The unfair dismissal qualifying period changes on 1 January 2027, and the compensatory award loses its cap on the same day. What is already law, what is still only a timetable, and the contract and handbook work worth doing now.
Take someone on in September. By March it is clear they are not working out. Until now an ordinary unfair dismissal claim needed two years’ service, so you had a long run at that decision. Discrimination, whistleblowing and wrongful dismissal claims have always been open from day one, but the ordinary claim was two years away. From 1 January 2027 you have six months, and if the dismissal goes wrong after that, the compensatory award a tribunal can make is no longer capped.
That is the change in the Employment Rights Act 2025 that owner-managed businesses should be planning around. For the unfair dismissal reforms it is the principal date already fixed by commencement regulations. Other measures are either in force already, fixed by their own separate instruments, or still Government targets that have to be checked against the regulations as they stand.
One point before the detail, because it is the misunderstanding I hear most. The Act does not give employees the right to claim unfair dismissal from day one. The Bill that became this Act originally proposed something close to that, with a statutory probationary period alongside it. Neither survived. What Parliament passed reduces the qualifying period from two years to six months, and leaves probation exactly where it always was: a contract term, with no independent legal effect on the right to claim.
1. What is settled, and what is still only a timetable
The Act received Royal Assent on 18 December 2025 and commences in stages. Three categories are worth keeping apart, because they carry very different weight.
Already in force. Since 6 April 2026, statutory sick pay is payable from the first full day of sickness absence, the three waiting days having gone, and the lower earnings limit has been removed so lower-paid and part-time staff now qualify. Note that it is now paid at the lower of 80 per cent of average weekly earnings and the flat weekly rate, so bringing more people into the scheme does not mean everyone receives the full rate. Paternity leave and unpaid parental leave are day-one rights, though statutory paternity pay keeps its own qualifying rules and still needs 26 weeks’ continuous service. The maximum protective award for failing to consult on collective redundancies has doubled to 180 days’ pay. Sexual harassment has been added as a category of wrongdoing capable of forming a protected disclosure, subject to the usual whistleblowing tests, and employers must keep holiday and holiday pay records for six years. The Fair Work Agency was established on 7 April 2026.
Fixed by regulations. The unfair dismissal package commences on 1 January 2027, fixed by commencement regulations made in May 2026. Separately, regulations already made extend the tribunal time limit to six months from 1 October 2026 for the claims whose limits sit in secondary legislation, and for breach of contract claims. The Government intends the same extension to apply generally from that date, but the provision that would do that for claims such as unfair dismissal and discrimination has not yet been commenced.
On the timetable only. Much of the rest. The fire-and-rehire protections, guaranteed hours for low-hours and zero-hours workers, the reform of the flexible working regime, bereavement leave and the rules on non-disclosure agreements all appear on the Government’s implementation timeline with dates attached, 30 October 2026 for the harassment provisions and the new trade union statement, and 2027 for the others. Where a provision has been commenced at all, as the fire-and-rehire and non-disclosure provisions have been, it is only so that regulations can be made under it. The timeline says in terms that all future dates remain subject to parliamentary processes and may change.
The practical point is not to wait for the dates. For most office-based SMEs much of the immediate preparation is documentation and management process, though a business using variable-hours labour has substantive obligations coming too, with one genuine addition on the way: employers will have to give workers a written statement of their right to join a trade union, in a form still to be set by regulations. None of it improves for being left.
2. Six months, and no cap on the award
Section 25 of the Act does two things. It substitutes six months for two years as the qualifying period for ordinary unfair dismissal in section 108 of the Employment Rights Act 1996. And it removes section 124 of that Act altogether, which is the provision capping the compensatory award at the lower of a year’s pay or a statutory maximum figure.
The cap going matters more than it first looks. The ceiling that made a badly handled dismissal a broadly predictable cost has gone, and for a senior, well-paid employee who takes a long time to find comparable work the number can now run a good deal beyond what employers are used to budgeting for.
Two things to keep in proportion. The award still compensates evidenced loss, so this is not a windfall for anybody, and it remains subject to mitigation and to reductions for contributory conduct. And six months is not a safe harbour before it: discrimination, whistleblowing, family-leave and health and safety dismissals, and wrongful dismissal, are all available from day one and always have been. What changes in January is the ordinary claim.
The transition turns on the effective date of termination, not the date you decide to dismiss. Where the effective date falls on or after 1 January 2027 the new rules apply, even where the decision was taken and notice given before that date. Notice periods running over the new year are worth looking at now.
Two groups are easy to miss. Anyone who already has six months’ service on 1 January 2027 has the protection immediately. And letting a fixed-term contract expire is a dismissal: if the employee has six months’ service, non-renewal needs a fair reason and a fair process like any other exit.
One trap to know about before you plan any of this. Do not calculate service by the employee’s last working day alone. Where employment ends without the statutory minimum notice, section 97(2) of the Employment Rights Act 1996 treats the effective date of termination as the later date that notice would have expired, and it does so expressly for the purposes of the qualifying period. For an employee with between one month and two years’ service that normally adds a week. A summary dismissal or an immediate payment in lieu shortly before six months can therefore still fall inside ordinary unfair dismissal protection.
There is one limit on that. The extension only applies where notice was required, and section 86(6) preserves the right to dismiss without notice by reason of the employee’s conduct, so a summary dismissal genuinely justified by gross misconduct carries no extension. Whether it was justified, though, is decided after the event and by a tribunal. Plan on the basis that the week is added.
| What this is not. We do not run tribunal claims and this is not a piece about defending them. What changes commercially for an employer is that the paperwork behind a dismissal has to be right sooner, and the cost of getting it wrong is less predictable than it was. That is a drafting and process job, and it is the one worth doing now. |
3. Probation is a contract term, not a legal status
A probationary period has never had independent legal effect on the right to claim unfair dismissal, and the Act does not change that. What the law does require is disclosure. Since April 2020 the written statement given to a new starter must set out any probationary period, including its conditions and its duration.
The answer is not to lengthen probation, which does not defer statutory protection by a single day, though a longer period can still be sensible for a technical or regulated role that genuinely takes longer to assess. It is to set your review and decision points by working backwards from the termination date you would want: allow for the performance process, an appeal where appropriate, contractual notice, and the statutory notice rule above. An express power to extend, in writing, is worth having for the cases where more time is genuinely needed.
4. What your paperwork already has to say on day one
A good deal of the exposure here has nothing to do with the 2025 Act. Section 1 of the Employment Rights Act 1996 has required a written statement of particulars not later than the beginning of the employment since April 2020, in a single document, for workers as well as employees.
Two things are still commonly got wrong. The old two-month window is gone. And where there is nothing to enter under a heading, you have to say so rather than leave it out. Only four items may be given later, and no later than two months: pensions, collective agreements, the training entitlement itself, and the note on disciplinary and grievance procedures. Required training, including any the employer will not pay for, is a day-one item. Any change to the particulars has to be notified in writing within a month.
The penalty is easy to underestimate in the wrong direction. A worker can ask a tribunal to determine what the particulars should have been, and that reference stands on its own. The money award is different: two weeks’ pay, or four where the tribunal thinks it just and equitable, and it bites only where the worker has succeeded on some other claim. The real cost is neither. It is what a missing or contradictory document does to your position on everything else in the file.
5. Handbooks, notice, and the clauses that decide arguments
Whether a handbook policy is contractual is not decided by the label on the front. It is decided by whether the particular provision is apt for incorporation into the contract: clear terms of entitlement, specific rather than aspirational, going to something central to the bargain. Enhanced redundancy terms are the classic example of a “policy” the courts have treated as contractual. Where a policy is meant to be non-contractual, the contract and the handbook both need to say so, and neither should then draft it in the language of a promise.
Notice and pay in lieu are where otherwise careful employers still come unstuck. A payment in lieu of notice made without an express contractual power to make one is a breach of contract, not a convenience, and an employer should not assume the contract ended on the day it purported to dismiss. An employer’s repudiatory breach, accepted by the employee, can also discharge post-termination restrictive covenants, so the botched exit that saves a month’s notice can cost you the non-solicit you were relying on. Our article on restrictive covenants covers that in full.
6. The harassment changes expected in October 2026, and why they are not law yet
The duty currently in force requires an employer to take reasonable steps to prevent sexual harassment of its employees. Section 20 of the Act inserts one word: all. A separate provision makes an employer liable where a third party, a customer, a client, a contractor or a visitor, harasses a member of staff in the course of their employment and the employer failed to take all reasonable steps to prevent it. Two points are worth keeping straight. Employers are not presently free of obligation on third-party conduct: the existing preventive duty already requires reasonable steps to prevent sexual harassment by customers and clients. What is new is a direct route for the employee, and a reach beyond sexual harassment to the forms of harassment in section 26 of the Equality Act 2010, which covers seven characteristics: age, disability, gender reassignment, race, religion or belief, sex and sexual orientation.
Neither provision is in force. The Government’s timetable gives 30 October 2026, with the same caveat about future dates. There is no statutory checklist for “all reasonable steps”, and the Equality and Human Rights Commission’s guidance is blunt that an employer is unlikely to be able to comply without carrying out a risk assessment. That is the piece of work to start, and it earns its keep whatever the commencement date turns out to be.
What to do before January
Read the contract you actually issue to a new starter, not the template you think you issue. Check the day-one statement covers everything section 1 requires, probation included. Look at whether your probationary period and your review points sit sensibly inside six months, allowing for notice. Decide, policy by policy, what is contractual, and make both documents say the same thing. Check you have an express power to pay in lieu of notice. Make sure whoever takes dismissal decisions knows the Acas Code applies to disciplinary cases, including misconduct and poor performance, and that an unreasonable failure to follow it can add up to 25 per cent to an award that is no longer capped. And if a sale or an outsourcing is on the horizon, remember that an asset sale may be a TUPE transfer but is not automatically one, while a share sale ordinarily is not: on either route a buyer’s advisers will read the paperwork you have, not the paperwork you meant to have.
Quick answers
Does the Employment Rights Act 2025 give employees unfair dismissal rights from day one?
No. It reduces the qualifying period for ordinary unfair dismissal from two years to six months, for dismissals where the effective date of termination falls on or after 1 January 2027. The day-one proposal, and the statutory probationary period that went with it, did not survive into the Act as passed.
Is the compensatory award for unfair dismissal really uncapped?
From 1 January 2027, yes. Section 25 removes section 124 of the Employment Rights Act 1996, which is where the cap sits. The award still compensates actual loss rather than punishing the employer, but the statutory ceiling has gone.
Is the “all reasonable steps” harassment duty in force?
Not yet. The duty in force requires reasonable steps. The Government’s timetable puts the change to “all reasonable steps”, and the new third-party harassment provision, at 30 October 2026, but no commencement regulations have been made and the timetable states that future dates may change.
The work worth doing now is a read-through of the contracts, written statements and handbooks you actually issue, well before 1 January 2027.
Download the full guide: Employment Rights Act 2025 — What Employers Need to Prepare For in 2026 and 2027 (PDF), including the readiness checklist and the employment documentation audit.
This article provides general information. It describes the law as it applies in England and Wales; the principal statutory reforms described in it extend across Great Britain but not to Northern Ireland. It is not legal advice. Law stated as at 12 August 2026.
