From 1 January 2027, UK employees will be able to bring an unfair dismissal claim after just six months of service, down from the current two years, and the cap on compensation is being scrapped entirely. If that sounds like a distant 2027 problem, it isn't. Anyone hired from around July 2026 onwards will already have six months' service by the time the law changes, meaning the clock is running now, not next January.
What's actually changing
The Employment Rights Act 2025 received Royal Assent on 18 December 2025, and the government has since confirmed the detail through a revised implementation timetable. Two changes matter most for founders and operators:
- The qualifying period for unfair dismissal drops from two years to six months. This isn't a "day one" right, the government U-turned on that during the Bill's passage, but six months is still a dramatic cut from the two-year buffer employers have relied on since 2012.
- The statutory cap on unfair dismissal compensation is being removed. Currently capped at the lower of 52 weeks' gross pay or roughly £118,223, from January 2027 there's no ceiling at all.
The change is retrospective in effect. Employees who already have six months' service on 1 January 2027 gain protection immediately, so anyone taken on from around the start of July 2026 needs to be treated, from a risk perspective, as already inside that window.
Two related changes are worth having on your radar. Employment tribunal time limits for bringing most claims are extending from three months to six, expected no earlier than October 2026, giving employees longer to act in the first place. And restrictions on "fire and rehire", where an employer dismisses staff to reissue contracts on different terms, are now scheduled for January 2027 too, having been pushed back from their original October 2026 date.
Why probation just stopped being a formality
For over a decade, the two-year qualifying period gave employers a long runway to work out whether a hire was right, and a straightforward way to part ways if it wasn't. That runway has just been cut by three quarters. A recruitment misstep that used to be a quiet, low-risk correction is becoming a real legal exposure, uncapped, well before most businesses would normally have flagged a performance issue.
This isn't really a story about right or wrong policy. It's a story about what it means operationally: every hire now needs a structured 30, 60 and 90-day plan with genuine milestones, not a vague settling-in period, documented check-ins at week two, week six and month three, and a probation process that actually functions as one, with clear criteria for what "good" looks like before day one. The work has to happen before the hire, not after it.
What this means for how you build your team
None of this makes hiring impossible, it makes precision non-negotiable. Businesses that get this right are the ones treating recruitment as risk management from the outset: proper vetting, a clear brief, and a probation period that's genuinely used to assess fit rather than assumed to be a formality. That's a different discipline to "hire fast and see how it goes", and it rewards founders who build capacity deliberately rather than reactively. If you're weighing up your next hire against this backdrop, it's worth reading how a structured hiring model can reduce that exposure before you commit to a permanent UK contract.
FAQ
Does the unfair dismissal change apply to everyone I've already employed? Yes. It isn't limited to new starters. Anyone with six months' continuous service on 1 January 2027 gains protection from that date, regardless of when they were hired.
Is unfair dismissal now a day-one right? No. The government's original manifesto commitment to remove the qualifying period entirely was dropped during the Bill's passage. Six months, not zero, is the confirmed threshold.
What happens to the compensation cap? It's being removed in full from 1 January 2027, alongside the reduced qualifying period. There's currently no indication of a phased or partial cap remaining.
Should I rush to dismiss anyone approaching six months' service before January 2027? This is a decision to make with proper legal advice, not a blanket strategy. Acting purely to dodge a legal threshold carries its own risks, including claims of unfair treatment for other reasons.
Is this the only Employment Rights Act change I should be tracking right now? No, it's one of several. We've mapped the full implementation calendar so you can see what else is landing before January 2027.
Sources
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