Day One Unfair Dismissal Rights – How SMEs Can Stay Compliant and Avoid Risk

The UK government has introduced a series of major employment reforms through the Employment Rights Bill 2024-25, and one of the most impactful for small and medium-sized businesses is the introduction of day-one unfair dismissal rights. This will fundamentally change how SMEs manage probationary periods and employee exits.

Currently, employers can dismiss employees with fewer than two years of service without fear of an unfair dismissal claim (except in cases involving discrimination or whistleblowing). But from Autumn 2026, that changes – employees will be legally protected from unfair dismissal from their first day of employment.

For SMEs that often rely on informal hiring practices and lean HR processes, this means one thing: it’s time to tighten up your people management strategies.

The Legal Change Explained

Under the current law, employees only qualify for unfair dismissal protection after two years of continuous service. The new reform will:

• Provide day-one protection for all employees, regardless of role or industry.
• Require employers to follow fair dismissal procedures, even during probation.
• Increase the likelihood of early-stage employees taking legal action if dismissed unfairly or without following due process.

Why Is This Happening?

The government’s goal is to provide greater job security, especially for new starters who previously had limited legal protection. The shift comes following years of trade union lobbying and the rise of concerns over insecure work practices.

For employers, this introduces new risks – particularly for smaller businesses that may rely on informal probation reviews or performance conversations to manage underperformance.

What Does This Mean for SMEs?

• Tribunal Risks Will Increase:
  SMEs can no longer rely on the “probationary safety net” when dismissing employees quickly. Even if a dismissal happens within a matter of weeks, it must now be legally fair and procedurally correct.

• Probation Periods Still Matter:
  While probation periods are still useful for setting expectations and providing structure, they will no longer exempt you from legal claims.

• Time and Resource Pressures:
  SMEs often operate with small HR teams or owner-led people management. This new requirement will add extra administrative demands, particularly around documentation and employee relations.

Common SME Pitfalls

• No formal probationary review process
• Insufficient documentation of performance or conduct concerns
• Managers unaware of dismissal procedures
• Over-reliance on verbal warnings or informal feedback

A Practical Guide for SMEs

To prepare for this change, SMEs need a clear action plan:

1. Update Your Contracts and Handbooks

Ensure your employment contracts are compliant with the new Bill. Contracts should:

• Refer to probationary periods but acknowledge day-one legal protections.
• Set clear expectations about performance, conduct, and company policies from the outset.

2. Build a Structured Probation Framework

• Introduce milestone reviews at regular intervals (e.g., week 4, 8, and at probation end).
• Use probation objectives aligned with role requirements.

3. Invest in Manager Training

Managers need to understand:

• What now qualifies as unfair dismissal.
• How to handle employee underperformance or misconduct lawfully.
• The importance of following procedure and providing proper feedback.

4. Strengthen Your Documentation Process

Tribunals will expect to see written records of:

• Performance concerns and improvement plans.
• Conversations held with the employee.
• Warnings or disciplinary actions, even during probation.

Valid Reasons for Dismissal

Even after the Bill comes into force, SMEs will still be able to dismiss fairly if they:

• Have a valid reason (e.g., poor performance, conduct, redundancy, statutory restriction).
• Follow a fair process including investigation, consultation, and the opportunity for employees to respond.

What Happens if You Get It Wrong?

Tribunal awards for unfair dismissal claims can run into the tens of thousands of pounds, not to mention reputational damage for small businesses.

Benefits of Early Preparation

Although this change may feel like a compliance challenge, SMEs can turn it into a positive by:

• Creating a more engaged, high-performing team.
• Reducing turnover by improving onboarding and early-stage support.
• Protecting your business from unnecessary disputes.

Conclusion

The Employment Rights Bill 2024-25 will soon make day-one protection against unfair dismissal the law. For SMEs, this means early preparation is key. By putting strong probationary procedures, manager training, and robust documentation in place, you’ll reduce your risk, protect your people, and remain compliant.