UK News

Unfair dismissal exemption for micro businesses?

March 2012

The Government has launched a consultation on giving small businesses a way out of the unfair dismissal legislation.

The Proposal

Following hard on the heels of the announcement that the qualifying period of employment for making an unfair dismissal claim was to extend from one year to two (which comes into force on 6 April), the Government has announced it is seeking employers' views on whether a new system of "compensated no-fault dismissals" should be introduced for micro-businesses - businesses with fewer than 10 employees.

Under the proposal, small businesses would be able to dismiss an employee without having to show fault on the part of the employee and without having to follow any set procedure so long as it pays a set amount of compensation. They would still be able to dismiss without paying compensation where they have a fair reason for dismissal (for example misconduct, capability or redundancy) and act reasonably in effecting the dismissal.


This proposal will no doubt generate some support among start up businesses. A number of commentators have pointed out, however, that, as discrimination claims would fall outside any legislation, one possible outcome would be that employees who are dismissed under the new scheme would simply bring claims of discrimination instead which will remain applicable to all employers and do not require any service qualification periods.

Next steps

At present this is only a proposal. The consultation period ends on 8 June 2012 and if you would like to contribute your view this can be done through the following link:

Dealing with dismissal and 'compensated no fault dismissal' for micro businesses

For further information or to discuss the issues raised, please contact David Widdowson on +44 20 3051 5711.