Employment Rights Act – Unfair Dismissal

Overview

The Employment Rights Act 2025 introduces a major reform to Unfair Dismissal law. This change is set to take effect  on 1 January 2027, whereby the qualifying period for Unfair Dismissal will reduce from 2 years to 6 months.

Key Statutory Changes

• Reduction of qualifying period: Employees will qualify for ordinary unfair dismissal rights after six months’ service, rather than two years.
• Removal of the compensatory award cap: meaning awards become uncapped from 2027.
• Written reasons for dismissal: Qualifying period for written reasons for dismissal also reduces to six months.

These changes significantly increase early‑employment dismissal risk for employers.

Implications for Employers

Increased Employment Tribunal Exposure – Employers can no longer rely on the former “safe period” of two years. Employees will be protected at six months (less the one week statutory notice period), meaning many employees currently within their first two years will gain newfound rights. Government estimates suggest 6.3 million employees currently sit between six months and two years’ service.

Higher Financial Risk – Although most tribunal awards fall well below the existing cap, uncapped compensation increases theoretical exposure, especially for senior or specialist roles.

Probationary Periods Lose Strategic Value – Probation periods that extend beyond six months no longer offer protection for a “risk‑free” exit. Even within probation, dismissals must be substantively fair and procedurally sound once six months is reached. Employers who adopt “wait and see” performance monitoring without structured management will be exposed to risk.

Greater Need for Early‑Stage Performance and Conduct Management – Employers will need to adopt day‑one fairness principles: regular reviews, documented feedback, and timely interventions.

Implications for Probationary Periods – Shorter Probation Periods. The traditional three to six‑month probation is no longer a buffer from unfair dismissal claims. Employers will need to consider:

• Front‑loading induction, training and KPIs, so concerns are identified early.
• Ensuring that any dismissal before six months still complies with fair process, to minimise claims under day‑one protections (e.g., discrimination, whistleblowing).

This change will likely increase the number of claims brought by employees, as a larger pool of workers will now be eligible to challenge dismissals. Employers must be prepared for this increase and ensure that their dismissal processes are robust and compliant with the law.

More Structured Reviews – Probation reviews will need to be more formal, regular and frequent, and better recorded to evidence fairness.

Next Steps for Employers

Review and Redraft Probation Policies

Policies should be updated to reflect that employees will gain unfair dismissal rights far earlier. Suggested updates include:

• Clear probation objectives and performance standards.
• Formal mid‑probation and end‑probation reviews.
• Ability to extend probation where reasonable and explained.
• Explicit communication that dismissal decisions must still comply with statutory fairness obligations.
• Allow appeals, even during probationary periods to reduce the risk of discrimination claims

Strengthen Day‑One HR Processes

Due to the risk window closing at six months, employers must:

• Issue clear job descriptions and expectations on day one.
• Provide early and frequent feedback.
• Address conduct/performance issues as soon as they arise.
• Maintain well‑kept contemporaneous records.

Train Managers

Managers will need training on the new regime, particularly:

• Recognising legally fair reasons for dismissal.
• Understanding the need for fair procedure even during probation.
• Avoiding behaviours that could give rise to claims for automatically unfair dismissal or discrimination (still day‑one protections)

Review Dismissal Processes

Dismissal templates, checklists, and workflows must be updated to ensure:

• Documented legitimate reason for dismissal.
• Fair and reasonable investigation (where appropriate).
• Opportunity for the employee to respond.
• Written outcome and right of appeal

Consider Workforce Planning Implications

Where employers previously relied on long probation periods for assessing organisational fit, they will need to shift towards:

• Better pre‑recruitment screening (skills tests, references).
• Improved and early onboarding support to reduce performance failures.

Practical Recommendations for Employers to Overcome the Challenges

• Treat the first 3 months as the “risk management window” – take all key decisions early; if an employee is not meeting expectations, act before month five.
• Introduce probation review templates and meeting schedules aligned to weeks 4, 8, 12, and 20.
• Ensure disciplinary/capability procedures apply to probationers, albeit in a simplified form.
• Document every conversation about performance or conduct. Documentation will be vital for defending early unfair dismissal claims.
• Avoid automatic long probation extensions; extensions should be justified with specific evidence.
• Prepare for the abolishment of the compensatory cap by strengthening risk assessment in dismissal decisions.

Conclusion

Overall, The Employment Rights Act 2025’s reduction of the qualifying period for unfair dismissal claims to six months will require employers to reassess their policies and practices, particularly regarding probationary periods. Employers must ensure that their dismissal processes are fair, transparent, and compliant with the updated legislation to mitigate the risk of unfair dismissal claims. By implementing robust procedures, allowing appeals, and exercising caution in dismissals, employers can navigate the challenges posed by the new legal framework effectively.

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