Unfair dismissal reform and what every employer needs to do before January 2027

From 1st January 2027, the qualifying period for ‘ordinary’ unfair dismissal will be reduced from two years to six months, and the cap on the compensatory award will be removed. Employees who already have at least six months’ service on 1st January 2027 will gain protection immediately from that date; others will gain protection once they reach six months’ service.

This change will affect your workforce well before 2027 because who qualifies on day one depends on their service length.

From 1st January 2027, the qualifying period for ‘ordinary’ unfair dismissal will be reduced from two years to six months, and the cap on the compensatory award will be removed. Employees who already have at least six months’ service on 1st January 2027 will gain protection immediately from that date; others will gain protection once they reach six months’ service.

If you have recruited recently, this is not a distant issue. It is a current one because the quality of your onboarding, probation and documentation in 2026 will determine how defensible early dismissals are in 2027.

What is changing and when?

The Employment Rights Act 2025 introduces two reforms to ordinary unfair dismissal that together represent the biggest shift in early‑employment risk for UK employers in decades.

From 1st January 2027, employees with six months’ service or more will have ordinary unfair dismissal protection immediately. In practice, this means people hired around early July 2026 (depending on start date and how six months’ service is calculated) are likely to qualify on day one.

Two important changes

It is easy to focus on the qualifying period and overlook the second change but together they create a materially different risk environment.

Change one

Qualifying period (2 years to 6 months) Currently, most employees need two years’ service before they can bring an ordinary unfair dismissal claim. From January 2027, six months will be enough. For employers, this dramatically shortens the window to assess a hire, address concerns and where necessary exit without ordinary unfair dismissal exposure.

Change two

Compensation cap removed. The current cap on the compensatory award (the lower of 52 weeks’ pay or £118,223 at the 2025-26 rate) will be removed. Tribunals will assess compensation by reference to the loss suffered, which increases financial uncertainty particularly for higher earners.

Together, these changes mean that early dismissal decisions you may previously have made with relative confidence will now carry materially higher legal and financial stakes once an employee reaches six months’ service.

The probation problem

Many businesses use probationary periods of up to six months, which is exactly the point at which ordinary unfair dismissal protection will begin.

Probation is not a legal concept in itself. It does not shield an employer from an unfair dismissal claim once the qualifying period is reached. What matters is whether the dismissal was for a potentially fair reason, followed a fair process, and is supported by evidence.

Government analysis indicates that many businesses operate discretionary probationary periods and the vast majority are six months or less. That means employers will often have little or no buffer between the end of probation and the point at which ordinary unfair dismissal rights arise.

Practical consequence: if a probationary employee reaches six months with limited documented feedback, no formal review and no recorded concerns, and you then decide not to confirm them, you are likely to be in a weaker position than you may realise.

What this means for your existing workforce

This is not only about future hires. The commencement approach means the change applies immediately on 1st January 2027 to any employee who already has six months’ service at that point.

If there are employees in your current workforce where you have concerns about performance, conduct or fit and those concerns have not been raised and documented, the window to address this before the risk profile changes is narrowing.

Audit question: for every employee with less than six months’ service, have concerns been raised clearly, recorded contemporaneously, and reviewed in a structured way? If not, that is the gap to close before January 2027.

What you should do now

The following actions are relevant to most businesses and reflect the most immediate priorities given the January 2027 commencement.

• Review your probation structure. If probation runs to six months, consider shortening it to three or four months, with a clear option to extend, so decisions can be made with time to spare
• Introduce structured review points. Build in check‑ins (for example at weeks 4, 8 and 12) and ensure outcomes and agreed actions are recorded
• Document concerns early and in writing. Even a brief contemporaneous note is more defensible than recollection months later
• Set clear, measurable expectations from day one. New starters should know what ‘good’ looks like, how performance is assessed, and what support and consequences apply
• Brief and train your managers now. Managers running probation reviews are your first line of defence and your first line of risk. Provide simple tools: prompts, templates and escalation triggers
• Review dismissal procedures against the Acas Code. From January 2027, dismissals of employees with six months’ service will need to demonstrate a fair reason and a fair process
• Reassess your dispute strategy. With uncapped compensatory awards, the financial exposure can be materially higher. Factor this into decision‑making, settlement strategy and insurance considerations
  

The bottom line

The two‑year qualifying period has been the safety net for early employment decisions for many employers. From 1st January 2027, that net is substantially reduced: ordinary unfair dismissal rights arise at six months’ service, and compensation is uncapped.

The employers who find this transition most difficult are those who have relied on the qualifying period rather than their processes. For those with structured onboarding, clear expectations, regular reviews and documented decisions, the change should be manageable.

The question is not “Do we have a probation policy?”, it is: “If we had to defend a dismissal at six months, what would we actually be able to show?”

How Gravita can help

Gravita can review your probation and dismissal processes, help you build the documentation framework you will need, and brief your managers on what changes before January 2027. Get in touch to discuss how we can help.