4 changes to unfair dismissal employers need to prepare for

The Employment Rights Act 2025 will significantly change the unfair dismissal landscape for employers. From 1 January 2027, employees will gain protection from ordinary unfair dismissal after six months of service rather than two years, while the existing cap on compensatory awards will be removed.

Although the fundamental principles of fair reason and fair process remain unchanged, these reforms will increase the number of employees who can bring a claim and may increase the financial consequences of getting a dismissal wrong. Employers that take steps now to strengthen their recruitment processes, probation management, record-keeping and manager capability will be better placed to manage risk.

In this article, we explain the four principal changes and outline the practical steps employers should take now.

What is unfair dismissal?

Unfair dismissal can arise where an employer does not have a potentially fair reason for dismissal, does not act reasonably in treating that reason as sufficient, or fails to follow an appropriate and fair process.

Potentially fair reasons for dismissal include:

• Conduct – Misconduct, theft, or serious behavioral issues
• Capability or qualifications – Poor performance and lack of qualifications
• Redundancy – When the job no longer exists
• Illegality or statutory restriction – Continued employment would break the law (revoked driving licence, etc…)
• Some other substantial reason (SOSR)

Depending on the circumstances, some other substantial reason may include a significant business justification or a serious breakdown in working relationships.

It is also important to remember that the upcoming reforms relate to ordinary unfair dismissal. Employees already benefit from various day one protections, including protection from discrimination and dismissal for certain automatically unfair reasons. These protections remain unchanged.

Four changes to unfair dismissal from January 2027

1. Employees will qualify for unfair dismissal protection after six months

Currently, employees generally need two years’ continuous service before they can bring an ordinary unfair dismissal claim. From 1 January 2027, that qualifying period will reduce to six months.

This means employers will need to identify and address concerns relating to performance, conduct, attendance or suitability much earlier in the employment relationship.

Organisations that rely on informal probation management or delayed decision-making may find themselves exposed to greater legal risk if concerns are not dealt with promptly and fairly.

2. The cap on compensatory awards will be removed

The current statutory cap on compensatory awards for unfair dismissal will be abolished. Compensation will continue to be assessed by employment tribunals based on actual and projected financial losses suffered by the claimant.

While many unfair dismissal awards currently fall below the existing statutory cap, removing the limit could increase exposure in cases involving:

• Higher earning employees
• Significant benefits packages
• Long periods without comparable employment
• Complex career loss arguments

For employers, this reinforces the importance of following a fair process and taking specialist advice when considering dismissal decisions.

3. Employees will gain the right to request written reasons for dismissal sooner

Employees currently require two years’ service to request written reasons for dismissal in most circumstances. From January 2027, that qualifying period will reduce to six months.

As a result, employers should ensure that dismissal decisions are properly documented and supported by clear evidence. Any written explanation provided should be consistent with internal records, meeting notes and the reason communicated throughout the process.

Strong record-keeping has always been important, but these changes make it even more critical.

4. Protection relating to spent convictions becomes a day one right

The Employment Rights Act 2025 removes the qualifying service requirement for unfair dismissal claims involving spent convictions. Employees will no longer need six months’ service before challenging a dismissal where the reason relates to a spent conviction.

Employers should review recruitment procedures, background checking processes and decision-making frameworks to ensure they remain compliant with rehabilitation and employment legislation.

10 practical ways employers can prepare for the unfair dismissal changes

With implementation approaching, employers should begin reviewing their processes well before January 2027.

1. Review probation periods

Consider whether existing probation arrangements remain fit for purpose. Introduce meaningful review milestones well before six months to allow sufficient time to identify concerns, provide support and make informed decisions. This may include reducing probation periods from 6 months down to 3 months. Where a six-month probation period is retained, meaningful review meetings should take place well before the end date.

2. Introduce structured probation reviews

Implement formal review points throughout the early stages of employment, supported by documented objectives, feedback and action plans.

3. Audit current employee populations

Identify employees who will have six months’ service by 1 January 2027 and review any unresolved capability, conduct, attendance or probation matters. Decisions should always be based on legitimate business reasons and managed through a fair process.

4. Strengthen manager training

Line managers are often the first to identify performance or conduct concerns. Training managers on record-keeping, procedural fairness and difficult conversations can significantly reduce risk.

5. Improve documentation standards

Ensure managers maintain contemporaneous notes, meeting records and evidence that support employment decisions.

6. Review disciplinary and capability procedures

Policies should reflect current legal requirements and provide managers with practical guidance on following a fair and consistent process.

7. Review employment contracts

Check notice provisions and Payment in Lieu of Notice (PILON) clauses to ensure they support appropriately managed exits. Contractual wording alone does not remove the need for a fair reason and process where unfair dismissal rights apply.

8. Strengthen recruitment processes

Review recruitment and referencing arrangements to ensure appropriate and proportionate checks are carried out before employment commences.

9. Review financial risk exposure

The removal of the compensatory award cap may increase potential liabilities. Employers should assess employment practices insurance arrangements and consider whether existing cover remains appropriate.

10. Build a culture of early intervention

The most successful organisations address people concerns early. Delaying difficult conversations or avoiding formal processes can increase both legal and operational risk.

How can AAB help?

The Employment Rights Act 2025 introduces some of the most significant changes to unfair dismissal rights in recent years. Organisations that prepare now will be better positioned to manage risk, support managers and maintain compliance.

Our People Services team can help you review employment practices, update policies and procedures, train managers and assess potential areas of risk before the new rules take effect.

Whether you need ongoing HR support, employment law advice or assistance with complex workforce issues, we can help you take practical steps to protect your organisation and prepare for the future.

If you would like to learn more, please speak to Natalie O’Hare, a member of our People Services team or your usual AAB contact.