Unfair Dismissal Reform: What Employers Need to Know

The Employment Rights Act 2025 (the ERA) received Royal Assent on 18 December 2025 and has been hailed as the most significant change to UK workers' rights in a generation.

The ERA sets out major changes to UK employment law which will be rolled out in a phased approach across 2026 and 2027. One of the biggest changes introduced by the ERA is the reduction to the qualifying period required for employees to bring a claim of unfair dismissal – from two years’ continuous employment down to six months. This change is due to come into force on 1 January 2027. Here’s what it means for employers.

What is unfair dismissal?

Essentially, an employer needs to have a ‘fair reason’ (as set out in the Employment Rights Act 1996 – the ERA 1996) and follow a fair process prior to dismissing an employee. The ERA 1996 lists five potentially fair reasons for dismissal; the key reasons most relied upon by employers are capability, conduct and redundancy.

If an employer is unable to show that it had a fair reason for dismissal or that it failed to follow a fair procedure prior to dismissal, and the employee has the necessary qualifying period of employment, they will be able to bring a claim of unfair dismissal against their employer in an Employment Tribunal. Compensation for unfair dismissal claims can be costly. It generally consists of a basic award (a statutory calculation based on age, length of service and weekly pay) and a compensatory award (for actual financial losses). For ordinary unfair dismissal, there is a cap on the compensatory award – the lower of either £123,543 or 52 weeks’ gross pay. However, from 1 January 2027 this cap is being removed, meaning that there will be no limit on the amount of compensation awarded in an ordinary unfair dismissal claim.

When does this change take effect?

The reduced qualifying period for unfair dismissal claims will take effect retrospectively from 1 January 2027. This means that any employee who has accrued 6 months’ continuous employment on 1 January will be able to claim unfair dismissal. Essentially, any employee you take on now will have the benefit of the reduced qualifying period from 1 January 2027.

What is continuous employment?

The rules around continuity of employment are complex. Essentially, ‘continuity of employment’ is a term used to describe the length of unbroken time that an employee has worked for a particular employer. The period of continuous employment generally commences when an employee's contract starts and ends when it terminates, as long as it has not been broken; however, there are some key concepts to be aware of here:

• Where an employee has changed jobs with the same employer, even if this is the result of a formal recruitment exercise, the start of their continuous employment will usually be the date on which their first employment contract started (assuming the period of employment is unbroken).
• In some cases, where an employee stops working for one employer and is immediately employed by an associated employer, continuity of service is preserved and the periods of employment with both the original employer and the associated employer will count towards the employee’s continuous employment period.
• Where an employee claims unfair dismissal, the period of employment terminates on the effective date of termination (EDT). This is normally the last day of employment. However, if an employer has not served the employee with the correct minimum period of statutory notice, the EDT is postponed until the date on which the appropriate statutory minimum notice period would have ended. This includes where an employer has terminated the employment with immediate effect and made a Payment in Lieu of Notice (PILON).
• When working out the length of an employee's continuous employment, both the first day and the last day of the period in question are counted in the calculation. So, an employee who starts employment on 1 July 2026 will have six months’ continuous employment on 31 December 2026 (not on 1 January 2027).
• If the employer serves notice on the employee to end employment, the notice generally runs from the day after the notice is given, and the day notice is given does not normally count towards the notice period (unless the employment contract specifies otherwise).

Does this apply to fixed-term employees?

Yes. The expiry of a fixed-term contract without renewal constitutes a ‘dismissal’ for the purposes of an unfair dismissal claim. In such cases, an employer must be able to show that it had a fair reason for not renewing the fixed-term contract and followed a fair procedure to avoid an unfair dismissal claim. This will have a significant impact on, for example, employers who use fixed term contracts of six months or more where funding is provided for a particular project. From 1 January 2027, employers will need to have a fair reason and follow a fair process prior to the end of the fixed term contract or risk a claim of unfair dismissal.

Probation periods

The purpose of a probation period is to provide employers with a suitable amount of time at the start of employment to assess the employee’s performance before confirming whether the appointment will be made permanent. Probation periods are key to assessing the performance of new employees at an early stage of their employment.

The length of a probation period is likely to depend on the nature of the job and how long it will take you to assess the employee’s performance. Given the reduced qualifying period for unfair dismissal claims, you should ensure that the probation period ends in good time before the employee accrues six months’ continuous service, while still giving you enough time to fairly review their performance – typically this is likely to be between three and five months.

Having a clear probation procedure will help you to make the best use of probation periods. A good probation procedure should:

• Make the employee aware from the outset of the approach that you will follow and, if applicable, whether there are any specific goals or targets they are expected to achieve (such as successfully completing specific training).
• Gather and consider feedback on the employee's performance in good time. You should not wait until the end of the probation period to identify or address underperformance.
• Clearly state that you are not required to wait until the end of the probation period to decide on whether the employee has passed or failed their probation, and that you can end the employment earlier if the employment relationship is not working.
• Set dates for probation review meetings at regular stages throughout the probation period and ensure that you keep a record of feedback that is given to the employee, the outcome of the meetings and any steps required of the employee going forward.
• Ensure that the end of an employee’s probation period is flagged in good time to the person making the decision about continued employment. If the end of the probation period comes and goes without being addressed, you run the risk that the employee will be considered to have successfully completed their probation ‘by default’.

How can I protect the organisation from the changes?

The reduced qualifying period for unfair dismissal claims will take effect retrospectively from 1 January 2027, so there are a number of steps you can take now to ensure that you are ready for the change:

• Check that your employment contracts clearly state that the role is subject to a probation period and specify how long this will be.
• Review your probation procedure (or implement a procedure if you do not currently have one) and ensure that this is fit for purpose.
• Avoid leaving a probation review until the last minute – timely and regular reviews will help you to focus on assessing performance at an early stage.
• Ensure that probation review meetings are carried out at an early stage of employment and that managers are providing you with effective feedback on performance.
• Implement probation review forms which are genuinely helpful and encourage you and your managers to actively reflect and report on the employee’s performance. This should be adapted for each specific role.
• Be clear who will be responsible for diarising probation review meetings and when these should take place.
• If you use fixed-term contracts, consider the length of the contract and where possible ensure this is for a fixed period of less than six months (bearing in mind the rules around continuity of employment).
• Be mindful that there may be situations where you will need to extend an employee’s probation period, such as for ill-health, sickness absence or maternity leave.

How can Tozers help?

Tozers can support you at every stage of the probation process, from designing practical probation review templates to advising on how to run effective review meetings and document outcomes clearly. For tailored advice, policy drafting, or support with a specific case, please contact our employment team.

Contact our legal experts