What you need to know
The Employment Rights Act 2025 introduces two significant reforms that will reshape dismissal risk and strategy from 1 January 2027.
- The Qualifying Period Is Reducing – Not Disappearing
While the original proposal under the Employment Rights Bill was to make unfair dismissal a day-one right, that has been amended.
From January 2027, the qualifying period will reduce from two years to six months.
It’s not limited to new hires so any employee with six months’ service at the implementation date will qualify.
- The Compensation Cap Is Being Removed
Currently, compensation awards for ordinary unfair dismissal are capped at the lower of one year’s salary or the statutory maximum (currently £118,223).
From 1 January 2027, that cap will be removed.
Tribunals will still assess what is “just and equitable,” but the financial ceiling disappears – particularly relevant for senior and high-earning employees.
What you need to do now
These changes require proactive planning.
Review probation frameworks; ensure clear review milestones and manager prompts before month 4 and 5 – avoid accidental qualification due to delayed reviews or postponed meetings
Rethink senior executive exits; We may see a move toward more structured performance management at senior levels – clearer expectations, documented evidence, and genuine opportunities to improve.
Prioritise respect in exits; High-value claims are often driven by perceived unfairness, not just dismissal. A well-managed process can significantly reduce litigation risk.Respect, transparency, and proportionate ex gratia payments remain powerful risk mitigators.
Prepare for higher-value claims; Once the cap goes, high earners have greater incentive to litigate. Settlement Agreement negotiations will become more complex and long-term loss of earnings arguments (especially involving older workers or health conditions) carry greater financial risk
2026 should be the year HR teams review probation systems, performance management capability, and executive exit strategy before the new regime takes effect.
If you haven’t started yet, now is the time.
