With the Employment Rights Act 2025 (the ERA 2025) receiving Royal Assent on 18 December 2025, employers must prepare for major changes to UK employment law (see our January newsletter for further details).
Here, we take a closer look at the key changes to unfair dismissal rights and how these will impact employers:
1. Reduced qualifying service period
From 1 January 2027, the qualifying service period for ordinary unfair dismissal claims will reduce from two years to six months. Employees who already have six months’ service on 1 January 2027 gain protection immediately. New employees will acquire protection on reaching six months’ service. This change is expected to result in a very significant increase in the number of employment claims.
Six months is treated as 26 weeks’ continuous service, assessed at the effective date of termination (EDT). Where an employer dismisses an employee without giving statutory minimum notice, the EDT can be extended by at least one week. Therefore, to avoid inadvertently crossing the six‑month threshold, employers will need to ensure the EDT (including any statutory notice extension) falls before 26 weeks. To reduce the risk of an ordinary unfair dismissal claim, dismissal should take place in good time before 25 weeks’ service is reached.
For any employees being hired from 1 July 2026 employers should proactively manage their employment and carry out timely probationary reviews. To prepare, employers should:
- review template employment contracts to ensure they contain appropriate probation periods and extensions, notice provisions and payment in lieu of notice clauses allowing the employer to terminate employment with immediate effect.
- review policies and ensure that disciplinary processes are expressed to be non-contractual and stated not to apply to those in their probationary period.
- line managers must be reminded to initiate and record conduct or capability concerns early so that appropriate action can be taken.
- for fixed‑term employees, a non‑renewal of their contract remains a “dismissal”. Employers will need to manage fixed‑term non‑renewals much earlier in the engagement.
2. Extension of the limitation period to bring a claim
From October 2026 (precise date not yet announced), employees will have six months from their termination date to initiate an unfair dismissal claim (an increase from the current three months). Combined with a doubling of the early conciliation period from six weeks to twelve weeks, which stops the clock on the limitation period while early conciliation is being attempted, employers will face the possibility of dealing with claims relating to events that occurred many months in the past.
It will be crucial to keep clear and comprehensive records of incidents and events, including dates, notes of informal and formal meetings, concerns raised with HR, and witness statements, while matters are fresh in people’s minds.
3. Removal of the statutory cap on compensation for ordinary unfair dismissal
From 1 January 2027, the current statutory cap on compensatory awards will be removed, making compensation for ordinary unfair dismissal potentially unlimited in the same way as it is for discrimination and whistleblowing claims.
Tribunals will continue to assess compensation on a “just and equitable” basis by reference to actual financial loss, subject to the employee’s duty to mitigate, Polkey reductions (for dismissals that could have occurred fairly), and reductions for contributory conduct, but there will no longer be a statutory financial ceiling. This will result in significantly increased financial exposure for employers. In particular, high earners will feel more motivated to pursue claims for ordinary unfair dismissal as they will not be subject to a cap and will be able to seek much higher tribunal awards reflecting their losses.
4. Potential effect on other types of employment claim
A possible side-effect of the elimination of the compensation cap is the potential reduction in other types of claims, such as whistleblowing and discrimination, that are sometimes used speculatively to avoid the statutory cap on the amount awarded or the length of service eligibility but the reality is that an employer’s overall exposure to unfair dismissal claims will still rise. Claims by high earners will be more complex and expensive to litigate, and settlement negotiations are likely to be lengthier as settlement and litigation dynamics shift.
5. Restrictions on fire and re-hire
From January 2027 (with the precise commencement date to be confirmed), employers’ ability to use “fire and rehire” to effect changes to terms and conditions will be materially curtailed. A dismissal will be automatically unfair where it is undertaken to impose changes to specified core contractual terms such as pay, working hours, pension provision, and other categories to be prescribed by regulations, because the employee refused to agree to the variation, or because the employer intended to engage another person on the varied terms to perform substantially the same role.
Key takeaways for employers
Employers need to adapt their performance management and probationary processes to both the shorter qualifying service period and the extended limitation period.
In particular, employees taken on from July 2026 will be eligible to make unfair dismissal claims just six months later, so employers need to deal efficiently with necessary dismissals to avoid difficulties and potential legal claims.
Now is the time to start reviewing template contracts, handbooks, and employment policies. It will also be important to ensure that line managers are aware of the changes and that employees are managed carefully, with issues identified and dealt with efficiently and without delay.
How 3CS can help
Our expert employment solicitors can support your business in preparing for the new statutory framework by reviewing and updating employment contracts, policies and procedures, and delivering targeted staff training. Practical guidance can also be provided to managers and HR teams to ensure probationary periods and performance management processes are robust and fit for purpose, and to mitigate litigation risk as the reforms are implemented.
For advice or guidance in respect of the new rules, please get in touch.
