Significant reforms to the law on unfair dismissal are due to take effect on 1st January 2027 under the Employment Rights Act 2025. These changes will have a material impact on both employers’ risk exposure and how employment relationships are managed from an early stage.
Earlier Protection for Employees
Currently most employees require two years’ continuous service before they can bring a claim for ordinary unfair dismissal. From 1st January 2027, this qualifying period will be reduced to six months. As this will apply retrospectively it will protect employees who are employed on or from the 1st July 2026.
In practice this means employees will gain protection much sooner in their employment. Employers will therefore need to ensure that fair procedures, documentation and decision-making are embedded from the outset, rather than relying on informal approaches during the early stages of employment.
Removal of the Compensation Cap
A further significant reform is the removal of the statutory cap on compensatory awards in unfair dismissal claims.
While tribunals will still assess compensation based on actual financial loss, the removal of this cap is expected to increase potential liability for employers in higher-value claims.
Other Key Changes
From 1st January 2027, the following additional changes will also apply:
- The qualifying period to request written reasons for dismissal will reduce from two years to six months.
- The qualifying period for protection relating to dismissal linked to spent convictions will be removed entirely.
Importantly, existing day-one protections for discrimination or whistleblowing dismissals remain unchanged.
What this means for Employers
These reforms represent one of the most significant shifts in employment law in recent years. With protection arising after just six months, employers should now:
- Review probationary periods and ensure they are meaningful and properly managed, ensuring an employee is suitable for long-term employment
- Strengthen disciplinary and capability procedures
- Ensure managers are trained to follow fair and consistent processes from an early stage
Looking Ahead
Although the changes do not come into force until 1st January 2027, their impact will be felt much sooner – particularly when recruiting new employees with a start date on or after the 1st July 2026.
Employers who take steps to update their policies and practices in advance will be best placed to manage risk and remain compliant.
If you need tailored advice on how these changes may affect your business, or support with reviewing and updating your employment contracts, policies or procedures, we are here to help.
Speak to our specialist employment law team. Email Paul.Lott@sweeneymiller.co.uk or call 0191 568 2057.
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