On the 27 th November the Government announced a major change to their policy manifesto promise of removing ‘day 1’ unfair dismissal rights. In a press release, the Government announced that instead of scrapping the qualifying period of 2-years to be able to claim unfair dismissal, under the revised plan, employees will have to wait six months of service before they qualify which represents a major shift from earlier proposals under the Employment Rights Bill (ERB). Whether the Government thought this would go under the radar due to the significant Budget announcements is anyone’s guess, but this is major news for all employers. The change follows intense pressure from business groups, who argued a day 1 right for unfair dismissal would undermine hiring flexibility and overwhelm employment tribunals. This pressure was given force by the House of Lords who remained steadfast on a 6-month period as a compromise, which the Government felt was holding up the progress of the ERB coming into force. What do we know as of today? The six-month qualifying period replaces the previously proposed “day1 ” unfair dismissal right. Current proposals suggest the six-month threshold cannot be changed via a simple regulation by any future Government, meaning any future change would require full primary legislation. As many will know, the qualifying period is often used as a ‘political football’ in manifestos hence why the period has changed so often over the years but that will change. The Government appears to want this compromise to help the Employment Rights Bill pass more easily through Parliament due to the House of Lords holding it up. What remains unclear? The Government press release refers to ‘lifting the cap’ on unfair dismissal compensation, presumably as some form of appeasement for Labour’s Trade Union backers who are not happy about this change of policy. Under current law, unfair dismissal compensation is capped at 52 weeks’ gross pay or a statutory monetary maximum (whichever is lower). The statutory cap, currently around £118,223, is expected to stay, but it’s not yet clear whether the 52-week pay cap will be abolished altogether or modified. The wording the press release uses is vague and poorly drafted, but from people involved in the compromise it is apparently not the statutory monetary cap which will be lifted but the 52-week period. It remains to be seen what precisely is meant by lifting the cap, as the idea of removing all limits on compensation for unfair dismissal was proposed in New Labour’s Fairness at Work White paper in 1998 and in 2022 within a Labour party Green Paper. However, it was not the current Labour Government’s manifesto or in the more recent ‘Making Work Pay’ policy document that preceded it. Will there be a new ‘light-touch’ dismissal procedure during the initial 6-month employment period as the original Government proposal envisioned? With the six-month qualifying rule, the need for a separate ‘initial period’ regime seems less likely, but nothing is confirmed yet. In our opinion, the need for any new light touch dismissal process is significantly reduced and the Government will not want any further hold ups to implementing this change. Given the amount of consultation it will take to set out the detail of a ‘light touch’ process, if the current reversal is anything to go by then the Government will accede on this too. The timetable for implementing the new qualifying period remains uncertain. While some other reforms under the bill (e.g. day-one sick pay, parental leave, changes for zero-hours contracts) are expected by April 2026, it’s not clear when the new unfair dismissal rules will take effect. In its original form, the implementation was due to start in 2027. We speculate that the change will be more likely to come through sooner than 2027, given the political importance of the change as a cornerstone of the Government’s manifesto and the fact the change means less radical consultation will be needed. In light of what appears to be weekly set-backs for the Government at the moment, waiting until 2027 risks the potential of another U-turn which they can ill afford politically, and it might be a ‘quick win’ to implement it sooner rather than later. General Reaction Supporters of the U-turn argue it strikes a pragmatic balance between the original proposals and concerns led by employers. Business groups welcomed the compromise, saying a six-month buffer preserves employer flexibility while still improving protections for workers. We believe this is a positive change for employers, but it still will spell carnage for the overwhelmed employment tribunals who will inevitably get more claims as a result of any lowering to the qualifying period. But critics, including some from within the governing party, have slammed it as a betrayal. Some MPs and trade-unions have described the revision as a “clear breach” of the party’s manifesto. The backlash stems from concern that the change undermines job security for those in short-term or precarious employment and signals a dilution of promised workers’ rights. We suspect that it is no coincidence this U-turn has happened after the departure of Angela Rayner, which almost certainly would not have happened had she still been an active part of this Government. As always, this advice is general in nature and will need to be tailored to any one situation. As an RMI member you have access to the RMI Legal advice line, as well as several industry experts for your assistance. Should you find yourself in the situation above, contact us at any stage for advice and assistance as appropriate. Motor Industry Legal Services Motor Industry Legal Services provides fully comprehensive legal advice and representation to UK motor retailers for one annual fee. It is the only regulated law firm in the UK which specialises in motor law and motor trade law. MILS currently advises over 1,000 individual businesses within the sector as well as the Retail Motor Industry Federation (RMI) and its members.