Written by Heidi Wadsworth | 19th May 2026
The Employment Rights Act 2025 has already begun bringing significant changes to day-to-day people management, and many more are still to come.
One of the biggest, and potentially most significant for employers, is the reduction of the qualifying period for unfair dismissal protection, which comes into force on January 1 2027.
For many businesses, it fundamentally changes the level of risk involved in recruitment, probationary periods, performance management and dismissal decisions.
Those that leave their HR processes unchanged could be exposing themselves to unnecessary legal and financial risk.
What is unfair dismissal and what is changing?
Unfair dismissal is an employee’s legal right to challenge their dismissal at an employment tribunal if they believe there was no fair reason for ending their employment, or the correct process wasn’t followed.
At the moment, most employees need two years’ continuous service before they can bring an unfair dismissal claim. That qualifying period has traditionally given employers some flexibility, particularly during probationary periods or when someone simply isn’t the right fit for the role.
From January 1 2027, that qualifying period drops dramatically from two years to just six months.
Some protections already apply from day one of employment and that is not changing. Employees continue to have immediate protection from automatically unfair dismissal linked to things like discrimination, whistleblowing, pregnancy, health and safety concerns, or asserting statutory rights.
What many employers are missing, though, is the timing of this change.
If you hire someone from June 24 2026 onwards, they will already have six months’ service by the time the law changes on January 1. In reality, that means hiring decisions being made now are already affected.
For businesses that have relied on longer probation periods or more informal processes, this may feel like a big shift. But fair dismissal is still absolutely possible. The difference is that you will need stronger processes, clearer documentation and managers who feel confident having open, honest conversations early on.
The four changes employers must understand
1. The qualifying period drops from two years to six months
From January 2027, employees will gain unfair dismissal protection after six months’ service instead of two years. That is a significant reduction and means you will need to identify and manage performance, conduct or attendance concerns much earlier than before.
A lot of businesses are only just realising how quickly employees hired this year could fall into the new protection window.
2. Unfair dismissal compensation becomes uncapped
Right now, compensation for unfair dismissal is capped at a year’s salary or the statutory maximum award, currently £118,223 – whichever is lower.
Under the new rules, that cap is expected to be removed. Compensation will instead be based on the employee’s actual and projected financial losses. For senior or highly paid employees, that could mean significantly larger awards than you may previously have planned for.
3. Employees will have longer to bring tribunal claims
Currently, most employment tribunal claims need to be brought within three months of the issue taking place.
From 2027, that time limit is expected to extend to six months for most employment claims, including unfair dismissal.
The aim is to give employees more time to seek advice and decide whether to proceed with a claim. For you, as an employer, it also means a longer period of uncertainty after a dismissal decision has been made.
4. Fire and rehire automatically becomes unfair
From October 2026, the practice commonly known as “fire and rehire” will become automatically unfair in most situations.
Traditionally, some employers have used dismissal and rehire to make contractual changes where agreement could not be reached. Under the new law, dismissing someone because they refused to agree to contractual changes will only be lawful in very limited circumstances, mainly where businesses can show genuine financial difficulties.
The reforms are also designed to stop “fire and replace” situations, where employees are dismissed and replaced by contractors or agency workers carrying out largely the same role.
This means contractual changes will need to be approached much more carefully, with proper consultation and clear communication throughout.
Why removal of the compensation cap matters?
This is one of the changes you should pay close attention to because it changes the level of financial risk involved when dismissals go wrong.
Under the current system, even if you lost an unfair dismissal claim, there was at least some certainty around the maximum compensation that could be awarded. From January 2027, that changes.
Compensation is expected to reflect actual and projected losses, including salary, bonuses, benefits and future loss of earnings. For senior employees, claims could quickly reach hundreds of thousands of pounds.
That does not mean you should avoid difficult decisions or feel unable to manage poor performance. Fair dismissal is still possible, but it does mean decisions need to be fair, properly documented and supported by a clear process.
Good HR practice is becoming even more important, from a risk perspective as well as a people perspective.
What this means for probationary periods
Probationary periods are likely to be where many businesses feel the biggest day-to-day impact. A lot of managers still see probationary periods as relatively low risk, but under the new rules, that assumption no longer really works.
A standard six-month probation period now lines up almost exactly with the new qualifying period for unfair dismissal protection. By the time a probation review takes place, the employee may already have legal protection.
That does not mean probationary dismissals become impossible. But it does mean you will need to manage probation periods more actively and much earlier on.
Regular check-ins, documented feedback, clear expectations and honest conversations will all become more important. Waiting until the final week of probation to raise concerns is unlikely to be enough.
And this should never just be about looking for reasons to dismiss someone. Good probation management is about helping people succeed, giving them clarity on expectations, identifying support or training needs early, and making sure concerns are dealt with fairly and consistently.
For some businesses, this may mean shortening probation periods slightly or building in earlier review points so decisions can be made with enough time and evidence behind them.
What you should be doing now
The good news is there is still time to prepare properly before January 2027, but now is the right time to start reviewing your approach.
Review and update procedures
A good place to start is your probationary period process. Are managers equipped to make timely, evidence-based decisions? Are concerns being picked up early enough, or only right at the end of probation?
It’s also worth reviewing disciplinary, capability and performance management procedures. Under the new rules, you will need to think much more carefully about how issues are managed from the early stages of employment.
Refresh line manager training
Manager training will also be key, because one of the biggest risks for employers is inconsistency, where some managers feel confident handling difficult conversations while others avoid them altogether.
Supporting managers to have those conversations early, fairly and consistently will make a huge difference. Most employees simply want clarity, consistency and the chance to improve where concerns are raised early enough.
Update contracts, policies and staff handbooks
Now is also a good opportunity to review contracts, policies and staff handbooks to make sure they reflect the Employment Rights Act changes already in force, including updates around Statutory Sick Pay and family-related leave. We are currently offering a free audit of contracts and handbooks to help businesses identify any gaps.
Assess financial exposure
For organisations employing senior or highly paid staff, it’s also worth assessing the potential financial exposure created by uncapped compensation awards, particularly where bonuses, commission or long notice periods are involved.
Review fire and rehire practices
And ahead of October 2026, you should review any practices involving contractual variation or fire and rehire arrangements to make sure you remain legally compliant under the new rules.
Seek specialist HR support
The Employment Rights Act 2025 represents one of the biggest shifts in employment law in years. The combination of a shorter qualifying period, uncapped compensation, longer tribunal claim windows and tighter restrictions around dismissal processes means employers will need to be more thoughtful and consistent in how decisions are handled. Getting things right early on will not only reduce risk but also create a fairer and more positive experience for employees.
So, it’s never been more important to find specialist HR support. This will enable you to invest in strong HR processes, good manager training and clear documentation – you will then be in a much stronger position when the new rules take full effect. Those that do not risk finding themselves exposed legally, financially and reputationally.
We support businesses with all of this through tailored HR advice, policy and handbook reviews, manager training, and practical support with absence, performance and employee relations processes.
Join our free webinar
We’re hosting a free webinar with employment law specialists Herrington Carmichael to help businesses understand what the Employment Rights Act 2025 means in practice and what employers should be doing now to prepare.
The webinar takes place on Wednesday June 3 from 10am to 11am.
If you’re an HR professional, people manager, business owner, or responsible for hiring, managing or making dismissal decisions, this would be beneficial for you.
You can register for our webinar here.
If you would like support reviewing your policies, probation processes or manager training ahead of these changes. please email info@realityhr.co.uk or call 01256 328428.
About the author: Heidi Wadsworth, Head of Learning & Development | New Business Lead
Heidi takes a hands-on, pragmatic approach to learning and development and new business , working directly with clients to understand their unique challenges, culture, and environment. She combines her extensive cross sector experience in hospitality, retail, and manufacturing with a practical understanding of what works in real workplace situations.
Heidi’s strength lies in her ability to see the bigger picture while managing the practical details. She ensures every training programme empowers delegates to achieve excellence in their roles, creating lasting change that benefits both individuals and the organisation.