The ‘day one unfair dismissal’ rights were one of the main sticking points for the new Employment Rights Act with the majority in the House of Lords being concerned at the impact on business – several times they had proposed amendments to this reform, suggesting that a six-month qualifying period would be a better balance between helping workers and businesses and would avoid complications arising from the proposed “initial period of employment”.
The Employment Rights Act 2025 therefore introduces the following important changes:
• the qualifying period of employment for a UK employee gaining unfair dismissal protection will be six months, reduced from the current two years.
• the cap on the amount of compensation that can be awarded by an employment tribunal for unfair dismissal will be removed, leaving compensation unlimited in the same way as it is for discrimination and whistleblowing claims.
• employees will have six months from their termination date to initiate an unfair dismissal claim, up from the current three months.
Key details:
Effective date: 1 January 2027
Who is covered: employees with at least six months’ service on 1 January 2027 will automatically gain protection from unfair dismissal on that date. It is important to note that the new six month threshold applies to dismissals on or after 1 January 2027, rather than only to new recruits from that date.
Points to note are:
• there will still be some circumstances in which individuals have day one protection from unfair dismissal (eg whistleblowers)
• there will no longer be a cap on unfair dismissal awards (the current cap on compensatory awards being the lower of the year’s pay and £118,223)
Compensation will still be based on lost earnings and it should be remembered that the average unfair dismissal award is currently around £14,000, so well below the current cap. Removal of the cap on compensation could, however, have a significant impact on the ability to settle claims if claimants with unrealistic initial expectations can no longer be told that there is a clear limit to their claim.
Action by employers:
These changes are significant and employers should use the 2026 lead-in period to do the following:
• strengthen recruitment practices
• review existing probationary periods and ensure multiple checkpoints through probation
• handle conduct and performance issues promptly and document all incidents thoroughly
• refresh manager training on fair process and note early intervention to avoid crossing the six month threshold without action
• look carefully at processes that apply to the expiry of fixed-term contracts.
The importance of acting fairly is compounded by changes to the unfair dismissal compensation regime, with the financial stakes significantly raised for employers who get it wrong.
In summary:
• if you are an employee: you’ll get unfair dismissal rights much sooner, after just six months of employment.
• if you are an employer: you can no longer rely on the period of two years to dismiss someone without facing an unfair dismissal claim; focus on robust early management and clear documentation.
For any advice please email nicola.goodridge@goodhr.co.uk or call +44 7917 878384
