Unfair dismissal changes - a game changer for employers

We now have confirmation that the substantive changes to the unfair dismissal regime under the Employment Rights Act 2025 will take effect on 1 January 2027.   The Regulations bringing these into force were passed on 26 May 2026.

These confirm:

• the reduction in the qualifying period of employment for bringing an unfair dismissal claim from 2 years to 6 months; and
• the removal of the upper cap on unfair dismissal compensation (for the compensatory award currently the lower of £123,543 or 52 weeks’ pay). 

These are fundamental changes for all employees, but the largest impact will be felt for higher paid employees:  the reality is that executive hires are going to be more legally risky and businesses may need to adjust their risk tolerance to avoid settling every claim. 

What can employers do to prepare for these changes? 

• Recruitment - employers will need a tight focus on:
  • hiring due diligence, including references; and
  • putting in place detailed job and person specs.
• Probation periods - these pose a real challenge.  An assessment of performance will need to be made before the 6 months but, particularly for senior staff, shorter probation periods can make it difficult to assess performance accurately.
• Performance management:
  • set out clearly, in KPIs and even in the contract itself, what is expected of new hires;
  • train managers; and
  • ensure there are regular 1-2-1s and active management.
• Consider leaver terms and performance conditions in incentives and benefit schemes.

These need to be actioned now - before July 2026 - as the changes to the unfair dismissal regime will apply to dismissals on or after 1 January 2027 (or potentially earlier as the dismissal date for calculating the period of employment to bring a claim can be extended by a week in some circumstances).