The qualifying limit for unfair dismissal will define the new Labour government

The Labour Party went into July’s general election promising a raft of new employment law rights, including ‘Day 1’ rights for unfair dismissal. At the time of writing, this remains official Labour Party (now government) policy. It is difficult to conceive of any single piece of legislation which will better define how ‘red’ (or pro-business) this government is, than the qualifying limit for unfair dismissal.

The Labour government promised a new employment bill within its first 100 days, and this means by 12 October 2024 (the Business Secretary, Jonathan Reynolds, has confirmed the government’s intention to meet this deadline). And it is clear that this employment bill will introduce a raft of new employment rights, including a reduction in the qualifying limit for unfair dismissal, a presumptive right to flexible working, a new right for workers to ‘switch-off’, a potential ban on zero hours contracts and other union-related legislation. Be under no doubt, this is the biggest shake-up in employment rights since the Blair government of 1997, when the Working Time Regulations and the National Minimum Wage were introduced. Oh, and the unfair dismissal qualifying limit was reduced from two years to one year.

The qualifying limit for unfair dismissal has long been a political football kicked around by whichever government has been in power. In the mid-1970s, when the law was first introduced, the qualifying limit was six months. This was increased under the Conservative governments of Thatcher and Major to two years, before being reduced to one year by Blair (and Peter Mandelson, the then Business Secretary). The Cameron/Osborne government increased the qualifying limit to two years, where it has remained ever since.

The promise

The new Labour government has promised to reduce the qualifying limit and Jonathan Reynolds confirmed in a wide-ranging interview with The Times newspaper on 17 September that two years is ‘too long’, but did not commit to what the new limit will be. And, if recent reports are to be believed, a tussle is going on at the heart of government between, in essence, the Blair (for which read Johnnie Reynolds) and Brown (or perhaps) Prescott (for which read Angela Rayner) wings of the Party. Which side wins this tussle will define how business-friendly or pro-growth this new administration will be.

The significance

Remember that, in the run up to the General Election, Keir Starmer and Rachel Reeves stated that their number one priority was ‘growth’. This aim, or aspiration, would trump all other considerations. Yet how can this aspiration be balanced against the pressure to make good on their manifesto promises to bolster legal support for workers? The political significance is immense. This single policy will shape Labour’s reputation on workers’ rights and test its ability to balance competing interests between business and the workforce.

The reason why the debate is being taken seriously within the Labour Party and without is because of the journey that Labour (and Keir Starmer) have gone on to get to power. Keir Starmer and Rachel Reeves are having to assimilate and then deliver upon 14 years of pent-up frustration from the progressive left and, in particular, their pay masters in the unions. Starmer does not have the luxury of a thriving economy enjoyed by the Blair government, which enabled generous handouts to the NHS and to teachers. Today’s unions will have to accept the fact that, with the country essentially ‘broke’, there simply may not be funds for public sector pay rises/new schools or hospitals/HS2, etc. What the government can offer instead, and ostensibly cheaply, is employment law reform. This is why Angela Rayner, as the left’s new champion, is advocating the right to claim unfair dismissal from day one of employment. It was, after all, a manifesto commitment.

Yet, will it really happen?

This author says not (but not with any confidence). Most employment lawyers regard ‘Day 1’ unfair dismissal rights as ‘bonkers’. Further, reducing the qualifying period will inevitably lead to more unfair dismissal claims and it is almost certain that the overburdened and under-funded employment tribunal system would collapse. Reynolds and Rayner are consulting with business (mainly big business) during September and October and they will have heard some trenchant views, as businesses make the case that introducing ‘Day 1’ unfair dismissal rights will be a massive disincentive to hiring staff and result in an immediate drag on growth. My prediction is that the qualifying limit will be either six months or nine months, with perhaps some kind of ‘dismissal light’ statutory procedure from ‘Day 1’.

But which way will the Labour government jump? No other single piece of legislation this autumn will give the country a clearer idea of the kind of government we have than the new (reduced) qualifying period for unfair dismissal.