Two major changes to unfair dismissal law take effect on 1 January 2027 under the Employment Rights Act 2025 — together, the sharpest recalibration of dismissal risk in decades.
1. Qualifying Period: Two Years Becomes Six Months
Employees will be protected against unfair dismissal after six months' service instead of two years. The original proposal for a day-one right was amended during the Act's passage. The six-month period applies to dismissals taking effect on or after 1 January 2027 — including employees already in post.
2. The Compensation Cap Is Removed
The statutory cap on the compensatory award (£123,543 or 52 weeks' pay, whichever is lower, from April 2026) is removed entirely. From January 2027, tribunals will assess compensation purely on the employee's actual financial loss, applying the usual principles of causation and mitigation — with no statutory ceiling.
What This Means in Practice
- Claims arrive earlier — every employee past month six can claim, so probation management becomes a legal discipline, not an HR formality
- Awards can be larger — for senior or long-serving employees, the removal of the cap materially raises worst-case exposure
- Process is everything — a fair reason plus a fair procedure remains the defence; weak documentation is the most common failure point
How to Prepare During 2026
- Implement structured probationary reviews with clear objectives and documented outcomes
- Train line managers on fair dismissal procedure from the first day of employment
- Tighten recruitment — the cost of a poor hire rises sharply from January 2027
- Review settlement agreement and exit processes with employment law support
See also: how long before an employee can claim unfair dismissal. For help getting ready, talk to our team.