The Employment Rights Act 2025 has introduced significant changes in how employees are protected in the workplace, including unfair dismissal laws. Recently published commencement regulations have outlined how these specific amendments will be delayed until 1st January 2027, but they introduce major changes which employers need to be aware of and plan towards. Looking forwards, they will re-shape how human resources (HR) manage day-to-day recruitment and their compliance with employment policies.
In this article we will summarise the key reforms being introduced, outline what implications these will have for employers, and look at how they need to prepare for them.
What are the main changes to unfair dismissal law being introduced?
The key amendments to unfair dismissal law being introduced via the Employment Rights Act 2025 include:
- Qualifying period reduced – The qualifying period for an employee being protected from unfair dismissal was previously two years, this is now reduced to six months.
- Written reasons for dismissal – The same period now extends to requesting written reasons for an employee’s dismissal. Previously an employee had to undergo two years of service before they could request written reasons for dismissal, this is now six months.
- No cap on compensation awards – It used to be the case that an employee winning an unfair dismissal claim could be compensated up to £123,543 or 12 months’ salary, whichever was lower. This award will now have no cap and will be considered by a tribunal taking into account the loss sustained by the employee as a result of the dismissal, and therefore making a fair and equitable judgement.
With the new regulations coming into effect on the first day of 2027, this means that employees whose service has started on or before June 2026 will immediately benefit from them. As a result, businesses already need to be factoring these new rules into their recruitment and employment policies. It should also be noted that the new unfair dismissal laws do not change the day-one protections that employees are already entitled to against discrimination and other grounds for dismissal which are automatically unfair.
What are the implications of the new unfair dismissal laws for employers?
- More claims – The new laws extend the range of employees who could make unfair dismissal claims, so HR departments need to prepare for a potentially larger volume of claims. Because employees now see the potential for unlimited awards, they are less likely to agree to early compromise agreements and are more likely to pursue a more lucrative award via formal tribunal proceedings, particularly senior personnel.
- Higher value claims – With no cap on compensatory awards, settlements and tribunal awards could be significantly higher, and more-so where senior personnel are involved in the dismissal. This strengthens the position of dismissed employees and means businesses need to adapt the way they approach discussions and negotiations.
- Budgets – The removal of the compensatory cap means businesses can no longer budget for a certain number of unfair dismissal cases and now have to factor in the possibility of unlimited awards.
- Robust employment procedures – The potential for higher value and a larger volume of claims exposes a business to unpredictable costs. To guard against this HR departments should be vigilant in preparing robust recruitment and employment policies and strictly enforcing these throughout the employment relationship.
What should employers do to prepare for the new unfair dismissal laws?
Businesses can be proactive in preparing for these new regulations and already need to be vigilant in some areas, given they could already be recruiting employees who will become eligible for possible unfair dismissal claims from 1st January 2027.
- Update recruitment processes – Employers need to improve their due diligence of potential employees during the recruitment process, to ensure they have the skills, qualifications and capabilities to perform their roles on a long-term basis.
- Review employment contracts – In many cases the probationary period written into employment contracts will now be the same as the qualifying period, i.e. six months. This should be reviewed and potentially reduced to three or four months. It should also be strictly defined, ensuring there are suitable discussions and reviews of performance to protect the business from financial risk and allow action to be taken before the six-month qualifying period is met. A business should also review fixed-term contracts to ensure they don’t exceed the qualifying period.
- Caution with senior personnel – The business should be cautious with how it deals with dismissals relating to senior personnel, because there is no longer a cap on compensatory awards, and the award could also take into account other costs, such as lost bonuses, commissions and pension contributions.
- Review HR processes and documentation – Conduct and performance reviews will become even more important under the new regulations. Managers need to be fully briefed on the implications of getting these wrong and on understanding the new framework, because they have a much shorter probationary period in which to address capability or performance issues. It will also be necessary to have robust documentation in place so the business can present strong evidence to support decisions made, such as conduct warnings or quantifiable performance failings. This can present a good case in fighting an unfair dismissal claim, but can also help to reduce the contributory factor of the business and hence reduce a compensatory award.
The new unfair dismissal laws mark a significant shift in UK employment law, and at Consilia Legal we can help employers prepare for the new requirements, review existing HR practices and understand how these reforms will affect their business. So contact our team of experienced employment law solicitors today.