Unfair dismissal law has operated on broadly the same foundations for decades. In most cases, employees have been required to accrue two years’ continuous service before becoming eligible to bring an ordinary unfair dismissal claim. This gave employers more flexibility to assess new employees, manage performance or conduct issues, and end employment where necessary before full legal protections applied.
This is now changing. The Employment Rights Act 2025 introduces significant reforms to the unfair dismissal regime, including reducing the qualifying period from two years to six months and removing the statutory cap on compensatory awards.
These changes are expected to be implemented progressively throughout 2026 and 2027. Employers should therefore begin reviewing their policies, procedures, and management practices now to ensure they are prepared for the revised legal framework.
The Current Legal Framework
Before turning to the forthcoming reforms, it is helpful to briefly outline the current legal position.
At present, an employee must have two years’ continuous service to bring an ordinary unfair dismissal claim. Once that threshold is met, the employer must be able to demonstrate a potentially fair reason for dismissal, falling within one of five recognised categories:
- Conduct
- Capability
- Redundancy
- Statutory illegality
- Some other substantial reason
However, establishing a potentially fair reason for dismissal is not sufficient on its own. Employers must also follow a fair procedure and demonstrate that the decision to dismiss was reasonable in the circumstances. If the employer fails in any of these areas—reason, procedure, or overall fairness—the dismissal may be found unfair by an employment tribunal.
In addition, certain dismissals are treated as automatically unfair, meaning that no minimum period of service is required in order to bring a claim. This includes dismissals connected with pregnancy or maternity, whistleblowing, or trade union activities. These day-one protections are not affected by the Employment Rights Act 2025 reforms, although the wider legal framework continues to be more nuanced than is often assumed.
The Key Changes Employers Must Understand
Reduction of the qualifying period to six months
The most significant change is the reduction of the qualifying period for ordinary unfair dismissal from two years to six months, expected to take effect in 2027.
Earlier proposals suggested the introduction of day-one protection, but this was scaled back following consultation with employers. Nevertheless, a six-month threshold represents a substantial shift and materially alters the risk profile associated with managing new employees.
For businesses that previously relied on the two-year period to deal with concerns more flexibly, this change will require more than just updated procedures. Employers will also need to change their overall approach. Performance, conduct, or capability issues that may once have been handled informally or through an early exit are now more likely to require a formal and properly documented process once an employee reaches six months of service.
Future changes require primary legislation
A less widely discussed, but still important, part of the reforms is the removal of the government’s ability to change the qualifying period through secondary legislation.
Under the current system, the qualifying period can be changed relatively quickly through regulations. The Employment Rights Act 2025 removes this option, meaning any future changes will require a full Act of Parliament and greater parliamentary scrutiny.
In practice, this means the new six-month qualifying period is likely to become a long-term part of UK employment law rather than something that can easily be changed in the future.
Removal of the compensatory award cap
At present, the compensatory award for unfair dismissal is capped at the lower of 52 weeks’ gross pay or £118,223.
The Employment Rights Act 2025 removes this cap entirely. This reform has important implications, particularly in relation to higher-earning employees. In the absence of a statutory cap, tribunals will be able to assess compensation by reference to the claimant’s actual financial loss, subject to established principles such as mitigation.
As a result, the potential financial exposure associated with unfair dismissal claims is likely to increase, and employers may see a corresponding impact on settlement discussions and litigation strategy, particularly in senior-level exits.
Extension of tribunal time limits to six months
Under the current regime, most employment tribunal claims, including unfair dismissal, must be brought within three months of the effective date of termination subject to the ACAS Early Conciliation process.
The Employment Rights Act 2025 will extend this time limit to six months, with implementation expected from October 2026.
This change will lengthen the period during which claims can be brought and, consequently, the period during which employers must be prepared to defend them. It is therefore advisable to review document retention practices to ensure that relevant evidence, including correspondence and records of decision-making, is preserved for an appropriate duration.
No statutory probationary period
During the development of the legislation, proposals were considered for a statutory probationary framework alongside the reduced qualifying period for unfair dismissal claims. However, these proposals were not included in the final legislation.
Employers will continue to retain discretion in setting contractual probationary periods. However, ordinary unfair dismissal protection will apply once an employee reaches six months’ continuous service, regardless of whether a longer contractual probation period remains in place.
This increases the importance of managing probationary periods effectively. A structured approach — including clear expectations, regular review meetings, documented feedback, and defined assessment points — will place employers in the strongest position to make informed decisions before statutory protection applies.
What Employers Should Be Doing Now
Although the majority of these reforms are not expected to take effect until 2027, the intervening period should be used constructively. Employers that are best prepared will be those that have already reviewed their processes, trained their managers, and updated their documentation in advance of implementation.
Recruitment and onboarding
Employers should consider strengthening pre-employment screening and onboarding processes to reduce the likelihood of unsuitable appointments progressing beyond six months’ service.
Early identification of performance or conduct concerns is important. Where issues arise, they should be addressed promptly and supported by appropriate documentation, enabling more effective decision-making at an early stage.
Probationary period design
Existing probationary arrangements should be reviewed in light of the reduced qualifying period.
Where probation periods are set at six months, employers should ensure that:
- Extension provisions are clearly defined
- Those provisions are applied consistently in practice
It is important that probation is treated as a substantive assessment period. Once an employee reaches six months’ service, statutory protection arises regardless of their contractual probationary status.
Performance management from the outset
The importance of effective performance management from the commencement of employment is likely to increase under the new framework.
Employers should ensure that:
- Expectations and objectives are clearly communicated
- Regular review discussions are conducted
- Feedback is documented appropriately
Taking these steps will help ensure that any concerns are identified and addressed before statutory protection applies.
Notice periods and PILON clauses
Employers should also review their contractual approach to notice.
Under existing law, where statutory notice is not properly given, that notice period may be taken into account when calculating an employee’s length of service. As a result, an employee dismissed shortly before reaching six months’ service may still qualify for protection once statutory notice is considered.
Including a payment in lieu of notice (PILON) clause allows employers to terminate employment without extending service in this way. Where such provisions are not currently in place, employers may wish to consider introducing them.
Document retention
With the extension of tribunal time limits, document retention practices should also be reviewed.
Employers should ensure that records relating to dismissal decisions, including investigation materials and correspondence, are retained for an appropriate period. Updating retention policies in advance of the October 2026 changes will assist in ensuring that relevant evidence remains available should a claim arise.
How The Infinity Group Can Help
The Employment Rights Act 2025 represents a significant development in UK employment law. The changes to unfair dismissal form part of a broader package of reforms, including measures affecting zero-hours contracts, collective consultation obligations, trade union rights, and industrial action.
At The Infinity Group, we provide clear, practical guidance on legislative developments, including the implications of the Employment Rights Act 2025, helping employers understand how these changes may affect both operational and financial risk.
Our aim is to help businesses maintain compliance, implement processes correctly, and understand the practical impact of these changes on their operations.