Unfair dismissal protection from day one

One of the Bill's flagship proposals is making protection from unfair dismissal a "day one" right. The current requirement for an employee to have two years' service to claim ordinary unfair dismissal is being repealed. However, the Bill also introduces the concept of an "initial period of employment", during which a lower level of protection will apply, and compensation will be subject to a lower cap. The length of this period will be specified in regulations, but it will be between three and nine months.

The intention is that, during the initial period of employment, employers will be able to follow a lighter touch process to dismiss an employee for conduct, capability, illegality, or some other substantial reason. Details of the relevant process will be set out in regulations. (As currently drafted, the lighter touch process would not apply to redundancy dismissals. In a redundancy situation, therefore, the fairness of an employee's dismissal would be judged against the normal standard, even if it takes place during the initial period of employment).

This proposal has a potentially significant impact on EPL insurers as it is likely to result in many more claims reaching the employment tribunals. The additional pressure this will place on the tribunal system may well mean that claims take longer to be dealt with further extending the life cycle of claims, especially as it is unclear whether the tribunals will be afforded additional resources to handle the increased volume of claims. This may in turn increase the impetus for insureds to settle claims, particularly where key witnesses may have left the business by the time a hearing is scheduled.

Increase to employment tribunal limitation periods

Although the initial draft of the Bill did not propose any increase to employment tribunal limitation periods, an amendment document published on 27 November 2024 includes a provision to extend limitation periods from three to six months. As drafted, it appears that the extension is intended to apply to all employment tribunal claims in Great Britain, but only certain specified industrial tribunal claims in Northern Ireland.

As with the proposal to make unfair dismissal protection a day one right, this proposal has the potential to significantly increase the number of employment tribunal claims faced by insureds, and thus their reliance on their EPL insurance.

Other changes relevant to EPL insurance

The Bill enhances various other existing employment rights and creates several new ones, which could generate an increased risk of tribunal claims for insureds. For example, the Bill proposes to:

• Make it automatically unfair to dismiss an employee for refusing to agree to a change to their terms and conditions of employment (fire and rehire), albeit that there will be a very narrow exception if the employer can demonstrate that the change in terms was necessary to alleviate serious financial difficulties and could not reasonably have been avoided. Where the exception applies, the fairness of the dismissal will be judged according to ordinary principles, taking into account certain specified factors including any consultation the employer conducted.
• Remove the words "at one establishment" from the legislation that sets the collective redundancy consultation threshold, so that employers will have to consult collectively whenever they are proposing to dismiss 20 or more employees for redundancy in a 90 day period anywhere across their organisation. It may be difficult for employers, particularly large organisations that operate across a number of sites, to keep sufficient track of proposed dismissals to identify when collective consultation is triggered. An employer that fails to comply with collective consultation requirements is liable for a protective award – the maximum amount of which the Bill is also proposing to increase.
• Require employers to offer contracts for a guaranteed number of hours to zero-hours workers and low-hours workers. The number of hours to be offered will have to reflect the number of hours that the worker regularly works during a reference period (to be specified in regulations, but expected to be 12 weeks). As drafted, these provisions appear fiendishly complicated and employers may struggle to comply with them. Failure to make an offer as required, and dismissing or subjecting an employee to a detriment in relation to such an offer, will give rise to potential tribunal claims.
• Prohibit the dismissal of an employee who is pregnant, is on maternity leave, or has returned from maternity leave within the past six months, except in certain specified circumstances. The Bill does not indicate what those circumstances will be, but they are likely to include gross misconduct, and possibly genuine redundancy.
• Making those who raise sexual harassment complaints have the same protection as "whistleblowers".
• Requiring that employers take "all reasonable steps" to prevent sexual harassment so making this burden greater for employers. This is on the back of the introduction of the new duty to take reasonable steps to prevent sexual harassment introduced in October 2024, where the big risk for claims is a potential 25% uplift on compensation for a breach – see our previous EPL insurance alert on this topic here. 

Comment

While the above changes are not expected to take effect before 2026, they are significant, and EPL insurers, brokers and underwriters alike will doubtless wish to keep a close eye on the Bill's progress. Once further detail of the operation of the proposals is available, insurers may decide that it is necessary to review their policy wording, in particular in relation to exclusions or conditions requiring advice is taken on particular processes.

Some of the proposals may also impact on how underwriters consider EPL risks and this could affect how premiums are calculated for certain insureds – for example, employers whose business model involves significant use of zero-hours contracts, or who have a high staff turnover where many employees leave before they reach two years' service.

We will keep our insurer clients updated on important developments as the Bill makes its way through Parliament.