49: Leave out Clause 23 and insert the following new Clause—
“Right not to be unfairly dismissed: reduction of qualifying period and introduction of initial period of employmentSchedule 3 contains provision—(a) reducing the qualifying period of employment for unfair dismissal and introducing provisions in respect of an initial period of employment, and(b) making further consequential amendments.” Member’s explanatory statement
This amendment provides that the qualifying period for unfair dismissal is reduced as set out in further amendments to Schedule 3. It also provides for an initial period of employment after the qualifying period during which a modified process and different compensation limit would apply, as set out in further regulations.
My Lords, the Government’s intention to protect workers is commendable. We all agree that fairness, dignity and security at work are essential pillars of a just society. However, the approach taken in this Bill, particularly the changes to unfair dismissal rights and the introduction of a statutory probationary period, is confused and counterproductive. What the Government have failed to grasp is that, when businesses are given the flexibility to manage their workforce pragmatically, that is precisely when they are more likely to take on new staff. Hiring is always a risk. By heightening that risk and making it more difficult to manage, this Bill creates disincentives to hire, particularly at the margins of the labour market, where the stakes are highest.
This is fundamentally a question of incentives. Reduce the employer’s ability to assess suitability, cultural fit or even basic reliability, without the spectre of legal sanction, and you will see fewer jobs created. The cost is very real, but nowhere is it properly considered in the Government’s own impact assessment. That acknowledges a likely 15% rise in employment tribunal claims, but makes no attempt to model the knock-on effect on hiring behaviour. The tribunal system, as we know, is already overstretched, with cases often taking more than two years to resolve. A 15% increase without corresponding investment will only deepen the backlog, and employers will know that they are walking into a system that is clogged and uncertain.
Then there is the statutory probationary period, which the Government propose with no real clarity. The Bill fails to explain how this period interacts with the obligation to act reasonably or whether there will be a different standard for dismissals during this window. Will there be a list of fair reasons? Will an employer be able to extend the period if performance takes longer to assess? None of this is addressed. As any employer will tell you, uncertainty in employment law leads not to innovation but to caution and legal advice.
My Lords, I have two amendments in this group, Amendments 50 and 67, which, like the amendments the noble Lord, Lord Sharpe, has just spoken to, which I have also added my name to, relate to day-one unfair dismissal rights. I thank the noble Lords, Lord Leong and Lord Katz, for making time to discuss this issue with me, for which I am very grateful.
The introduction of day-one dismissal rights will have a range of consequences: in particular, additional costs to business, which the impact assessment says will run to hundreds of millions a year and the Government themselves says will fall disproportionately on smaller businesses; and greater numbers of tribunal cases on an already overloaded tribunal system. But the most important impact is on people who are looking for work, especially those with riskier profiles: young people trying to get their first step on the employment ladder; people trying to get off benefits; people with health issues; people changing careers; ex-offenders and so on. The Government rightly want to get all of these into work, but the Bill will make that more difficult, not easier.
The current law, with the two-year qualifying period, allows an employer to take a risk on someone—to give them the benefit of the doubt—without facing the risk of an employment tribunal claim if it does not work out. This Bill ends that. An employee will be able to claim for unfair dismissal from day one, and the only valid grounds for fair dismissal will be capability or qualification to do the job, conduct by the employee or some other undefined substantial reason relating to the employee. These reasons are essentially the same as the current reasons for fair dismissal after the qualifying period in today’s law, and they cannot be changed by the regulations that the Government intend to use to create a new—again undefined—type of probation period. Employers will no longer be able to let someone go during a probation period because it is not working, without risking an unfair dismissal claim.
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However, we have to recognise that this is in the manifesto, so we need to try and find a compromise. My amendments try to do that, as do those in the name of the noble Lord, Lord Sharpe. I think we can all agree that the current two-year qualifying period is longer than it needs to be; in the vast majority of cases, six months should be sufficient for an employer to know if the relationship is working. My amendments would therefore simply shorten the qualifying period to six months. Most importantly, they would retain the ability to dismiss without reason during that shortened period, so retaining the critical ability to take a risk on someone. My amendments aim for simplicity. They would retain the existing law but dramatically shorten the period, which I think goes a long way towards the spirit of the manifesto, if not the letter. The noble Lord’s amendments are a little more complex, with the two-stage process that he described, but the end-result would be similar so I am happy to support him.
The Government intend to consult on the probation period. They say they have nine months in mind and talk about a light-touch process during that period. However, the Bill expressly limits the reasons for dismissal that can be used during the initial period to the reasons that I have already outlined: capability or qualification, conduct or some other substantial reason relating to the employee. That prejudges the consultation process, and in no way is that a light-touch process. A probation period that does not allow the employment to be terminated simply because it is not working out or it is not a fit is not really a probationary period.
I mentioned the manifesto commitment, and I am sure the Minister will remind us of that, so I draw her attention to a commitment in the same paragraph of the manifesto:
“We will consult fully with businesses, workers, and civil society on how to put our plans into practice before legislation is passed”.
It seems it is okay to ignore that manifesto undertaking, since the consultation on this critical change, and many of the others in the Bill, will take place after the Bill has passed. The Government might argue that the legislation being passed includes the regulations, but the problem there is that the Bill itself prejudges the consultation by restricting the valid reasons for dismissal during the probation period.
These amendments may not be the only way to encourage employers to take a risk on people. The key is to remove the risk of a tribunal claim during the probation period. There may be other ways to do that, perhaps by looking at the allowable reasons for dismissal during the probationary period, and I am certainly ready to find a constructive answer to that if the Minister is willing to continue discussions.
However, the Government know what the impact will be; they say so in the impact assessment. They have provided no evidence at all that there is a problem to solve. So there is no other way to put it: with this Bill, the Government are knowingly and deliberately damaging the life chances of the most vulnerable, particularly young people trying to get their first step on the employment ladder, and for no apparent tangible benefit. I urge them to think again. In the absence of constructive commitments from the Minister, I will support the noble Lord, Lord Sharpe, if he decides to press his amendments.
My Lords, I support Amendments 49 and 50 and Amendment 51, to which I have added my name. I agree with the case that my noble friend Lord Sharpe of Epsom has made, and with the arguments put forward by the noble Lord, Lord Vaux of Harrowden.
I point out that the detail of the arrangements for improving protection against unfair dismissal was one of the areas that provoked the widest debate in Committee. Some 21 noble Lords spoke, and nearly all were concerned about the perverse effects of completely removing the two-year qualifying period. When we discussed my concerns in Committee, the Minister said that when I saw the Government’s implementation plan I would be reassured. However, while it is generally helpful, all it says on this matter is that in summer/autumn 2025 they will consult on:
“Giving employees protection from unfair dismissal from ‘day 1’, including on the dismissal process in the statutory probation period”.
So we still do not know what the rules will be.
I believe that the approach the Government are taking of making up the vital detail of legislation after Bills have passed, so well exemplified here, as the noble Lord, Lord Vaux, has said, is profoundly undemocratic. This is giving too much power to the Executive. The Minister should be able to tell us categorically today that employers will be able to dismiss unsatisfactory staff without risking a tribunal during a probation period of six or nine months.
I will not repeat all I said in Committee from the historic perspective of a good employer like Tesco. We even had a unique partnership with the trade union USDAW, seemingly very different from some of the public sector unions dominating this Bill. My main current concern, as the Minister knows, is that day-one rights will make employers extremely nervous about taking on new employees, especially the young or those with a risky track record like the unemployed or the disabled. This will kill growth. My noble friend Lord Sharpe talked about the disincentive to hire. That sums it up perfectly.
My Lords I support the amendments in this group because they would mitigate the potential damage to employment from the perspective of both the employer and the employee, whether that employee is a jobseeker or someone recently appointed. The danger exists particularly in this clause. As your Lordships know, Clause 23 and the linked Schedule 3 repeal Section 108 of the Employment Rights Act 1996. They remove the qualifying period of employment and make further amendments to the Act in respect of the repeal.
Section 108 stipulates that the protection under Section 94 of the Act, which establishes the right not to be unfairly dismissed, subject to certain conditions, does not apply to the dismissal of an employee unless he has been continuously employed for two years. During this two-year extended training period—for that is what it is, and I speak as an employer—when you induct a new employee, you know that if they do not work out, and there are clear headings governing this under law, they can be let go without unfair dismissal claims.
Now, that is to be removed by Clause 23 and Schedule 3. We are repealing Section 108 of the 1996 Act, one of the basic building blocks of employment law in this country. This is one of the most familiar and important pieces of legislation for the labour market. As my noble friend Lord Sharpe and the noble Lord, Lord Vaux of Harrowden, have said, it helps offer protection to both parties. It makes for a fluid labour market and avoids the zombie businesses which do little for the wider economy and militate against growth.
I will not go through each of the amendments because noble Lords have heard about them already, but they would facilitate good working practices for both parties. Those looking for a job would be more likely, as we have heard, to be appointed. There will be more job vacancies, which, as we know, have sadly fallen and continued to fall over the last year. Those looking for a job would be more likely to find one and more likely to start their first job, as we have already heard today. The employer would be able to take a risk, as we have heard today—to take a chance on a new employee.
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Perhaps the most troubling aspect of the Government’s approach is its likely effect on social mobility. When you raise the legal risks of hiring, it is not the well-connected, polished graduate who loses out but the individual on the edge of the labour market, the person returning to work after illness or parenting, the school leaver with no contacts, the ex-offender with a spent conviction, the refugee trying to prove themselves. The Government’s impact assessment recognises this risk, because it says that making unfair dismissal a day one right
“could damage the employment prospects of people who are trying to re-enter the labour market, especially if they are observed to be riskier to hire”.
Those are not my words but the Government’s.
The same is true for a “cultural fit”, which the Minister dismissed in Committee as an illegitimate reason for dismissal. She said:
“The Government do not believe that an employee not being a cultural fit within an organisation should be a fair dismissal”.—[Official Report, 21/5/25; col. 334.]
However, “cultural fit” is not a euphemism for prejudice; it is about whether someone complements the way in which a team works, the style of communication or the pace and rhythm of a workplace. This is particularly acute for a small business. Hiring mistakes are costly. Even a highly skilled worker takes time to reach full productivity and the cost of advertising, onboarding, training and then managing a dismissal is not trivial. If employers cannot be confident that they will have a window in which to assess a new hire, including on soft factors such as team dynamics, initiative or client manner, they will become more conservative. They will play it safe. Who loses then? Again, it is the person who just needed someone to give them a chance.
My amendment offers a better path. It reduces the qualifying period for unfair dismissal from two years to six months, a meaningful extension of protection for workers. It also creates an initial period of employment following that six months in which a simplified process and lower compensation cap would apply. That strikes a fair balance, giving employers space to assess suitability while ensuring that bad-faith dismissals still carry consequences. Crucially, it also removes the sweeping power given to the Secretary of State in the Government’s clause to modify Section 98(4) of the Employment Rights Act, a power that could drastically shift the fairness test without proper parliamentary oversight.
Employees already have day-one protections against discrimination and automatically unfair dismissal, as they should. However, general unfair dismissal should be subject to a short and defined qualifying period that employers understand and workers can plan around. My amendment delivers that clarity. It also avoids a situation where employers are left wondering whether a dismissal based on fit or reliability will land them in court, even when handled with care.
We have to be clear that jobs are not abstract concepts; they are costs. In the early stages, even the most promising employee is an investment that takes time to repay. Employers need space to make those judgments. This Bill, as it stands, puts a thumb on the scale in favour of caution and against second chances. That is not fair, that is not just and that is not how we grow a dynamic, inclusive labour market. I beg to move.
So what will be the result? Simply, employers will now have to think twice before hiring anybody with a less than perfect employment record. The Bill will make it harder for an employer to take a chance on such people, to give them the benefit of the doubt. To quote the Federation of Small Businesses:
“all it’s going to do is make small employers more reluctant to recruit and fearful of being open to vexatious claims … It’s those furthest from the jobs market who will then suffer, because the less risk small employers can afford to take, the fewer second chances, fresh starts and first jobs they’ll be able to offer”.
If anyone is in any doubt, the Government themselves state the same effect in the impact assessment. I will not repeat what the noble Lord, Lord Sharpe, quoted, but this is what the Government also know and think.
We already have a million young people not in employment, education or training—the so-called NEETs. If we want to solve that, we need employers who want to take them on, who will take a chance and give them that first all-important opportunity. So, why on earth would we want to make it riskier for employers to take that chance?
You would think, therefore, that there must be a good, well-evidenced reason why this Government would decide knowingly to make it more difficult for young people to get their first opportunity to work. I have asked several times during this process for evidence that the existing law is in fact causing any problem. There is no evidence given in the impact assessment, and I have had no real answer to that question. In Committee, the Minister’s answer was:
“We have worked with academics who are looking at this subject. I reassure the noble Lord that we have looked at this and are confident that the benefits in this particular case will outweigh the risks”.—[Official Report, 21/5/25; col. 333.]
That really is not good enough to take action that the Government themselves acknowledge will damage the life chances of the most vulnerable or those just starting out.
Employers do not dismiss people lightly, even during a probationary period; hiring and training are expensive and time-consuming, so employers are strongly incentivised to try to get it right. But it is a fact of life that sometimes, with no fault on any side, things do not work out.
As the Minister knows, the noble Baroness, Lady Finlay of Llandaff, wanted to speak in this debate, but, unfortunately, she cannot be here today. She has asked me to point out the impact this change could have on GPs. Not being able to let someone go if the fit or culture is wrong is extremely serious for a small business—as the noble Lord, Lord Sharpe, described—but in a GP practice it could put lives at risk. GP practices tend to be small teams who must work together well and with great understanding and support. An employee who does not fit with the rest of the team could lead to miscommunication, appointment issues and so on. In healthcare, such errors could compromise patient welfare and could even have fatal consequences. It is essential that people can be easily let go if it is not working out in the early stages of their employment.
There is government evidence to support this. DBT’s economic analysis of 21 October 2024 admits, in section 16, on unintended consequences, that:
“There is some evidence that employment reforms make employers less willing to hire workers including evidence specific to the strengthening of dismissal protections. For example, the OECD noted that more stringent dismissal and hiring policies involve an inherent trade-off between job security for workers who have a job, and firm adaptability to changes in demand conditions or technology”.
In other words, lower growth.
The provisions will require significant extra internal resource to ensure compliance. It will be necessary to implement cumbersome administrative procedures across all businesses for all employees from day one, and indeed in the public sector. It will make the introduction of Making Tax Digital look extremely easy in contrast. It is a looming tragedy for smaller businesses already drowned in regulation. Above all, it will increase costs, adding to the jobs tax in the last Budget, and at a time when the Chancellor is promising to reduce red tape. Another certainty, as we have heard, is that the changes will increase the traffic through employment tribunals. There is already a tremendous backlog of 50,000 cases in the system. I know someone whose case has been listed for 2027.
Because it is important, I am extremely keen to help the Government find a way out of this unfortunate set of circumstances. The fact is that sometimes, appointments do not work out, and it is no one’s fault. I accept that that should normally be clear within six or nine months, which I believe the Government are contemplating for their probation period, but we need certainty on this and probably a government amendment before the Bill becomes an Act. For me, this uncertainty, which is why I have chosen to speak from the Back Benches on an area outside my own responsibility, could prove to be the very worst aspect of this Bill. I hope that, even at this late hour, the Government will think again.
Taking on a new employee involves a great commitment. It involves the commitment not only of a salary, which is only a small fraction of the cost, but of time, training, patience, showing the ropes and bringing someone into the culture of the organisation, so that they can contribute as a happy, contented, productive and effective member of the team. With this clause, we will not have the protections of that. I cannot think of any small employer who will not think twice about taking on a new person, and this will have very bad effects on the economy and growth.
We know there are legal grounds already for unfair dismissal in respect of the job itself. They include conduct, capability, redundancy, legal restrictions on employment and other substantive reasons. Noble Lords have spoken about these today, but there are cast-iron reasons for not being unfairly dismissed. You cannot be dismissed as a whistleblower or for discrimination, and these do not require the two-year qualifying period. The law takes care of this.
Now, with the removal of the two-year period goes the protection for the employer and the opportunities for new employees particularly, but also for many employees who want to change jobs and start a new walk of life. They may find they are not so good at what they were doing and want to try their hand at a new job. They need time to settle in, just as the new person coming into their first job does.
I am not at all convinced that this initial period, which Ministers have told us will have a lighter touch in respect of unfair dismissal arrangements, will actually be very helpful. Some law firms fear that it will impose pretty much the same strictures on an employer. We really need to know from the Minister what exactly the period will be and what the arrangements for unfair dismissal during that period will be, because I cannot see how we can have a Bill setting all this out when we do not know what is intended.
Like other noble Lords, I would value some statement. I do not need to refer to the compliance cost, the impact assessment that estimates hundreds of millions of pounds, or the additional complexity in the recruitment process. Added to the other measures in the Bill, Clause 23 and Schedule 3 add a new dimension of insecurity.
If we are to have businesses, particularly small businesses, willing to grow, to raise productivity as the Government want and to hire the new employees needed to raise that productivity, the Government should welcome Amendment 49 and all the amendments in this group. They accept the spirit of the manifesto pledge and go some way in helping the Government to get out of the mess, which is of their own creation.