.
- One of the reasons discrimination claims worry employers so much is that compensation is unlimited, so this distinction would no longer hold and both unfair dismissal and discrimination would become very high stakes.
We do not know, if the lifting of the statutory cap does become law, when this change will be effective. The logical thing would be to align it with the proposed date for changing the qualifying period, January 2027; any sooner would not give employers time to prepare
