Your Settlement Agreement Solicitor

Your Settlement Agreement Solicitor

Episode 18: Unfair Dismissal and Probation

The new Employment Rights Bill has generated much discussion in the news and online. Much of the commentary reveals a widespread lack of understanding of the current unfair dismissal laws, with some commentators confusing the current two-year qualifying period for protection against unfair dismissal with probation.

Let’s be clear: the two-year qualifying period for unfair dismissal rights under current legislation and probation periods are separate.

Welcome to episode 18 of Your Settlement Agreement Solicitor. I am your host, Geoffrey Caesar, a solicitor of England and Wales with over 20 years of experience specialising in settlement agreements.

In this episode, I will explain current unfair dismissal laws, probation periods, and the difference between the two. I will also explain what will be changing under the Employment Rights Bill.

Understanding unfair dismissal can be critical to securing a reasonable settlement. I will explain why this is the case and why the provisions of the Employment Rights Bill are likely to lead to a significant increase in the use of settlement agreements once they become law.

First things first: what is unfair dismissal?

Section 94 of the Employment Rights Act 1996 says “An employee has the right not to be unfairly dismissed by his employer.”

Section 98 of the Act lays out the ground rules. Essentially, it’s a two-part test that every employer must pass if they want to prove they’ve acted fairly in letting someone go.

First, the employer has to show they had a solid reason for the dismissal. Legally, this reason has to fall into one of these main categories: it could be about your capability or qualifications, your conduct, redundancy, or maybe there’s a legal restriction preventing you from continuing in the job. If the reason doesn’t fit any of these, the employer needs to prove it was still serious enough to justify the dismissal of someone in your role.

Second, even with a valid reason, there’s a big question left: did the employer act reasonably in deciding to dismiss you? Here, the law gives employers some leeway, taking into consideration factors like the size and resources of their business. But ultimately, it boils down to whether their decision was fair, equitable, and just in the specific circumstances of your case.

In other words, the law tries to balance both sides. It expects employers to be fair and reasonable, not just to tick legal boxes. And for employees, it provides a safety net to ensure they’re treated justly if their job is on the line. So, if you’re ever questioning if a dismissal was fair, this two-step test is the framework to keep in mind.

In most dismissal situations, there is ample scope for disagreement whether the dismissal is for a fair reason. For example, an employer may say that they are dismissing on grounds of redundancy, but an employee may contend that it is not a genuine redundancy as they are flat out with work and the employer just wants to get rid of them for some other reason, such as bringing a friend into the role which would not be a fair reason for dismissal.

It is easy to see how unfair dismissal rights make settlement agreements a very attractive way to terminate the employment relationship. Settlement agreements offer a payoff for the employee and certainty for the employer that they will not face a claim by the employee.

But there is a catch in the form of section 108 of the Employment Rights Act 1996, which says:

Section 94 does not apply to the dismissal of an employee unless he has been continuously employed for a period of not less than two years, ending with the effective date of termination.

This is not a probation period.

Probation is an entirely contractual matter between the employer and the employee, which is subject to their statutory rights and obligations.

A probation period in the contract typically lasts three to six months and allows the employer to assess the employee’s suitability for the role. It does not affect the employee’s statutory rights. Very often during the probation period, there will be a shortened notice period of a week, with a longer contractual notice period of, say, a month or three months, applying once the employee has successfully completed the probation period.

If you have worked for your employer for up to two years, your employer must give you at least one week’s notice. Therefore, the longer notice periods in many contracts of employment exceed the statutory minimum. Successfully completing a probation period typically leads to an enhancement of contractual benefits, such as a longer notice period. It has no impact on the employee’s statutory rights.

So, what is changing?

Under the Employment Rights Bill 2024, section 108 of the Employment Rights Act 1996 will be repealed, which means it will be deleted. This will remove the two-year qualifying period for unfair dismissal protection, which will lead to an increased use of settlement agreements to terminate employees with less than two years of service.

But, there is a caveat, and this is where a lot of the confusion around probation periods has arisen.

Schedule 2 of the Employment Rights Bill makes provisions for the Secretary of State to make regulations providing for an “initial period” of employment during which employees will not qualify for unfair dismissal protection. Although the Bill does not use the term “Probation”, the “initial period” it refers to is to address concerns that day one unfair dismissal rights would make it impossible to effectively operate probation systems, which are generally seen as critical for employers to determine they have made the right hiring choices.

As with all legal matters, the devil is in the details, which have yet to be thrashed out and are not expected to become law until Autumn 2026.

So, where does this leave you under the current law if you feel you are at risk of losing your job but you do not yet meet the two-year qualifying period for protection against unfair dismissal?

If you are approaching the two-year mark, then depending on the circumstances it may be advisable to dig your heels in and try to stay beyond that milestone. As soon as you hit the two years, it becomes much riskier for your employer to dismiss you as they must show a fair reason for the dismissal, which can often be open to debate and this is where claims can arise making a settlement agreement the preferred option in many cases.

If you are being dismissed with less than two years of continuous service, while you will not benefit from general unfair dismissal protection, you have other employment rights, for example under the Equality Act 2010 which prohibits discrimination on protected grounds such as age, race and sex or sexual orientation. There is no qualifying period for discrimination claims. There are also certain types of unfair dismissal claim, such as dismissals resulting from whistleblowing, which are automatically unfair and have no qualifying period of service.

Being able to bring a claim against your employer is your critical leverage in securing a good settlement. If you are in a situation where you are looking to settle with your employer, whether as part of the termination of your employment or to resolve a situation at work without leaving, it is essential that you understand your employment rights.

Subscribe to Your Settlement Agreement Solicitor to learn all you need to know about employment law and please do not hesitate to contact me with any questions you have.

I am Geoffrey Caesar, your settlement agreement solicitor.