What are the Key Areas Likely to be Impacted by these changes and What Steps Can Employers Take to Prepare for them?

As of 1 January 2027, the Employment Rights Act 2025 is introducing changes which mean employees will gain ordinary unfair dismissal rights after six months’ employment (currently an employee requires a minimum of two years length of service), and the compensatory award cap for unfair dismissal claims will be lifted meaning there will be no limit on the amount of compensatory awards (the current cap is £123,543 or 52 weeks’ pay, whichever is the lower).

These changes will have a significant impact on employers.

I have set out below the five key areas that are likely to be impacted by these changes, and the steps an employer can take to prepare.

1.     Recruitment

It is likely that greater emphasis will be placed on the recruitment process to recruit the right people first time. Given the costs involved in recruitment, the increased risk of claims, and unfair dismissal claims being uncapped, employers are likely to be more cautious in their approach to recruitment.   

What steps can employers take now to prepare for the changes?

Employers will need to review their existing recruitment policies to ensure that they have clear, fair, and robust selection processes. They will also need to ensure that all individuals responsible for recruitment, whether HR or line management, are aware of the processes, understand them, and adhere to them. Training will be required where appropriate.

2.     Probation Periods

More emphasis will be placed on probation periods and managing an employee’s performance during that period. Probation periods will need to be adjusted to allow for decisions and dismissals to take place before the six-month qualifying period.

What steps can employers take now to prepare for the changes?

Employers should review probation periods within contracts. Where contracts do not provide for one, it is advisable that one be included. Where contracts do provide for them, consider whether it need to be shortened to allow time for performance to be monitored, discussions to take place with the employee, discussions to take place (if necessary) within the business and, ultimately, dismissal to take effect before the six-month qualifying period. Typically, a 3 or 4 month probation period seems to be favoured by employers. Care must also be taken to allow for the notional one week of service to be added to an employee’s employment to avoid the employee qualifying for unfair dismissal rights.

3.     Performance Management Processes

Managing an employee’s performance from the outset of their employment will become more important. During the probation period an employer will need to be clear on the employee’s objectives and will need to monitor them closely in order to ensure their performance meets the required standard before they reach their six-month qualifying period. Additionally, for those employees with six months or more length of service who qualify for unfair dismissal protection, an employer will need to ensure that any termination on grounds of performance is procedurally fair including warnings, the right to be accompanied, and the right to appeal the decision.

What steps can employers take now to prepare for the changes?

Employers will need to review their existing performance management processes to ensure they have clear, robust processes, and that these are clearly communicated to line management. Training may be required where appropriate.

4.     Negotiated Exits

It is anticipated that there will be a significant increase in the number of claims presented to the tribunal by employees. This combined with the cost in defending claims, the likely delay in claims being heard (currently some claims are being listed for 2 years’ time and this is likely only to increase), it is anticipated that the parties will have a greater appetite to reach an agreed exit.

What steps can employers take now to prepare for the changes?

Employers should ensure policies and procedures are adhered to, in order to place themselves in the strongest position possible to minimise arguments of procedural failings. Employer’s may also want to consider taking steps, where possible, to reduce financial liabilities (for example, introducing discretionary bonus schemes opposed to contractual bonus schemes etc).

5.     Tribunal Claims

It is widely anticipated that the changes coming into force under the Employment Rights Act 2025 will result in an increase in the number of claims presented in the tribunal.

The removal of the statutory cap for compensatory awards in unfair dismissal claims will result in proceedings becoming more complex, remedy hearings become more contested, and the process being lengthier and more costly. Expert evidence may be required more routinely to assess loss (e.g. shares, pensions, deferred compensation, health prognosis, mitigation etc).  

As such, the cost of litigation will increase, the time to resolve a dispute may take longer, and the cost of settlement is almost certainly going to increase.

What steps can employers take now to prepare for the changes?

Employers will need to build this additional time and cost into their annual budget / future forecasting plans.  

This article provides general information only and is based on the law and official implementation timetable available on 10 September 2026. It is not legal advice. Future commencement dates remain subject to parliamentary processes and may change.