By Sara Devennie, CLR Law
What employers should do before and after January 2027.
The most significant change to UK unfair dismissal law in over a decade will take effect on 1 January 2027. You might think that you do not need to concern yourself with this yet, but read on…
Under the Employment Rights Act 2025, the qualifying period for an ordinary unfair dismissal claim reduces from two years’ continuous employment to just six months, and the statutory cap on compensatory awards is removed. Employees who start work for a new employer from 1 July 2026 are already accruing time towards the new threshold, so some of this summer’s hires will reach six months’ service on the very day the reforms take effect. It is also worth being clear about what the reforms do not include: an earlier proposal for a lower-bar dismissal process during a statutory “initial period” was rejected in favour of a straightforward six-month cut-off. There is no reduced standard of fairness to rely on – tribunals will assess these dismissals exactly as they assess any other.
Many employers have treated the first two years of employment as relatively low-risk, provided there was no discrimination or other automatically unfair reason. That approach ends in January: six months passes quickly once recruitment, induction and training are accounted for.
What should employers be doing now to prepare?
Preparation should begin now. Employers should review probationary arrangements. Although probation remains contractual rather than statutory, a standard six-month period may no longer leave time to identify concerns, put support in place and reach a reasoned decision before protection arises. Shorter review intervals and earlier management intervention are worth considering.
Performance management deserves equal scrutiny. Managers should be trained to identify concerns promptly, set measurable objectives, give constructive feedback and keep contemporaneous records – concerns raised informally but never documented leave little evidence if a dismissal is later challenged, and robust documentation matters more once protection arises after only six months.
Policies should be reviewed so that disciplinary, capability and probation procedures are consistent and legally compliant, with line managers clear on when to start formal processes and that dismissals rest on a potentially fair reason, properly evidenced. Recruitment and onboarding should also be reviewed so that expectations and standards are communicated from the outset.
The removal of the compensatory cap raises the stakes, particularly for senior or highly remunerated employees whose losses may exceed the previous £123,543 limit – though compensation will still reflect actual, evidenced loss rather than becoming unlimited in every case. The consequences of getting it wrong are not only financial: the national employment tribunal backlog now exceeds 500,000 cases, up around 50% in the past year, and businesses with fewer than 50 employees are already involved in roughly seven in ten claims. A poorly handled dismissal can mean years of uncertainty before a case is even heard.
Ultimately, the reforms should encourage you as an employer to focus less on an employee’s length of service and more on the quality of your employment practices. Organisations that invest now in manager training, effective probation management, clear documentation and fair procedures are likely to be best placed to minimise both the number and the cost of unfair dismissal claims when the new regime takes effect in January 2027.
Sara Devennie hello@clrlaw.co.uk
clrlaw.co.uk