Under current legislation, employees are only protected from unfair dismissal after they have been employed by their employer for two years. However, Labour plans to introduce changes that mean that employees would be entitled to claim unfair dismissal from their first day of employment.
If introduced, this could lead to a spike in the number of claims, leading to employers paying out thousands in awards and compensation. That is why our employment law team has investigated the potential financial impact this could have on businesses.
Potential Costs of Labour’s Unfair Dismissal Protection Plans
Research estimates that 16% of UK employees, or approximately 5.29 million people, have been in their current jobs for less than a year. Currently, under UK law, the maximum compensation for unfair dismissal is £115,115 or 52 weeks' pay, whichever is lower. With the average weekly wage being £690, an employee dismissed unfairly could receive up to £36,192 in compensation.
If Labour’s plans are implemented, and all eligible employees successfully claim unfair dismissal, businesses across the UK could face a total cost of up to £191.6 billion. This staggering figure highlights the potential financial strain that could be placed on employers if these protections are extended to all new employees.
In response to the findings, Qarrar Somji, Director and employment lawyer at Witan Solicitors, says: “If Labour scraps the two-year limit for unfair dismissal claims, we expect the number of claims to skyrocket. This will undoubtedly have a significant financial impact on employers, so understandably many are against the reform being introduced. More clarity is needed on how this will function. This will allow employers to properly implement probationary periods within the framework of the new rules.”
“We encourage all employers to carefully review their employment contracts to ensure they include clear, flexible, and appropriately lengthy probationary periods, reducing the risk of costly and time-consuming dismissal processes.”
Get in touch with our experts for advice on preparing for Labour’s employment law pledges.
