From 1 January 2027, the Employment Rights Act 2025 will reduce the qualifying period for ordinary unfair dismissal rights from two years to six months of continuous service. The statutory cap on compensatory awards will also be removed entirely, dramatically increasing financial exposure for employers.
These are significant changes and require attention.
Summary
The Employment Rights Act 2025 introduces the most consequential shift in dismissal law in a generation for employers in England and Wales. For years, employers have relied on a two-year qualifying period to manage underperforming employees before unfair dismissal rights crystallised. That window is now closing.
From 1 January 2027, any employee with just six months of continuous service will be entitled to bring an ordinary unfair dismissal claim before an Employment Tribunal. The statutory cap on the compensatory award, currently set at £123,543 or 52 weeks’ gross pay (whichever is the lower) will be removed entirely. Particularly for employers with senior or highly paid staff, this creates a level of financial exposure that did not exist before.
Critically, a key date has passed. Anyone employed on or before 1 July 2026, whether long-serving or recently recruited, will be protected from an unfair dismissal from 1 January 2027 onwards. Those who start after 1 July 2026 will qualify once they reach six months’ service and this deadline will approach quickly in practice. Employers who do not have a process in place will face increased complexity, legal risk and enhanced termination costs, so it is important to adapt and get ahead of this change to the law.
This article sets out the legal framework, the key dates and the practical steps employers should be taking now. It covers the enhanced focus on probationary periods, the statutory notice trap and what organisations need to do in relation to employment contracts, manager training and HR processes to reduce risk. For a wider overview of the reforms, see Jones Chase’s comprehensive guide: The Employment Rights Act 2025.
What Is Changing and When Does It Take Effect?
The Employment Rights Bill received Royal Assent on 18 December 2025, becoming the Employment Rights Act 2025. The qualifying period for ordinary unfair dismissal rights, currently two years of continuous service, will reduce to six months from 1 January 2027.
The practical trigger for employers is this: from 1 January 2027, any employee with at least six months’ continuous service will qualify, and the change applies to existing staff as well as new recruits. Anyone employed on or before 1 July 2026 will already have gained the necessary six months service to bring a claim by 1 January 2027 and will be protected from that date. An employee who starts after 1 July 2026 will qualify once they reach six months’ service. On the Government’s own figures, around 6.3 million employees currently sit in the six-months-to-two-years band and will gain protection earlier than they would under the previous rules.
Ordinary unfair dismissal, in practice, means the right to bring an Employment Tribunal claim where an employer cannot demonstrate a potentially fair reason for dismissal, such as capability, conduct, redundancy, or some other substantial reason (‘SOSR’), and/or where a fair procedure was not followed. Before the Employment Rights Act 2025, most employers had considerable runway to assess a new hire before these protections applied. From January 2027, that runway will be compressed to just short of six months.
Why the Removal of the Compensation Cap Is Important
The current statutory cap on the compensatory award for ordinary unfair dismissal is set at £123,543 or 52 weeks’ gross pay, whichever is the lower. From 1 January 2027, this cap will be removed entirely with no upper limit.
This change is significant in isolation, but combined with the shorter qualifying period, it fundamentally alters the risk calculus for employers. Employment Tribunals will be able to award uncapped compensation for financial loss where an unfair dismissal claim succeeds. For organisations with senior executives or high-earning employees, the financial consequences of a poorly managed dismissal could be severe.
Consider a worked example. A senior hire earning £250,000 per year joins your business in August 2026. By February 2027, they have six months of continuous service and full unfair dismissal rights. If that employee is subsequently dismissed and their Tribunal claim succeeds, the compensatory award is no longer capped. A Tribunal could award compensation indicating the actual loss suffered, which, for a high earner, could run to several hundreds of thousands of pounds.
The steps that we recommend that employers consider taking now, to reduce this risk, are set out below.
The Probationary Period Problem
A high number of employers in the UK currently use a six-month probationary period as standard, particularly for senior hires. Under the new rules, this will be problematic.
The core issues will be centred around timing and a lack of awareness. By the time a six-month probationary period expires and a manager has completed a final review, the employee may already have accrued sufficient continuous service to gain ordinary unfair dismissal rights. If the employer then wishes to dismiss based on poor performance, they are no longer operating in the pre-qualifying period. They are exposed to a Tribunal claim and will need to invest significantly more time to run a potentially fair dismissal process.
Our recommendation is that employers should urgently review their contractual probationary period provisions and introduce a robust framework procedure to manage the first 6 months of employment.
The goal is to implement an early stage employment/probationary process that empowers managers and gives them the tools to adequately evaluate performance and reach a decision well before the six-month threshold is reached, not after it. This process supports good forward planning and requires probationary reviews and retention decisions to be conducted in accordance with a rigorous timescale.
A probationary period that runs to the very edge of the qualifying threshold is a liability and should now be avoided. This is particularly the case when considering the potential impact of statutory notice.
The Statutory Notice Trap
There is an intricate but important legal risk inherent in UK unfair dismissal law that many employers and HR teams are not yet aware of. Namely statutory notice periods need to be included in the calculation of continuous employment.
The practical consequence is this. If an employer initiates a dismissal when an employee is approaching, but has not yet reached, the six-month mark, the statutory notice period must be added on to the employee’s length of service, known as a notional notice period. Under current statutory provisions, an employee is entitled to a minimum of one week’s notice after one month of continuous service. If, when notice is served, adding this extra week takes the employee past the six-month threshold, the employee will have acquired ordinary unfair dismissal rights, even though the decision to dismiss was taken before that point. This is a critical issue that employers need to be aware of.
Here is an example. An employee with five months and three and a half weeks of service is given notice by the employer and asked to leave that day, being paid in lieu. As it is legally necessary to add the 1 week notional notice period by law, they cross the six-month threshold gaining unfair dismissal rights. If the dismissal is challenged, the employer cannot rely on the employee not having reached the qualifying period as a defence.
This makes timing critical. Employers considering dismissal very close to the six-month mark may wish to seek specialist employment law advice before acting.
Commercial and Practical Consequences for Employers: What Changes After 1 January 2027?
The commercial and legal risks associated with the new rules fall into two broad categories.
The first is the risk of inadvertently creating grounds for unfair dismissal claims by acting too late. Employers who allow an underperforming employee, particularly a senior hire, to cross the six-month threshold without meaningful intervention could find themselves facing a far more lengthy, complex and costly dismissal process. Unfair dismissal claims can also carry the risk of negative publicity.
Secondly, the financial risk is most acute for organisations with a high number of senior or highly paid staff. The removal of the compensation cap means that a poorly managed dismissal involving a high earner, or multiple high earners, could have a significantly higher financial impact if carried out after 1 January 2027.
Manager and HR Training: Building the Right Process Before January 2027
The new rules place direct responsibility onto managers to identify and act on performance concerns ideally within the first three to four months of employment. This calls for a level of skill, timeliness and expertise that some managers currently may not have.
For managers, the key training areas include:
- Understanding the new six-month qualifying period and why acting early is essential
- Conducting meaningful probationary reviews and documenting outcomes clearly and consistently
- Recognising early warning signs of underperformance and raising concerns without delay
- When dealing with high earners who already qualify for unfair dismissal rights, being honest with themselves and paying attention to any nagging concerns that the person may not be up to scratch, rather than sweeping them under the carpet
- Importantly, if an employee is not up to standard and a decision to dismiss needs to be made, that decision is taken quickly and well ahead of when the employee would qualify for unfair dismissal rights, factoring in the statutory notice period
- Knowing when and how to escalate concerns to HR well before the qualifying threshold is reached
- Understanding which legal rights apply from “day 1” of employment that could in turn attach to a decision to dismiss taken within the first 6 months of employment, such as whistleblowing and anti-discrimination rights
For HR teams, the key training areas include:
- Introducing a new, robust “first six months of employment” procedure, which will enable managers to successfully navigate this critical period and ensure that potentially expensive unfair dismissal rights are not inadvertently triggered.
- Keeping accurate records of start dates and calculating continuous service correctly, including factoring in statutory notice
- Sending timely reminders to managers to ensure that decisions to retain, or dismiss, are taken in time
- Assessing and revising probationary period provisions across all employment contracts and any contractual policies
- Ensuring probationary review processes are well documented and legally defensible
- Understanding the legal risks posed by various “day 1” rights, which may make a seemingly “safe” decision to dismiss taken well ahead of the qualifying period unsafe
What Employers Should Be Doing Right Now: A Practical Checklist
The following steps represent a practical action plan for employers ahead of the January 2027 changes.
- Audit your current probationary period provisions. Review whether your standard probationary period mechanisms create inadvertent legal risk under the new rules. Amend contractual provisions where necessary to ensure decisions can be made well before the qualifying threshold is reached, factoring in the application of statutory notice.
- Review your employment contracts, policies and procedures. Ensure your contracts, disciplinary/capability policies and probationary review frameworks will be functional within the new legal landscape and not expose the organisation to unnecessary risk.
- Introduce a robust “First 6 Months” procedure. As above, employers need to have a clear framework in place for managing the first 6 months of employment. This framework ideally needs to be put in place now. Jones Chase can help you with this.
- Identify employees hired from pre-and post 1 July 2026. Flag those members of staff who will gain unfair dismissal rights on 1 January 2027. Identify those approaching the six-month mark and ensure their performance is being actively monitored and documented.
- Avoid delay. Do not postpone or procrastinate on taking decisions to dismiss employees who are not meeting the company’s standards and currently do not have unfair dismissal rights, but will qualify on 1 January 2027.
- Identify poorly performing high earners and take action now. If it is known that certain high earners in your business are not meeting the company’s standards, you should press on with restructuring plans or appropriate exit discussions now, well ahead of the compensatory cap being removed in January 2027, which could dramatically increase cost.
- Train managers and HR teams. Equip those responsible for managing new hires with the knowledge, tools and confidence to act decisively and in accordance with the law within the forthcoming shorter timeframe.
- Tighten up your recruitment process. Poor recruitment practices can increase the likelihood of capability and conduct problems which, when addressed, tend to escalate with absences and complaints of stress at work. It is far better to have a well thought out and structured recruitment framework in place, to avoid bringing difficult or poorly performing employees into your business in the first place.
- Consider seeking specialist employment law advice. Given the enhanced legal and financial risks, obtaining sound advice from an employment lawyer could help to significantly reduce management time spent on a matter and the associated financial and legal risks associated with a claim.
Our team of highly experienced expert employment lawyers here at Jones Chase can assist with all of the above. See below for further details.
Frequently Asked Questions About Unfair Dismissal Rights
What constitutes unfair dismissal under the Employment Rights Act 2025?
A dismissal is ordinarily unfair if the employer cannot demonstrate a potentially fair reason, such as capability, conduct, redundancy or some other substantial reason (‘SOSR’), or cannot show that a fair procedure was followed. From 1 January 2027, employees in England and Wales with at least six months of continuous service will be able to bring an ordinary unfair dismissal claim before an Employment Tribunal.
How do you prove unfair dismissal in an Employment Tribunal?
The employer bears the evidential burden of showing that the reason for the dismissal was one of the five potentially fair reasons, such as capability, conduct or redundancy. Whether the dismissal was fair overall, including whether a fair procedure was followed, is then a question for the Tribunal, with no burden on either party. Evidence such as performance review records, written warnings, a well documented redundancy process and probationary review outcomes will be central to any successful defence.
Who can claim unfair dismissal from 1 January 2027?
From 1 January 2027, employees in England and Wales with at least six months of continuous service will generally be entitled to bring an ordinary unfair dismissal claim, subject to limited exceptions. This is a significant reduction from the current two-year qualifying period.
What are my rights if I face unfair dismissal in England or Wales?
Employees who believe they have been unfairly dismissed may bring a claim in the Employment Tribunal. Strict time limits apply. For dismissals taking effect on or after 1 October 2026, the limit is six months less one day from the effective date of termination; for dismissals before that date, the previous limit of three months less one day applies. ACAS early conciliation must be started before a claim is issued, which pauses the time limit. Early specialist employment law advice is strongly recommended, as the process along with procedural requirements can be complex.
What are the typical costs for unfair dismissal legal advice?
Costs vary depending on the complexity of the case and the stage at which advice is sought. Jones Chase offers customised support for both organisations and employees. Contact the team directly to discuss your specific circumstances.
What should I do if I have been unfairly dismissed from my job?
Ideally, seek specialist employment law advice as promptly as possible. Gather all pertinent documentation, including your employment contract, any correspondence with your employer, and records of performance reviews or disciplinary proceedings, and be mindful of the strict time limits for bringing an Employment Tribunal claim. It will assist the employment lawyer if you prepare a written chronology of events.
The Window Is Narrowing: Prepare Now or Pay Later?
The Employment Rights Act 2025 fundamentally enhances the dismissal risk profile for employers across England and Wales. Compressing the unfair dismissal qualifying period from two years to six months, while simultaneously removing the cap on compensatory awards, is a combination that requires urgent attention.
Employees who started work prior to 1 July 2026 will be within the first wave of those gaining unfair dismissal rights under the new rules on 1 January 2027.
Employers who prepare now by reviewing contracts, tightening probationary processes, training managers, implementing a new “First 6 Months” policy and seeking specialist legal advice where needed, will be considerably better placed than those who wait. Those who do nothing risk facing uncapped Tribunal awards for unfair dismissal claims that, under the current rules, could have been avoided completely.
How we can help
Jones Chase is a specialist employment law firm based in London, with an excellent track record of advising both employers and employees on employment law matters.
Whether you need support with creating a bespoke “First 6 Months” procedure that fits your organisation, analysing your probationary period mechanisms, reviewing your policies, providing guidance to train your managers, managing unfair dismissal cases or dealing with anything else outlined above, our team is here to help.
We can design a tailored Employment Rights Act 2025 Compliance Package for you.
Learn more about who we are and how we work, or get in touch to discuss how we might support your organisation ahead of January 2027.
This article focuses specifically on the qualifying period and compensation changes for unfair dismissal rights. For a full summary of the reforms that took effect in April 2026, read our article: Employment Rights Act 2025: Key Changes Coming in April 2026. For further reading, see our full guide: The Employment Rights Act 2025.