Contractors may have missed it in the swirl and smoke of Budget 2025, but last week Labour abandoned its manifesto pledge to grant workers a right to claim unfair dismissal from day one in a job.
Instead, under the revised Employment Rights Bill (ERB), a six-month qualifying period will apply before the right to unfair dismissal protection kicks in.
For many in the UK contractor industry, notably the umbrella and payroll market, Labour reneging on its pledge to introduce an immediate right of unfair dismissal is not only welcome; it's necessary, writes Andy Chamberlain, head of strategic policy at the FCSA.
Day-one rights would have discouraged contractor-style hiring
While the intention behind day-one rights was laudable, the practical consequences of such a policy would likely have discouraged hiring, particularly for roles requiring flexibility, short-term arrangements, or quick turnarounds.
Therefore, the FCSA supports this reversal as a measured and pragmatic compromise.
A vote of confidence in business viability and job creation
One of the main concerns about a day-one right of unfair dismissal was the risk it posed to employers' willingness to take on new staff.
For UK businesses, and particularly for employers that rely on flexible labour, the ability to assess new hires over a short probation period is critical.
Whose hiring prospects would have suffered under day-one dismissal protection?
As was argued in House of Lords debates on the ERB, making it significantly harder to dismiss someone within their first days or weeks would reduce employers' appetite for hiring 'risky' or untested candidates, including:
- young people,
- career-changers, and
- individuals returning to the workforce.
By reverting to a six-month qualifying period, the government preserves a balanced approach.
A balanced approach, how come?
Well, the move reduces the current two-year threshold while avoiding a wholly untried, burdensome framework that might hamper recruitment and growth.
For companies reliant on contract, temporary or flexible labour, this Labour U-turn is a win — it protects employers against the very real risk of being tied to unproven hires indefinitely.
Recognition for successful lobbying — and a signal that the second chamber of UK parliament still matters
The rapid policy reversal has drawn strong praise from business groups.
Indeed, the Confederation of British Industry (CBI) has claimed this outcome as a success for its lobbying efforts.
From our perspective at the FCSA, this is not merely a narrow interest-group victory. Rather, it is a reaffirmation that the UK's legislative process, including scrutiny by the House of Lords, remains both robust and capable of tempering populist ambition with real-world practicality.
What were peers' criticisms of day-one dismissal rights?
The Lords' resistance to day-one rights illuminated legitimate concerns about:
- job creation,
- employer risk, and the
- broader labour-market impact.
The peers' influence in steering the Employment Rights Bill toward a more balanced outcome underscores the value of having a second chamber that can scrutinise, challenge and refine government legislation.
Why we believe the six-month compromise is the right decision
With umbrella and contractor services in mind, the six-month threshold before protection from unfair dismissal maintains a decent degree of hiring flexibility.
Umbrella companies, recruitment agencies and other labour suppliers often need to respond quickly to client demand. The six-month window gives them time to assess suitability without fear of immediate unfair dismissal.
As a period, six months also aligns with standard probation practices. Many employers already use a three or six-month probationary period in practice. Institutionalising such a timeframe in legislation reflects what many businesses already do.
Six months is a labour market confidence boost, invariably
Finally, and probably most importantly, the six-month waiting period has strong potential to improve labour market confidence.
By mitigating the risk of excessive liability, this change may encourage employers to continue hiring. And that might translate into more opportunities, especially for younger or more marginal workers. It therefore has the potential to boost the economy at a time when growth is very sluggish and unemployment is rising.
When a U-turn is actually a compromise
In short, this U-turn, which, more accurately and once context is factored in, is actually a compromise, supports both business sustainability and worker opportunity without sacrificing essential protections.
We are aware that some employers might still feel aggrieved that the existing two-year rule is being curtailed. But Labour made it clear from the outset that it was going to cut the qualifying period for unfair dismissal quite sharply.
Six months is, by order of magnitude, better than no months.
Labour listening on unfair dismissal rights is hopefully a sign of three ERB consultations to come
For the FCSA and our members, the U-turn on day-one unfair dismissal rights — and the retention of a six-month qualifying period — creates a more workable legislative environment.
However, it also underscores the need for ongoing engagement on other aspects of the Employment Rights Bill (ERB) that may affect umbrella company-style labour supply.
Indeed, imminently expected are consultations on these three:
- guaranteed hour proposals;
- 'fire and rehire' rules, and
- dismissal procedures.
'Constructive?' There's more where that came from…
We hope the government remains willing to come back to the table and engage positively with trade associations like us. Put another way, there are a lot more "constructive" conversations to have — to borrow a phrase from the business department's statement confirming the climb-down from a day-one right of unfair dismissal.
It's vital because the final version of the ERB must support both fair work and sustainable business.
Final thought
In many ways, this "workable" solution (as the government has called it) demonstrates that the UK's law-making process still works. Ambition tempered by pragmatism, and policy shaped by evidence, dialogue and real-world experience. For businesses, especially those in the flexible and contingent labour sector, whatever they want to call it — a U-turn or compromise — it's a welcome return to sanity.
