Unfair Dismissal Rights Are Changing: What UK Employers Need to Know

The UK unfair dismissal landscape is set for an overhaul under the Employment Rights Act 2025. Scheduled changes to reduce the unfair dismissal qualifying period from two years to six months, remove the statutory cap on compensation and extend tribunal time limits will materially change how and when employers can manage risk in the employment relationship.

At the same time, the introduction of the Fair Work Agency signals a more rigorous  enforcement approach, increasing the likelihood that compliance issues are identified and acted upon before a claim even reaches tribunal. Taken together, these reforms significantly raise the stakes for decisions made in the early months of employment.

For employers, this marks a clear shift away from flexibility in the initial stages of hiring towards a framework where fair process, documentation and consistency are required much earlier. 

This blog breaks down:

•  What is changing.
• When it takes effect.
• The practical steps organisations should take now to prepare.

Disclaimer: The information in this article is current as of May 2026 and has been prepared by Employment Hero UK Ltd and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees and should not be relied on as professional advice. Some information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.

Key unfair dismissal dates

Date	What changes
April 2026	Fair Work Agency established; proactive enforcement begins.
October 2026	Tribunal claim time limits extended from three months to six months.
January 2027	Unfair dismissal qualifying period reduced to six months’ service.
January 2027	Compensation cap for unfair dismissal removed.

What are unfair dismissal rights?

Unfair dismissal is the statutory right for an employee to challenge a dismissal they believe was unfair and to seek compensation through an employment tribunal. 

This right doesn’t prevent you from dismissing someone. Employers can and do dismiss employees for legitimate reasons every day. What unfair dismissal law governs is how you dismiss someone and why.

A dismissal can be unfair in two ways:

• The reason for dismissal isn’t one of the legally accepted reasons (capability, conduct, redundancy, statutory restriction or some other substantial reason).
• The process followed wasn’t reasonable in the circumstances. 

Both matter. An employer can have a perfectly valid reason to dismiss someone but still lose a tribunal claim if the process was poorly managed.

At the moment, employees can only bring an unfair dismissal claim once they’ve accumulated two years’ continuous service. That qualifying period is what gives employers more flexibility in the early stages of an employment relationship, particularly during and just after probation. Once the Employment Rights Act 2025 changes take effect, that flexibility will be significantly reduced.

What does the law say right now?

Under current law, employees need two years’ continuous service before they can bring a claim for unfair dismissal. During that period, employers have more freedom to end employment without following the full dismissal process.

There is an important exception to this. Certain dismissal reasons are classed as automatically unfair and carry no qualifying period at all. Dismissals relating to pregnancy, whistleblowing or the exercise of a statutory right among others can be challenged from day one of employment. That has always been the case and the Employment Rights Act 2025 does not change it. What the Act changes is the threshold for ordinary unfair dismissal claims, where no automatically unfair reason is involved.

Where a successful unfair dismissal claim is brought, compensation is currently made up of two parts. The basic award is calculated using a set formula based on age, length of service and weekly pay, similar to a statutory redundancy payment and is capped at £22,530. The compensatory award reflects actual financial loss and is currently capped at the lower of £123,543 or 52 weeks’ pay. That cap provides some predictability around financial exposure, even when things go wrong.

But with the introduction of the Employment Rights Act 2025, the laws around unfair dismissal are set to change.

What’s changing under the Employment Rights Act 2025?

The qualifying period drops to six months

Employees will gain the right to claim unfair dismissal after six months’ continuous service, down from the current two years. This change is currently planned to take effect in January 2027 and will apply to employees who started employment on or after 1 July 2026 and remain employed on 1 January 2027.

The government’s original proposal was to make unfair dismissal a true day-one right, applying from the first day of employment. It moved away from that position during the passage of the legislation. But six months is still a dramatic reduction and the “day-one” framing remains widely used in discussion of these reforms because that was the stated direction of travel.

For practical purposes, the effect is clear: employers will need to follow fair dismissal processes much earlier in the employment relationship than they do today.

The same dismissal process applies from six months

This is an important point of clarity that many employers may not yet have.

During the passage of the legislation, an “initial period of employment” (sometimes called the IEP) was considered, which would have introduced a lighter-touch dismissal process for early-stage employees. That proposal did not make it into the final Act.

What the Employment Rights Act 2025 actually delivers is the same dismissal framework that applies today, including the ACAS Code of Practice and the standard steps required for a fair dismissal, applied from six months’ service rather than two years. There is no statutory probation period and no reduced process for early employment dismissals.

This means employers cannot assume that decisions made in the first six months carry less legal weight or require less procedural rigour. The bar is the same. It simply applies sooner.

The compensation cap is removed

Another big change is that the existing cap on compensation for unfair dismissal will be removed entirely. There will be no statutory ceiling on what a tribunal can award. It is worth noting that compensation will continue to be calculated in the same way: the aim is to reflect true financial loss and put the claimant back in the position they would have been in had they not been dismissed. Unfair dismissal is not designed to punish employers. However, without a cap, the practical exposure increases significantly for higher earners or employees in highly specialised roles where re-employment is difficult and financial losses are likely to be prolonged and harder to mitigate.

This is significant. Unlimited compensation means that for higher-earning employees in particular, the financial exposure from a poorly handled dismissal becomes very difficult to predict or contain.

Compounding changes that increase risk

The unfair dismissal changes don’t sit in isolation. Two other reforms make the overall picture more serious for employers.

• The tribunal claim time limit will be extended from three months to six months (from October 2027). Employees will have twice as long to bring a claim, which means decisions made months earlier will need to be properly documented and defensible long after the fact. In practice, this also means it could be several months before an employer even knows a claim is being brought. By that point, witnesses may have left the business, recollections will have faded and relevant documents may be difficult to locate. For businesses that are not highly organised in their record-keeping, this creates a very real operational challenge on top of the legal one.
• A new Fair Work Agency will begin operating from April 2026, with powers to audit, inspect and enforce compliance in areas such as holiday pay, statutory sick pay and modern slavery obligations. It is worth being clear that the Fair Work Agency is not a dismissal enforcement body. Unfair dismissal remains within the remit of employment tribunals. However, the Agency can bring tribunal claims on behalf of individuals, which means employees who might not otherwise pursue a claim themselves could have institutional support to do so. For employers, this is a reason to ensure broader employment compliance is in good order, not just dismissal processes.

What this means for employers

Fair process is required much earlier

With a six-month qualifying period, robust dismissal processes will need to be in place from the very start of an employment relationship. Decisions taken during probation, or shortly after it ends, will carry real legal weight.

This isn’t just a procedural concern. A dismissal that would have carried minimal risk at month seven under the current rules could, from January 2027, result in a tribunal claim.

Probation periods need rethinking

Many employers currently run probation periods of three, six or even twelve months, often treating them as a more flexible period where employment can be ended without the same level of process. That assumption needs to be revisited.

If your probation period runs to or beyond six months, any dismissal at the end of it will potentially be open to an unfair dismissal claim. Probation needs to be meaningful, not just a label. That means setting clear standards, giving regular feedback, documenting concerns and following a fair process if you’re considering ending employment. Critically, the dismissal will also need to be for one of the five potentially fair reasons: capability, conduct, redundancy, statutory restriction or some other substantial reason. A probationary dismissal that cannot be clearly anchored to one of these grounds will be difficult to defend at tribunal, regardless of how well the process was followed.

Unlimited compensation raises the stakes considerably

Removing the cap changes the financial maths of getting a dismissal wrong. For senior or higher-earning employees, a tribunal award under the current system is already significant. Without a cap, the exposure becomes open-ended.

This makes it harder for employers to make calculated decisions about the cost-benefit of a dismissal. The safer position is to get the process right every time, rather than to weigh up the risk after the fact.

Early employment decisions carry greater legal weight

Performance issues, attendance concerns and conduct matters that emerge in the first six months of employment will need to be handled with the same care as they would for longer-serving employees. That means documented conversations, clear expectations, formal processes where appropriate and records that can be produced if challenged.

Managers who are used to having more flexibility in early employment will need to be retrained on what fair process looks like from month one.

How to prepare: Practical steps for employers

Here’s how employers can get ready for the upcoming changes and reduce risk in early employment dismissals.

Step	Action
Review dismissal and disciplinary procedures	Check whether your current processes are suitable for earlier-stage employees. Procedures designed for longer-serving staff may be too slow or complex for the first six months. Ensure they are clear, consistently applied and workable in practice.
Rethink probation arrangements	Consider whether probation periods should be limited to six months. More importantly, ensure probation is actively managed with structured check-ins, documented feedback, clear expectations and formal intervention where performance or conduct is not meeting standards.
Prepare for the statutory Code of Practice	The government will publish minimum process requirements for dismissals during the initial period of employment. Monitor when this is published and ensure your procedures align with it before January 2027.
Train managers	Equip managers to handle performance, conduct and attendance issues fairly and consistently. Emphasise the increased legal risk in early dismissals, the importance of documentation and when to escalate to HR or legal teams.
Strengthen record-keeping	Ensure all relevant documentation—meeting notes, warnings, outcome letters and performance records—is consistently created, retained and easy to access. Poor documentation significantly weakens defensibility in tribunal claims.
Audit current practices	Review how early employment dismissals have been handled historically. Identify whether informal, inconsistent, or lightly documented approaches have been used and close any gaps before the new rules take effect.
Get advice early	Involve HR or employment law advice at the earliest stage where dismissal is being considered, particularly during probation or shortly after hire. Early input reduces legal and procedural risk significantly.

Stay ahead of the Employment Rights Act with Employment Hero

The January 2027 date may feel a long way off, but the preparation work starts now. Reviewing procedures, retraining managers and tightening documentation practices all take time. Businesses that start early will be in a far stronger position when the new rules come into force.Want support navigating the changes? Employment Hero’s HR Advisory service is here to help.