The government has abandoned its flagship plan to give workers the right to claim unfair dismissals from day one, abandoning a key Labor manifesto promise, after a fierce backlash from employers and a parliamentary stalemate in the upper house.
Instead, the waiting period for unfair dismissal claims will be set at six months following two days of negotiations between ministers, unions and business groups. The compromise aims to ensure the employment rights bill can be passed before April 2026, when Labor wants the new rights to come into force.
Lisa Nandy, the culture secretary, said the government had reached an “impasse” with the Lords, who had refused to support the right to dismiss from day one.
“Unfair dismissals were the sticking point,” she told Times Radio. “We brought unions and business leaders together and they negotiated a compromise. These rights will now come into effect in six months. Viewing this as a zero-sum game is how we got here in the first place.”
Nandy insisted the move would still make “a huge difference for people across the country”, although several union officials privately said they were “dissatisfied” and did not expect the U-turn. One minister described the decision as “total self-destruction”.
A Labor MP close to Angela Rayner, who pushed Labor’s jobs package before she resigned, warned that the watering down could weaken protections for millions of people in insecure, low-paid jobs.
TUC general secretary Paul Nowak urged his colleagues to pass the bill quickly despite disappointment among unions.
“The Employment Rights Act is essential for higher quality and safer jobs,” he said. “The absolute priority now is to enshrine these rights – such as first day sick pay – in law by April next year.”
Under the revised plans, workers will continue to be entitled to sick pay and paternity leave from day one, and a new Fair Work Agency will be created in 2026 to enforce employment standards.
Peers had described the right to unfair dismissal from day one as the “most damaging” element of the bill for employers and warned it would undermine the probationary period. As a compromise, they proposed a deadline of six months, which the government has now accepted.
A government statement confirmed that the postponement was necessary to avoid the entire bill – including reform of sick pay and paternity rights – being delayed. In addition, companies needed sufficient time to prepare for “a number of significant changes.”
Helm CEO Andreas Adamides said the original proposal was one of the biggest concerns for scale-up founders.
“From day one, full rights have been one of our members’ greatest fears, with many holding back their hiring decisions,” he said. “It’s good to see the government showing some sense – but six months is still too early. It creates unnatural pressure on employers.”
Employment lawyer Jo Mackie, a partner at Michelmores, said the outcome was inevitable.
“This is no surprise. It was clunky and unusable, and we predicted this would happen as soon as it came to market,” she said. “Probationary periods are important for both employees and employers and the courts would have had to contend with the flood of new claims.”
With the compromise now agreed, Labor hopes the revised Employment Law will receive royal assent in time to implement the first phase of reforms next spring.
