The latest twist in employment-law reform sees the Government step back from its flagship proposal to grant employees unfair-dismissal protection from their very first day. After sustained lobbying from business groups and pressure from the House of Lords, ministers have confirmed that the threshold will instead be set at six months.

Whilst a substantive change, in practical terms it does represent a far more workable position for employers managing the realities of probation, recruitment churn and early-stage performance concerns.

Labour’s 2024 manifesto had explicitly pledged day-one unfair-dismissal rights, presented as a cornerstone of the New Deal for Working People developed with trade unions since 2021. The aim was to abolish the two-year qualifying period entirely so that “everyone is protected from their first day” in employment.

Yet the six-month compromise may ultimately prove the least significant development. Alongside that retreat, the Government has also announced that the statutory cap on unfair-dismissal compensation will be “lifted”, a potentially far more consequential change.

What has changed & what remains unclear

The New Shortfall: Six-month qualifying period, not day one

The qualifying period for unfair-dismissal rights is being reduced from the current two-year requirement to six months. That means dismissals before six months will continue to be governed only by existing protections (e.g. automatically unfair dismissals or statutory protections such as discrimination, whistleblowing, etc.) not general unfair-dismissal rules.

From an employer’s perspective, the six-month compromise is significant but far less disruptive than a move to full day-one rights. Businesses will retain a meaningful, if much shorter, window at the start of employment to assess new hires and bring the relationship to an end if it is not working out, without being exposed to an ordinary unfair-dismissal claim.

However, the shift from a 24-month qualifying period to just six months will require employers to tighten and accelerate their HR processes. Onboarding, performance monitoring and probation reviews will all need to operate more quickly and more consistently if issues are to be identified and addressed before the new cut-off.

A six-month threshold restores the intended purpose of probation; a meaningful assessment period during which employers can evaluate suitability, performance, conduct and cultural alignment without immediately engaging the full unfair-dismissal framework. It also preserves the ability to manage unsuccessful probation outcomes in a relatively straightforward manner, provided other statutory protections such as discrimination and whistleblowing are respected. In essence, it keeps probation periods workable in practice, which would have been significantly undermined by a day-one rights model.

Employers should also consider carefully the question of notice in that first 6 months of employment to ensure that working a period of notice does take the individual over the 6 month ‘time limit’ to accrue unfair dismissal rights. If an employer decides therefore to make a payment in lieu of notice, they should also factor in the possibility that employees can add the minimum period of statutory notice (one week) to their period of service to determine if they get over the new 6 month service requirement for unfair dismissal protections.

The Big Wildcard: “Compensation Cap Lifted”

The Government statement accompanying the suggested change in the cap on compensation for unfair dismissals, makes clear that “the compensation cap will be lifted.”

The question is what “lifting” the cap genuinely entails. Does it mean removing the statutory ceiling altogether? Abolishing only the 52-week limit? Or simply raising the cap rather than removing it?

At present, compensatory awards in unfair-dismissal cases are capped at the lower of:

52 weeks’ gross pay, or
the statutory maximum (currently £118,223, indexed annually).

This is an important distinction from discrimination and whistleblowing claims, where compensation is uncapped.

The Government has not clarified whether “lifting” means:

removing the statutory maximum entirely (i.e. potentially creating an uncapped regime),
abolishing only the 52-week pay limit while retaining the overall ceiling, or
simply raising, rather than removing, the cap.

On the wording available so far, the most plausible interpretation is that the Government intends to abolish the 52-week pay cap while retaining the overarching monetary ceiling. This would materially increase potential awards for employees earning below the statutory maximum, while still preserving a degree of certainty for employers.

However, the detail remains unclear. Depending on the final drafting, any reform in this area could significantly reshape the financial exposure associated with dismissals, particularly for employers with large or lower-paid workforces.

Until the amended Bill (and explanatory notes) land, we are left in the dark and we do not know whether future awards could become effectively uncapped, or capped at a new, possibly still high, limit.

Why Employers should care

This isn’t just legal window-dressing. The revised framework, once enacted, will have real-world implications:

Probation periods and hiring risk: A six-month qualifying period makes probation/trial periods more workable but early-performance management will need to stay sharp.
Dismissal exposure increases for senior or high-paid staff: If the cap is removed, or raised, compensatory awards in unfair-dismissal cases could become much greater. That changes the calculus for senior hires, executive exits, performance-based dismissals, or potentially thorny dismissals such as redundancy, capability, or misconduct.
Settlement dynamics will shift: With any increased compensation potential, the cost and reputational risk of dismissals rises. With the tribunal system is facing a backlog of over 50,000 outstanding cases and hearings in some regions are being listed 12–24 months ahead, employers may prefer to settle earlier, and at higher levels, to avoid prolonged uncertainty. Unpredictable compensation limits will push settlement expectations upwards and increase the cost of resolving disputes.
Need for legal-process discipline: Documentation, consistency, fair process, objective decision-making and careful risk assessment become more critical than ever. Employers wanting to sleep at night will need to double down on HR process integrity.

What’s Next

The revised Bill is expected to return to the Commons soon, potentially clearing into law by the end of this year.

In the meantime, and even before final text is published, it makes sense for employers to:

Review existing probation, onboarding and dismissal policies.
Brief managers on the changed qualifying threshold.
Reassess risk exposure for dismissals, particularly of senior staff or higher earners.
Consider whether additional internal controls or approval processes are required for dismissals to manage potential liability.
Watch closely for the final drafting and Explanatory Notes, the devil’s likely to be in the detail.

Final Word: not a full reversal but a major re-calibration

This isn’t a total abandonment of reform. It is not a return to business-as-usual. Instead, it is a re-calibration, one designed to steer reform through Parliament without wrecking hiring flexibility for businesses.

That compromise may reassure employers… but the unknowns around compensation liability should give pause. Once the cap is gone (or transformed), unfair-dismissal exposure might shift from being a manageable risk to a serious financial one.

What does seem certain is that the Government remains committed to its published implementation timetable. The first wave of reforms, including day-one sick pay, extended paternity and parental leave, and the establishment of the new Fair Work Agency, is still scheduled for April 2026. The six-month unfair-dismissal threshold is expected to follow soon after.

With the end of the parliamentary year approaching, the coming weeks are likely to be highly eventful. We will continue to monitor developments closely as the Bill returns to the Commons and the final shape of the reforms becomes clearer.

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