Business groups welcomed the announcement, which followed talks between major industry groups and unions.
In a statement, the six business groups involved in the discussions said companies would be “relieved” – but added firms still had “concerns about many of the powers” contained in the government’s employment package.
Currently, employers face additional legal hurdles if they want to sack employees who have been in their role continuously for two years.
They must identify a fair reason for dismissal – such as conduct or capability – and show that they acted reasonably and followed a fair process.
Labour had planned to abolish this qualifying period completely, alongside a new legal probation period, likely to have been nine months.
The promise was a central pledge in Labour’s manifesto ahead of last year’s general election, and a key plank of its Employment Rights Bill.
Labour pledged to create “basic rights from day one to parental leave, sick pay, and protection from unfair dismissal”.
But asked if it was a breach of the Labour manifesto, Business Secretary Peter Kyle said: “No.”
Instead, he argued the manifesto had pledged to “bring people together” and “that this would not be legislation that pits one side against another”.
Speaking to broadcasters, Kyle said the compromise had been found by “unions and the employers” and it was “not my job to stand in the way of that compromise”.
The government now plans to implement unfair dismissal protection after six months instead of day one, and ditch the new legal probation period.
In recent weeks, the House of Lords has twice voted in favour of a six-month period, slowing the legislation’s passage through Parliament.
The Fair Work Agency – a new body tasked with overseeing the new rights – will also be set up in 2026, the government announced.
