New Unfair Dismissal Rights: Why Employers Must Act Now

Employers have consistently identified changes to unfair dismissal rights as one of the biggest concerns arising from the Employment Rights Act 2025 — and for good reason.

Although the new unfair dismissal rules do not formally take effect until 1 January 2027, the practical impact starts now for employers recruiting staff from 1 July 2026 onwards.

Why? Because from 1 January 2027, the qualifying period for ordinary unfair dismissal protection will reduce from two years to six months.

That means anyone starting employment with you from today could have unfair dismissal protection from the very first day the new rules take effect.

For employers, this is a significant shift.

What is changing?

From 1 January 2027, employees will no longer need two years’ service before they can bring an ordinary unfair dismissal claim.

Instead, they will only need six months’ continuous service.

This means employers will have a much shorter window in which to assess suitability, performance, conduct, attitude, attendance and overall fit before increased dismissal protection applies.

In practical terms, probationary periods, performance reviews and early-stage management processes will become more important than ever.

Why does this matter from today?

The law may not take effect until January 2027, but employees starting work from 1 July 2026 will reach six months’ service by the time the new rules come into force.

That means businesses hiring now must start managing new employees as though the new legal landscape is already approaching.

Waiting until January could be too late.

Employers should now be reviewing:

Employment contracts
Probationary period clauses
Probation review processes
Performance management procedures
Dismissal procedures
Manager training
HR documentation
Record-keeping practices

The days of relying on the two-year qualifying period as a safety net are coming to an end.

The unfair dismissal compensation cap is also being removed

One of the most significant changes is the removal of the current cap on unfair dismissal compensatory awards.

At present, unfair dismissal compensation is normally capped at the lower of the statutory cap or 52 weeks’ gross pay. From 1 January 2027, that cap will be removed.

This does not mean every successful unfair dismissal claim will result in a huge payout. Employment Tribunal awards will still be based on actual financial loss and the circumstances of each case.

However, the removal of the cap creates the potential for significantly larger awards, particularly in cases involving higher earners, long periods of unemployment, senior employees or badly handled dismissals.

For some businesses, especially small and medium-sized employers, a poorly managed dismissal could become a far more serious financial risk.

What should employers do now?

The key message is simple: do not wait until January 2027.

Employers should use the next six months to prepare.

That means making sure your contracts, policies and procedures are fit for purpose, but also ensuring managers understand how to deal with concerns early and properly.

In particular, employers should:

Use probationary periods effectively
Set clear expectations from day one
Hold regular probation review meetings
Keep proper written records
Address performance or conduct concerns early
Avoid informal or rushed dismissal decisions
Follow a fair process before dismissing
Seek advice before taking action

A well-drafted contract is important, but it is not enough on its own. Employers will also need to show that they acted reasonably, followed a fair process and had clear evidence to support their decisions.

Probation periods will become critical

Many employers already use six-month probationary periods. Under the new regime, these will need to be managed much more carefully.

A probation clause that exists only on paper will offer little protection if managers fail to review performance, document concerns or make decisions before the qualifying period is reached.

Employers should ensure probation periods are active, structured and properly recorded.

This should include:

Initial expectations issued at the start of employment
Regular check-ins
Written probation reviews
Clear performance objectives
Documented concerns
Extension clauses where appropriate
Final probation outcome letters

If an employee is not suitable, employers should avoid allowing matters to drift beyond the six-month point without taking advice.

The risk of getting it wrong

The new rules will make unfair dismissal claims available to a much larger group of employees.

That means more employees will be able to challenge dismissals, and employers will face greater scrutiny over how decisions were reached.

The risks include:

Employment Tribunal claims
Increased compensation exposure
Management time being diverted
Legal costs
Reputational damage
Commercial disruption
Pressure to settle weak or avoidable claims

For employers who are unprepared, the consequences could be serious.

Take action now

These changes represent one of the most important shifts in employment law for many years.

Employers still have time to prepare, but the clock is already ticking.

Anyone recruiting from today must understand that new starters could benefit from unfair dismissal protection from 1 January 2027.

The safest approach is to review your documentation, tighten your probation processes and make sure managers are trained to deal with issues early, fairly and consistently.

Download your FREE guide

Our employment law experts have prepared a practical guide to help employers understand the new unfair dismissal rules and what they should be doing now to reduce risk.

Download your FREE guide today and take a simple step towards protecting your business.

Need help reviewing your contracts, probation procedures or dismissal processes?

Contact Employment Law Services today for practical, employer-focused advice.