Why the changing Employment Law landscape is likely to bring more expense for EPLI insurers

The Employment Rights Bill (the Bill) was introduced in to Parliament on 12 October 2024 including the seismic plan to abolish the two-year qualifying period and to make unfair dismissal a ‘day-one‘ right.  At present, save for certain exceptions (specially protected ‘automatically unfair’ reasons such as whistleblowing, trade union membership, or discrimination) the general rule is that an employee must have two years’ continuous service in order to bring a claim for unfair dismissal. Inevitably this has controlled the number of tribunal claims which EPLI insurers have had to cover. 

The proposal to make the right to claim for unfair dismissal a right from day one of employment commencing will take effect no sooner than Autumn 2026 following consultation in 2025 but is likely to signal an increase in such claims being brought.  It has been reported that the Government estimates that this change alone will entitle an additional 9 million employees to bring unfair dismissal claims. 

In addition, the Government has just this month tabled an amendment to the Bill to increase the basic time limit for bringing employment tribunal claims from three months to six months.  The obvious effect of this will be a potential increase in the number of tribunal claims made, as employees will have longer to take advice and prepare their claim before they are time-barred. Whilst it will, of course, also allow longer for the parties to seek to resolve issues between them before an employee needs to instigate proceedings to protect their ability to bring their claim in the tribunal, on balance, more proceedings are likely in our view.

It is not all bad news for employers and their insurers however:-

• The Government recognises these concerns around resulting additional litigation, and proposes “to make clear [to employees] where bringing claims might be unsuccessful”.  What this guidance looks like and whether it helps deter potential claimants remains to be seen; 
• Further, aside from for redundancy dismissals, there is reference to different standards applying for the ‘initial period of employment (IPE)’ which may protect and cushion the impact on employers and their insurers. So dismissals during the IPE for misconduct, capability, statutory ban or Some Other Substantial Reason related to the employee will be subject to different reasonableness tests and lighter touch processes than those which apply to other ordinary unfair dismissal cases. However as yet there is insufficient detail around what these tests will require and it is unknown what the length of the IPE will be (albeit it is expected to be in the region of 9 months); 
• The Policy Paper also alludes to a possible two-tier level of compensation available for unfair dismissal, with individuals dismissed during the IPE receiving less than those who have remained in employment beyond it.

Much will, no doubt, develop throughout the parliamentary process, associated consultations and the publication of supporting draft regulations.  We will keep our clients advised but it is good practice for employers to review contractual and policy provisions relating to probationary periods and to ensure that appropriate probationary reviews are carried out at the right time and documented.   EPLI insurers should therefore ensure that their policyholders and new customers are doing just that.  This is likely to put EPLI insurers and employers in good stead for managing statutory IPEs once they are introduced.