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.
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.
| Issue | Current position | From 1 January 2027 |
|---|---|---|
| Qualifying period for ordinary unfair dismissal | Two years’ continuous service | Six months’ continuous service |
| Compensatory award cap | Lower of 52 weeks’ gross pay or the statutory maximum | No cap |
| Basic award | Formula based on age, length of service and capped weekly pay | Unchanged |
| Power to change the qualifying period | By secondary legislation | Only by primary legislation |
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.
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.
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.
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.
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:
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.
A full disciplinary or capability procedure is not legally required for an ordinary unfair dismissal claim at this stage. A proportionate approach is:
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 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.
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 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.
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.
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:
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.
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.
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:
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.
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.
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.
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.
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.
There are around eight weeks before the new rules take effect. This is how I would recommend using them.
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.
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.