Amongst the most significant changes introduced by the Employment Rights Act 2025 (ERA) are the reforms to unfair dismissal rights. Although the key changes won’t take effect until 1 January 2027, employers need to start preparing now.
In this ten‑minute “Bellevue Brief” special, Senior Consultants Imogen Finnegan and Leigh Edgar discuss what’s changing and what HR teams, managers and business leaders should be doing now to strengthen processes and protect their organisations. This blog summarises the practical takeaways from that conversation.
1. The Qualifying Period for Unfair Dismissal Is Being Cut to Six Months
What’s the current position?
Right now, employees need two years’ continuous service to bring an ordinary unfair dismissal claim.
What’s changing?
From 1 January 2027, that qualifying period will drop significantly to six months. Although the government originally consulted on making this a “day one right”, the House of Lords rejected this proposal and Parliament ultimately compromised on a six‑month qualifying period.
This affects more than new starters
Crucially, this does not just affect people hired after the legislation comes into force. Any employee who will have reached six months’ service by 1 January 2027 will gain unfair dismissal protection on that date. So employers should be reviewing issues in their existing workforce now, identifying employees who fall into this category, and ensuring they are actively managing any cases of potential underperformance or conduct concerns. They should also be tightening recruitment processes to ensure they are geared to hiring the right people in the first place.
2. The Cap on Unfair Dismissal Compensation Is Being Removed
What’s the current position?
At present, compensation for unfair dismissal is subject to a cap: the lower of one year’s salary or the statutory maximum (currently £118,223).
What’s changing?
The Employment Rights Act 2025 will remove this cap entirely, making unfair dismissal compensation uncapped. Although the implementation date hasn’t been confirmed, it is widely expected to coincide with the new qualifying period, again 1 January 2027.
What does uncapped compensation mean for employers?
While employees must still prove actual financial loss and show they tried to mitigate those losses, removing the cap creates:
- Greater uncertainty in potential liability, particularly for high earners;
- Higher risk in contentious exits;
- Potential increases in settlement payments, as employers will no longer have a clear upper limit when assessing exposure.
Even with mitigation rules in place, the risk profile for some dismissals will shift significantly.
3. Probation Periods Will Become a Critical Risk‑Management Tool
With employees gaining unfair dismissal rights after six months, employers must use probation periods effectively to support new employees to succeed from the outset, assess suitability and address any performance or conduct issues promptly.
Historically, many probation processes have been poorly managed, reviews missed, decisions left too late, and concerns not addressed. Under the new framework, that approach will result in significantly increased risk.
Practical steps for strengthening probation management
During recruitment:
- Use clearer job descriptions;
- Prepare interviewers properly;
- Use structured interview questions and assessments;
- Be honest about the challenges of the role to avoid expectation mismatches.
During probation:
- Schedule regular, meaningful check‑ins (weekly initially, then fortnightly);
- Address concerns early – don’t save them up until the final review;
- Train managers on giving feedback, documenting conversations, and handling difficult discussions;
- Use probation extensions where appropriate, with clear objectives and timelines;
While these changes may be introduced to reduce legal risk, well‑run hiring and probation process will also support better performance and stronger teams.
4. Special Considerations for Senior Hires
Following the introduction of uncapped compensation for unfair dismissal claims, high‑earning employees will present the greatest financial risk under the new regime.
A senior hire who isn’t performing is costly on multiple levels in any event. Once they pass the six‑month mark, however, removing them has the potential to become far more expensive.
Employers may wish to consider:
- Longer or more structured probation periods;
- Fixed‑term contracts for initial periods (while noting they don’t avoid unfair dismissal obligations);
- More rigorous assessment during recruitment and onboarding.
Early clarity on role and expectations, feedback in real time and decisive action where appropriate will all be essential.
5. Tribunal Time Limits Are Increasing to Six Months
Another important change arrives sooner. From October 2026, the time limit for bringing most employment tribunal claims including unfair dismissal will extend from three months to six months. This gives employees a longer period to consider claims, further increasing uncertainty for employers (although potentially also providing a more realistic timeframe for settling claims before Employment Tribunal proceedings have to be commenced).
6. What Employers and HR Teams Should Be Doing Now
These reforms collectively increase the pressure on employers to ensure hiring and performance management processes are of a high standard, as well as scrutiny over decision‑making, with businesses increasingly needing to be able to demonstrate fairness, consistency and proper documentation.
Key steps to prioritise now:
- Update contracts and probation policies;
- Review recruitment processes for clarity and rigour;
- Roll out manager training on performance management, giving feedback, documentation and handling difficult conversations;
- Audit current employees to see who will reach six months’ service by January 2027 and address any issues promptly;
- Plan early interventions for borderline performers;
- Review dismissal processes to ensure they remain fair, robust, and defensible.
Handled proactively, these changes need not be a burden and may even support stronger hiring, clearer expectations and healthier teams.
Need Support Preparing for the Upcoming Changes?
Our team at Bellevue Law can assist with reviewing contracts, updating policies, training managers, or preparing your business for the Employment Rights Act reforms.
If you’d like to discuss how we can help, please get in touch.
You can watch and/or listen to their episode here: Bellevue Law | Instagram | Linktree
