Dismissals

The current two year qualifying period to bring an ordinary unfair dismissal claim will be repealed.

Implementation status

• Part of the Employment Rights Bill
• Consultation expected summer/autumn 2025
• Expected in force 2027.
   

Action

• Review recruitment processes to ensure they are robust in identifying the right candidates; care must be taken not to inadvertently discriminate.
• Ensure managers are trained on when unfair dismissal rules apply, and the relevant legal considerations i.e. will the new modified process (see below) or a fair process under existing principles apply. Managers should also be alert to the risks of automatic unfair dismissal claims.
• Consider what protections may be required to protect business secrets, confidential information and trade connections for key employees who may be more inclined to move to a competitor given greater statutory protection.
   

In detail

• The existing two year qualifying period to bring an ordinary unfair dismissal claim is to be removed.
• However, a "modified dismissal process" during an "initial period" will apply to certain dismissals (see below). The Bill has also been amended to include a special compensation regime for employees unfairly dismissed during this initial period.
• A provision is to be included to ensure that employees who have not yet started work but entered into an employment contract do not gain ordinary unfair dismissal protection. Automatic unfair dismissal rules will still apply (e.g. alleged whistleblowing). 

Impact

• The two year qualifying period still applies until this proposal is implemented. In some instances (e.g. in whistleblowing cases) it is already the position that no statutory qualifying period applies.  
• The government wants to ensure that newly hired workers are not fired without cause or reason and it "will help drive up standards in workplaces". The government also intends to address concerns that the current system means "people are less inclined to move jobs, posing risks to productivity".  
• The right not to be unfairly dismissed still only applies to employees; but may be extended down the line when the new government progresses its proposals around employment status.                                                                                        

Employees will not have unfair dismissal protection until they have started work, unless the dismissal is for an automatically unfair reason. Some exceptions apply.

Implementation status

• Part of the Employment Rights Bill
• Expected in force 2027.
   

Action

• Review recruitment processes and ensure managers are trained on when unfair dismissal rules apply, and the relevant legal considerations i.e. will the new modified process (see below) or a fair process under existing principles apply. Managers should also be alert to the risks of automatic unfair dismissal claims. 

In detail

• Employees will not have unfair dismissal protection until they have started work, unless the dismissal is for an automatically unfair reason. A number of exceptions apply.

• An amendment has also been proposed to Bill the government is also proposing a provision to ensure that a dismissal for failing to agree to a variation of contract will not apply to the dismissal of an employee where that employee has not yet started work.

Impact

• At the moment as employees in general need two years' service to bring an unfair dismissal claim, where an employer withdraws an offer of employment or the relationship between the employer and an individual is otherwise ended before they commence employment, an individual will only potentially have a claim for breach of contract, discrimination or where they can potentially bring themselves within one of the applicable automatic unfair dismissal grounds.

The government is seeking to end the "unscrupulous" practice of fire and re-hire. The Bill originally provided that it would be automatically unfair to dismiss an employee for not agreeing to a variation of their contract or where a variation is proposed to allow for an employer to re-hire the employee or someone else to carry out substantially the same job on a varied contract with an exception where an employer could show that the variation of contract was because of "financial difficulties" affecting its ability to carry on the business and it could not have "reasonably avoided" making the variation.

These initial proposals have been significantly amended to restrict the circumstances where a dismissal will be automatically unfair; however, additional obligations will also apply where the circumstances fall outside those to where a dismissal would be automatically unfair (unless the financial difficulties exemption applies). 

Implementation status

• Part of the Employment Rights Bill
• Consultation expected autumn 2025. Further detail expected in regulations (and amendments to the current Code of Practice where it is retained)
• Expected in force October 2026
• An amendment has also been made to the Bill reflecting a proposed increase to the maximum protective award for a failure to comply with the collective consultation rules from 90 days to 180 days and which is expected in force April 2026.
   

Action

• Employers should review now their use of variation provisions and look to include these in new contracts going forward or where employment contracts are revised. However, these clauses can be difficult to enforce, particularly for significant changes and in a hostile scenario.
• Where a fire and re-hire scenario is in contemplation, consider the reputational and employee relations impact, which may be heightened in light of the current proposals. Apply the current Code of Practice on dismissal and re-engagement (and watch out for the potential impact on protective awards, in addition to unfair dismissal compensation, which applies from 20January 2025).
• In future, proposed changes to terms and conditions will need to be subject to careful planning whether the proposed change relates to a restricted or a non-restricted variation and employers will also need to be conscious of the use of any proposals regarding the future recruitment of "non-employees". Case law will be important in understanding how the new provisions (including the financial exception) are interpreted in the applicable scenario.
• Any proposals are likely to be closely scrutinised – regardless of whether the proposed change is a restricted or a non-restricted variation.  Where an employer seeks to rely on the financial exemption where a restricted change is proposed, expert evidence on finances may need to be put before an Employment Tribunal. Potentially higher compensation costs for a failure to comply with collective consultation rules, where applicable, will need to be factored in.

In detail

Restricted variations

• Other than in circumstances of financial difficulty (see below), it will become automatically unfair to dismiss an employee where the reason or principal reason for the dismissal is either that:
  • The employer sought to vary the employee's employment contract to make a "restricted variation" and the employee did not agree to the "restricted variation"; or
  • The employer sought to make more than one variation and the employee did not agree to several variations that included the "restricted variation".
• A "restricted variation" is defined in a new proposed statutory variation; the following are currently included in the list (with a power to add to it):
  • A reduction or removal of an entitlement to any sum payable to an employee in connection with employment;
  • A variation of any terms or conditions relating to pension or pension schemes;
  • A variation to the number of hours an employee is required to work;
  • A variation to the timing or duration of a shift which meets specified conditions;
  • A reduction in the amount of time an employee is entitled to take;
  • The inclusion in a contract of a term enabling an employer to make any variation with regard to any of the terms specified in the provisions.
• Regulations may provide for certain sums and benefits in kind to be excluded including any expenses incurred by an employee. 

New or re-engaged employees

• Other than in circumstances of financial difficulty (see below), it will become automatically unfair to dismiss an employee where the reason or principal reason for the dismissal is to enable the employer to employ another person or to re-engage the employee under a "varied contract of employment" to carry out the same duties or substantially the same duties as the employee carried out before being dismissed.
• A "varied contract of employment" is one where its terms are not the same as those under which the employee worked before being dismissed, and one or more of the differences between the constitutes a restricted variation.  

Financial difficulties exception

• There is a statutory exception where the dismissal will not be automatically unfair if both the following are satisfied:
  • The reason for the restricted variation was to eliminate, prevent or significantly reduce or significantly mitigate the effect of any financial difficulties, which at the time of the dismissal were affecting or were likely in the immediate future to affect the employers ability to carry on the business as a going concern or where the employer is a public sector employer (other than a local authority), the financial sustainability of carrying out the employer's statutory functions; and
  • In all the circumstances the employer could not have reasonably avoided the need to make the variation.
• Specific provision is made for local authority employers:
  • Where the exception applies, a tribunal will still need to assess whether the dismissal was fair in all the circumstances taking the following (non-exhaustive) matters into account:
    • Any consultation carried out by the employer with the employee, any applicable independent trade union or any other person representing the employee's interests with the relevant authority;
    • Anything offered to the employee by the employer in return for agreeing to the variation; and
    • Any other matters specified for these purposes in regulations.
• Case law will be needed to determine how tribunals apply these factors in practice, the weight to be given to each and any other factors to be taken into consideration.

Variations that are "not restricted"

• New statutory rules will also apply where the reason for an employee's dismissal, or the principal reason, is:
  • That the employer sought to vary the employee's contract of employment, the variation was not a restricted variation (or where the employer is looking to make more than one variation, none of the variations are restricted variations) and the employee did not agree to the variation; or
  • To enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same duties, or substantially the same duties, as the employee carried out before being dismissed. 
     
• For these purposes, a varied contract of employment is one where both the terms of the contract are not the same as the terms of the contract under which the employee worked before being dismissed and none of the differences between the two sets of terms constituted a restricted variation.
• A dismissal in these circumstances will not be automatically unfair. However, a tribunal will still need to assess whether the dismissal was "ordinarily" unfair and in doing so consider amongst other things the reason for the variation, any consultation carried out by the employer with the employee, any applicable independent trade union or any other person representing the employee's interests with the relevant authority and anything offered to the employee by the employer in return for agreeing to the variation.
• Following consultation, the government has confirmed that it is proposing to increase the maximum protective award from 90 up to 180 days. However, it will not be proceeding with introducing a right for employees to apply for interim relief where either they have a claim for the protective award or they have a claim for unfair dismissal in a fire and rehire situation. Interim relief is currently only available for whistleblowing and trade union dismissals.
• Via an amendment to the Bill the government is also proposing a provision to ensure that a dismissal for failing to agree to a variation of contract will not apply to the dismissal of an employee where that employee has not yet started work.

Replacing employees with non-employees

• Statutory provisions also provide for the dismissal of an employee to be automatically unfair where the reason for the employee's dismissal was to enable the employer to replace the employee with an individual who is not an employee of the employer, such as an agency worker or self-employed contractor. This will apply where specific conditions apply including that the employee's dismissal is not wholly or mainly attributable to the fact that the requirements of the employer's business for those activities to be carried out have ceased or diminished or are expected to cease or diminish.    
• A dismissal will not be automatically unfair if the employer can show that the reason for the replacement was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of any financial difficulties, which at the time of the dismissal were affecting, or were likely to affect, the employer's ability to carry on the business as a going concern and in all the circumstances the employer could not reasonably have avoided the need to replace the employee.
• The tribunal will still need to assess whether the dismissal was "ordinarily" unfair and consider those matters which are required to be considered where an employer has made a restricted variation but is covered by the "financial difficulties" exception.  

Impact

• The government is seeking to "provide effective remedies" to stop the "unscrupulous" practice of fire and re-hire "while also maintaining that businesses can restructure to remain viable, preserve their workforce and the company when there is genuinely no alternative". While the government has softened its initial proposals by providing for "non-restricted" variations (but which are subject to their own special rules), the current proposals will make the prospect of seeking to change terms and conditions of employment more complicated and risky from both a practical and legal perspective.

• The statutory exception is extremely limited. It seems that Employment Tribunals would need to make findings on an employer's financial position, its ability to continue as a going concern and whether the contractual variation could reasonably have been avoided, leading to more complex, lengthy and costly proceedings.

• A Code of Practice came into force on 18 July 2024, providing that fire and re-hire can be used where the employer "has participated in a thorough and open information-sharing and consultation process, as part of which it has genuinely considered any reasonable alternative proposals" but it should be considered "a last resort". Failing to follow the code is not a claim in its own right but can lead to an Employment Tribunal uplifting compensation in other claims (such as unfair dismissal) by up to 25%.
• The government recognises the risk of employers making redundancies as an alternative to changing terms and conditions via fire and rehire "due to light or moderate financial pressure". However, given the longer-term implications to productivity etc., it expects "businesses to avoid making redundancies where possible".
• In addition to the current proposal to double the maximum protective award, a statutory order now provides tribunals with the ability to apply an uplift or reduction to any protective award made in fire and re-hire cases with effect from 20 January 2025, where there has been a failure to follow the statutory Code of Practice which came into force in July 2024.