The New Unfair Dismissal Rules: What Employers Need to Do Now

Introduction

From 1 January 2027, most employees will be able to bring an ordinary unfair dismissal claim after six months’ continuous service, not two years. On the same date, the statutory cap on the compensatory award is abolished. Taken together, these are the most significant changes to unfair dismissal law since the qualifying period was last moved in 2012.

In my experience advising employers, the two-year rule has quietly shaped how businesses hire, manage and exit staff. Many managers work on the assumption that a new starter who is not working out can be let go quickly, with notice pay and very little paperwork. That window is about to shrink to a quarter of its size, and the financial consequences of getting a dismissal wrong will no longer have a ceiling.

This article sets out what is changing, who it affects and when. It covers short-service dismissals, the changes employers should make to probation, the claims that have never required qualifying service, and, importantly, where employers can keep process lean without taking on unnecessary risk.

Key changes and timetable for dismissal changes

The Employment Rights Act 2025 received Royal Assent on 18 December 2025. The government originally proposed day-one unfair dismissal rights, combined with a statutory probation period and a lighter-touch dismissal procedure during it. That proposal was abandoned following opposition in the House of Lords. In its place is a six-month qualifying period, set in the Act itself, with no statutory probation regime alongside it.

Summary of changes

Employees covered from 1 January 2027

The new qualifying period applies to dismissals where the effective date of termination falls on or after 1 January 2027. It is not limited to employees recruited after that date. Anyone with six months’ service when their employment ends will be protected, which means everyone recruited up to the end of June 2026 is within scope from the first day of the new regime.

Put simply, a significant part of most workforces, whom managers may still regard as “under two years”, will acquire full unfair dismissal protection in a matter of weeks.

Removal of the compensation cap

The compensatory award has until now been limited to the lower of a year’s gross pay and the statutory maximum, which is uprated each April and now exceeds £120,000. For most employees, the 52-week limit was the one that applied. From January, the tribunal can award whatever it considers just and equitable for the loss suffered.

The usual reductions remain. Awards can be reduced for failure to mitigate, for contributory conduct, and under the Polkey principle where a fair procedure would have produced the same outcome. Commercially, the key point is that compensation still follows actual financial loss. For an employee on modest pay who finds new work quickly, exposure will remain limited. The real change is for senior employees, high earners and those who will struggle to find comparable work, where the exposure is now open-ended. That shifts the value of contested exits and settlement negotiations at the top end.

Related changes and dates for unfair dismissal

• Collective redundancy: the maximum protective award for failure to consult doubled to 180 days’ pay for dismissals from 6 April 2026.
• Tribunal time limits: the limit for most claims is moving from three months to six, so claims may arrive considerably later than employers are used to.
• Fire and rehire: dismissal for refusing certain contractual changes will become automatically unfair, currently expected from March 2027.
• Sexual harassment: the duty to take all reasonable steps to prevent sexual harassment of employees came into force on 30 October 2026.

Dismissing employees with short service

Employers can still dismiss an employee with less than six months’ service without exposure to an ordinary unfair dismissal claim. What has changed is the length of that window and how little margin for error it allows.

Calculating the six-month threshold

Qualifying service is measured to the effective date of termination. Under section 97(2) of the Employment Rights Act 1996, where the employer gives less than statutory minimum notice, or none at all, the effective date is treated as extended by the statutory notice period for qualifying purposes. That applies even where notice is paid in lieu. For an employee with under two years’ service, statutory notice is one week.

The result is that an employee dismissed with immediate effect at five months and three and a half weeks is treated as having six months’ service and can bring a claim. My practical advice is to take and communicate any short-service dismissal decision by the end of month five. Leaving it to the final week is precisely how employers lose protection they thought they had.

Dismissals around 1 January 2027

For employees with between six months’ and two years’ service, there will be a temptation to bring planned exits forward into December. That can be lawful, but it needs care:

• The section 97(2) extension still applies, so an employee dismissed without notice in late December may have their effective date pushed into January, bringing the new rules into play.
• A sudden cluster of December dismissals is exactly what a tribunal will scrutinise if a discrimination or whistleblowing claim follows.
• The decision should be driven by a sound reason for dismissal, not the calendar, and that reason should be documented.

Remaining risks for short-service dismissals

Short service does not mean no risk. An employee with any length of service can bring a claim where the reason for dismissal, or a material part of it, is discriminatory or falls within one of the automatically unfair categories set out below. A wrongful dismissal claim for notice pay is also available if the contract is not honoured.

Recommended process under six months

A full disciplinary or capability procedure is not legally required for an ordinary unfair dismissal claim at this stage. A proportionate approach is:

1. A short meeting at which the concerns are explained and the employee can respond.
2. A brief letter confirming the decision and the reason.
3. Contractual notice given or paid.

Where the reason is misconduct, it is still sensible to follow the essentials of the Acas Code. If a discrimination claim follows, an unreasonable failure to follow the Code can lead to an uplift of up to 25% on the award.

Probation periods

Probation has no special status in unfair dismissal law, and the 2025 Act does not create one. It remains a contractual and management tool. From January, however, probation becomes the point at which employers must decide whether a new recruit stays, because once six months is reached the full statutory fairness test applies.

Recommended length

Many employers use six-month probation periods, often with an option to extend by three months. Under the new rules, that structure works against the employer. The final review falls at the very point the employee acquires protection, and any extension takes the decision firmly into protected territory.

For most roles, I recommend a three-month probation period with a mid-point review. For senior or more complex roles, up to five months can work, provided the final decision is taken before month six begins.

Extending probation

Extending probation does not postpone unfair dismissal rights. An employee who fails an extended probation at seven or eight months has the same protection as any other employee with six months’ service. Extensions remain a legitimate option, but the employer should proceed on the basis that any later dismissal will need a potentially fair reason, a fair procedure and, in a capability case, a genuine opportunity to improve.

Managing probation

1. Set clear objectives and standards in writing during the first week.
2. Hold structured reviews, at least monthly, with brief notes of what was discussed.
3. Raise concerns early and specifically, with examples, and record any support offered.
4. Diarise the final decision well before the end of month five.
5. Confirm the outcome in writing, whether passing, extending or ending employment.

Good probation records serve two purposes. They support a clean short-service dismissal where one is needed, and, where probation is extended, they form the foundation of a fair capability process if performance does not improve.

Claims requiring no qualifying service

The qualifying period has only ever applied to ordinary unfair dismissal. A wide range of claims has always been available from the first day of employment, and these are the claims short-service employees typically bring when ordinary unfair dismissal is not open to them. They include:

• Discrimination under the Equality Act 2010, on any protected characteristic. Compensation was already uncapped and includes an award for injury to feelings.
• Whistleblowing, where the reason for dismissal is that the employee made a protected disclosure.
• Pregnancy, maternity and family leave, including maternity, paternity, adoption and shared parental leave.
• Health and safety, where the employee raised concerns or took protective steps.
• Assertion of a statutory right, such as a complaint about holiday pay, the national minimum wage or working time.
• Trade union membership or activities.
• Wrongful dismissal, where contractual notice has not been given or paid.

The reason for dismissal, and the evidence supporting it, has always mattered at every stage of employment. What changes in January is that the protected group becomes much larger, and the stakes in ordinary unfair dismissal claims rise to meet those already present in discrimination claims.

Reducing red tape

The most common question I am asked about these reforms is whether they mean more process and more cost. They need not. The government dropped its statutory probation regime, so the Act imposes no new forms or mandatory steps for new starters. Employers who design their processes sensibly can keep administration proportionate and focus effort where the risk actually sits.

Scaling process to risk

Not every exit carries the same exposure. Because compensation still follows actual loss, a claim by a junior employee who quickly finds similar work will usually be worth far less than one by a senior manager in a specialist field. A sensible approach is to triage:

• Lower-risk exits (short service, modest pay, readily re-employable): a lean, well-documented process run by the line manager using standard templates.
• Higher-risk exits (senior or highly paid staff, any protected characteristic or whistleblowing angle, long-term sickness): full procedure, HR or legal input at the outset, and early consideration of settlement.

Non-contractual policies with a short-service carve-out

Disciplinary and capability policies should be expressly non-contractual, so the employer is not bound to follow every step in every case. Many employers also include a short-service procedure that applies during the first six months, or during probation, replacing the full multi-stage process with a single meeting and a written outcome. This keeps the employer’s options open without creating a contractual claim if the full process is not followed.

Proportionate investigations

The legal test is whether the employer acted reasonably, not whether it conducted an exhaustive inquiry. Investigation should be scaled to the seriousness of the allegation and the evidence already available. For routine conduct or performance matters, a line manager’s investigation with short witness notes will often be enough. External investigators are best reserved for complex, senior or sensitive cases.

For practical guidance on a common procedural difficulty, see what to do when an employee refuses to attend a disciplinary or investigation meeting.

Standard documents

Much of the time managers spend on process goes on drafting. A short suite of templates, covering probation reviews, invitation letters, outcome letters and appeal letters, saves management time, improves consistency and makes the employer’s position much easier to defend.

Protected conversations and settlement

Under section 111A of the Employment Rights Act 1996, pre-termination negotiations are generally inadmissible in ordinary unfair dismissal proceedings. Now that far more employees will have unfair dismissal rights, a protected conversation followed by a settlement agreement becomes a more useful tool. It can achieve a clean exit without running a full procedure, often at lower overall cost. The protection does not extend to discrimination or automatically unfair dismissal claims, and it is lost where there is improper behaviour, so the conversation needs to be handled carefully.

For more on resolving disputes, read our guide to settling an employment tribunal claim and when a COT3 is appropriate.

Resourcing for genuinely temporary work

Where the need is genuinely short-term, a fixed-term contract of under six months, an agency worker or a properly structured consultancy arrangement may suit better than a permanent hire. Two cautions apply. Non-renewal of a fixed-term contract is a dismissal once six months’ service is reached, and labels count for little if the working reality is employment.

Action plan for employers

There are around eight weeks before the new rules take effect. This is how I would recommend using them.

Before 1 January 2027

1. Audit the workforce. Identify everyone with between six months’ and two years’ service, as these employees acquire protection overnight. Flag any live performance or conduct concerns.
2. Resolve open issues properly. Where a concern has been allowed to drift, either address it now through a fair process or plan to manage it fairly in the new year. Do not rush a dismissal into December simply to beat the deadline.
3. Revise probation clauses. Move to shorter periods, build in a mid-point review, and treat extensions as the exception.
4. Review disciplinary, capability and grievance policies. Make them non-contractual, add a short-service procedure, and check consistency with the Acas Code of Practice.
5. Brief line managers. The greatest risk is a manager who still believes anyone under two years can be dismissed after a brief conversation. That is no longer the case.

From 1 January 2027

• Recruit carefully. A poor hire is now more expensive to correct. Structured interviews, proper references and realistic job descriptions pay for themselves.
• Manage performance early. Raise concerns in writing, set targets and offer support. A record built over months is far easier to defend than one assembled in a week.
• Follow a fair procedure for employees over six months. Investigation, a written invitation enclosing the evidence, a hearing with the right to be accompanied, a reasoned decision and a right of appeal.
• Revisit settlement strategy. Without a cap, claimants’ advisers will value claims more highly, particularly for senior and well-paid staff. Consider earlier protected conversations where appropriate.
• Check insurance cover. Employers with employment practices liability insurance should check whether policy limits remain adequate now awards are uncapped.

Common mistakes unfair dismissa;

• Treating a six-month probation period as safe right up to the final day.
• Extending probation and then dismissing without a proper procedure.
• Leaving references to the two-year rule in letters, handbooks and manager guidance.
• Assuming a short-service employee cannot bring any claim at all.

Conclusion

The six-month rule does not end flexibility in recruitment. It does end the habit of managing new starters loosely and resolving problems with a quick exit. Employers who use probation properly, deal with concerns early and follow a proportionate, fair process will find the new regime entirely manageable, and need not add unnecessary bureaucracy to do so. Those who carry on as before will discover the cost at tribunal, without a cap to limit it.

The businesses that adapt best will treat this as a change in management practice, not simply a change in the law.

About the author

Bobby Ahmed is an employment lawyer and Managing Director of Neathouse Partners, a team of experienced employment lawyers and HR consultants providing employers with practical, solutions-focused advice. For help reviewing probation terms, contracts or policies before the new rules take effect, please contact the team.

Sources

• Employment Rights Act 2025, legislation.gov.uk
• What’s in the Employment Rights Act?, Lewis Silkin
• The impact of changes to unfair dismissal, DLA Piper
• ERA 2025: further details on changes to unfair dismissal protections, Browne Jacobson
• Employment Rights Act timeline 2026 and beyond, Pinsent Masons