Unfair Dismissal Changes

Under the Employment Rights Act 2025, significant changes will be made to the law on unfair dismissal from the 1st of January 2027.

As it stands currently, employees do not gain the right to claim ordinary unfair dismissal until they have completed two years of continuous service. This gives employers two years and significant flexibility in managing probation reviews and dismissals without the risk of an unfair dismissal claim. However, this will change in January 2027.

From the 1st of January 2027, the qualifying period for employees to claim ordinary unfair dismissal will reduce from two years to six months. This reduction will apply retrospectively, meaning any employee with six months of continuous service as of the 1st January 2027 will gain unfair dismissal rights, so anyone employed on or before the 1st of July 2026 will be protected from the 1st of January 2027.

Employers must think about how to manage probation periods and new hires due to the reduced timescales. We are recommending a shorter probation period of 3 months with the ability to extend for up to a further 2 months, ensuring that there is then time to enact a dismissal, if necessary, before the 6-month “deadline”.

If terminations are not enacted within this 6-month window, a full and fair procedure has to be followed to meet the fair and reasonable requirements of the Employment Rights Act 1996. For example, in the context of a conduct dismissal, this would involve a series of disciplinary warnings given over time, in accordance with your disciplinary procedure.

The Employment Rights Act 2025 also extends the time limit for bringing an unfair dismissal tribunal claim from three months to six months, effective from October 2026, giving employees more time to bring claims.

The risk of an unfair dismissal claim is further increased by the removal of the compensation cap for unfair dismissal claims, effective from the 1st of January 2027. The cap is currently the lower of a year’s pay or £123,543. By removing this cap, the potential award in unfair dismissal claims is unlimited, which could be costly for employers of high earners.

Alongside the extension of tribunal time limits, the Government has also amended the Acas Early Conciliation regime. Under the Employment Tribunals (Early Conciliation: Exemptions and Rules of Procedure) (Amendment) Regulations 2025, where a prospective claimant presents an Early Conciliation notification to Acas the conciliation period may now last for up to 12 weeks (previously six).

The Department for Business and Trade will produce guidance for employers to help them understand the likely practical implications of the changes in due course.

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