Employment Rights Act 2025: What the unfair dismissal changes mean for you

The Employment Rights Act 2025 introduces significant changes to unfair dismissal rights. In this episode, Claire Rosney, Professional Development Lawyer at Browne Jacobson, and Emma Capper, Head of Employment, walk through what is changing, when it takes effect, and what your organisation needs to do now. 

Background 

The government's original manifesto commitment was to give all employees day-one protection from unfair dismissal. Following opposition from the House of Lords, those proposals were scaled back but still represent one of the most significant changes under the Act. From 1 January 2027, the two-year qualifying period for ordinary unfair dismissal protection will be reduced to six months, and the compensatory cap, both the £118,223 financial limit and the 52 weeks' gross pay ceiling, are removed entirely. 

What the episode covers 

The two core changes: How the qualifying period reduction and the removal of the compensatory cap came about, and why the cap change in particular caught many by surprise, introduced as a late amendment with no prior consultation. 

Why six months looks permanent: The government has removed the power to vary the qualifying period by regulations. Any future change requires primary legislation, making it more difficult for future governments to increase the qualifying period. 

How the commencement date works in practice: All employees with six months' service on 1 January 2027 will qualify immediately. That includes anyone recruited as far back as the start of 2026, and anyone starting from the end of June this year. 

The statutory notice trap: If an employer dismisses an employee in the final week of their first six months, that employee may already have qualifying service. The one week of statutory notice, whether given or paid in lieu, is added to the dismissal date, extending the effective date of termination meaning the employee qualifies for protection. 

Impact on senior executive exits: Without a cap, highly paid employees will find the Employment Tribunal an attractive forum for the first time. Successful claimants can recover compensation for pension loss, share schemes, long-term incentive plans and bonuses, making exits that were once straightforward to negotiate significantly more complex and costly. 

What to do now: Emma and Claire set out the practical steps organisations should be taking ahead of January 2027, including reviewing probationary period lengths (three to four months is likely more appropriate than the current norm of six), tightening pre-employment screening, training line managers on conducting effective probation reviews, and ensuring any process that could lead to dismissal is supported by a robust and contemporaneous evidence trail. 

The board-level consideration: Boards should be actively thinking about how they manage executive recruitment and underperformance. The landscape for managing senior exits is about to shift fundamentally. 

Key takeaway: All organisations should start taking steps to prepare for the change now.  

For the latest updates and guidance, visit Browne Jacobson's Employment Rights Act 2025 hub at brownejacobson.com/employment-rights-act  

Transcript

Claire Rosney 0:10

Hello and welcome. I'm Claire Rosney, professional development lawyer here at Browne Jacobson, and I'm joined by Emma Capper, our Head of Employment. Today we're going to be discussing the upcoming changes to unfair dismissal under the Employment Rights Act 2025. We'll be taking a look at what is changing when this happens and what steps organisations should be taking now to prepare. However, before we get into the discussion, I think it's just worth noting the government had made a manifesto commitment to offer all employees day one protection from unfair dismissal. So, as originally drafted, the Employment Rights Act would have removed the current qualifying period necessary to bring a claim of ordinary unfair dismissal. This would have meant employees would have had the right to bring an unfair dismissal claim from day one of employment, provided they'd started work. However, following opposition from the House of Lords, these proposals were watered down, and where we've landed is a reduction of the qualifying period and surprisingly, removal of the compensatory cap. Although this is quite different from the original proposal, I think it's still fair to say this is one of the most significant changes under the new changes under the Employment Rights Act, and something I'm sure Emma will agree the team are getting lots of questions on. So before we get into what the changes look like, Emma, do you just want to give us a quick reminder of what the existing law on unfair dismissal is?

Emma Capper 1:38

Thanks, Claire. Currently, to qualify for ordinary unfair dismissal protection, employees need a minimum of two years' service unless they're dismissed for an automatically unfair reason, such as pregnancy or whistleblowing, which doesn't require qualifying service. We also have a cap on compensation. So if an employee succeeds in a claim for ordinary unfair dismissal, they will be entitled to a compensatory award, which in most cases is currently capped at the lower of just over £118,000 or £52 weeks pay. So, Claire, how will this change under the new Employment Rights Act?

Claire Rosney 2:23

Well, the first change is the qualifying period is going to be reduced to six months. Interestingly, the government have also removed the power to vary the qualifying period by regulations. So what this means is that future governments won't be able to easily amend and, for example, increase the qualifying period to say two years going forward. Any change going forward by successive or alternative governments would require primary legislation. So it looks like the six months may be here to stay for quite some time. The other big change is removal of the compensatory cap on awards. So both the financial cap which you mentioned, just over £118,000, and the cap of 52 weeks gross pay will be removed. So the significance of this is there will be no cap on the compensatory award, which was going to bring it in line with compensation for the automatically unfair dismissal claims that you mentioned, for example, whistleblowing, and also discrimination claims. Now this one was the big surprise. It didn't feature in the original draft of the bill, and it was introduced as a late amendment in an attempt to reach a compromise with the House of Lords to get the bill through Parliament. Interestingly, there's been no consultation on this, and indeed there's not going to be, although the government have done an impact assessment. However, beyond referencing that the Employment Tribunal will now become an attractive forum to high earners for the first time, there doesn't appear to be any consideration of what this means in practice. Although the government have committed to engage with stakeholders and also issue further guidance if needed, but it's really not clear what, if any, impact this may have if, for example, the stakeholders say removing the CAP is a bad idea. The other thing I think it's just worth noting as well is, and perhaps these changes aren't getting as many of the headlines as the CAP and the qualifying period, but the qualifying period for employees to bring a claim in respect of an employer's failure to provide a written statement of the reasons for dismissal will be reduced to six months. This isn't really a common claim, so not really a major impact here for most employers. However, the qualifying period of service in relation to dismissal for failing to disclose a spent conviction under the Rehabilitation of Offenders Act will also be removed. So at the moment, such a claim requires at least two years' service, but going forward, an employee will be able to bring this claim from day one. So employers would need to demonstrate fairness in the decision to dismiss.

Emma Capper 5:16

And Claire, when are the changes coming into force?

Claire Rosney 5:20

Well, the government has confirmed that it intends to bring all the changes relating to unfair dismissal protections into force from the 1st of January 2027. That's a little bit unusual in itself, as we normally get employment changes April and October, so a bit different here. But what it means is that all employees with six month service on the 1st of January 2027 will qualify for the right. So anybody who 1st of January, 12-month service on that date, let's say, because they started at the start of 2026, would qualify for protection. Equally and interestingly though, somebody who's recruited at the end of June this year will qualify for the right when it comes into force. And then going forward, employees will qualify for the right as soon as they reach their six-month service. So by way of an example, let's say an employee commences work at the start of December 2026, so just before the change happens, they will then qualify for the right not to be unfairly dismissed at the end of May 2027.

Emma Capper 6:28

And can I what about statutory notice? Is there anything that employees need to be aware of in relation to that?

Claire Rosney 6:36

Yes. Anyone who is dismissed without notice within a week of reaching the qualifying period, so six months into the change, can add their statutory notice, meaning they will have qualifying service to bring a claim. So where an employer either doesn't give notice or a payment in lieu of notice is made, the statutory notice period, which for somebody under two years is a week, this has got to be added onto the date of dismissal and included within the period of qualifying service to extend the effective date of termination. So what this means basically is that if an employer dismisses an employee in the last week of their first six months of employment, the employee will have already gained unfair dismissal rights.

Emma Capper 7:24

And what about the changes to the compensation cap and removing that? When does that change take effect?

Claire Rosney 7:33

Well, at present, although we know the change to the cap is also due to come in on the 1st of January 2027, the government hasn't released any details about which claims the change to the cap on compensation will apply. So, for example, will it apply to dismissals that take place on or after the 1st of January 2027? And that's what the current practice is now for when the cap on compensation is increased. The new cap applies to any dismissals on or after the increase. Or alternatively, will it apply to claims issued on or after the 1st of January 2027? The thinking is that it will apply to dismissals that occur on or after the 1st of January, but clearly it's something that we do need compensation on. So, Emma, those are the changes. Uh, I think you'll agree, quite big. What impact do you think these changes will have for employers? What do you think they're going to be doing differently?

Emma Capper 8:33

Well, I think uh the first point is that it will mean that many more dismissals will be in scope to become unfair dismissal claims. Um, conversely, I suppose employees might not bring as many whistleblowing or discrimination claims, which have typically been used as a way of avoiding the cap on unfair dismissal compensation and essentially as a negotiating tool. I think the position will be more complicated for senior executives whose exits have been quite often more easily negotiated because of the certainty of the cap on compensation for unfair dismissal claims. And the level of the cap has often meant that it has not been worth litigating unfair dismissal claims for highly paid employees. So senior exec exits are likely to become more expensive as well because of the removal of the cap on compensation, particularly because a senior executive who successfully brings an unfair dismissal claim will be entitled to recover potentially quite significant compensation for things like pension loss, share schemes, long-term incentive plans and other bonus arrangements. I think the removal of the cap might also make it more difficult to negotiate with litigants in person because they might have more unrealistic expectations around settlement figures. And finally, I think employers will need to be looking at their processes and procedures quite closely. So are recruitment practices fit for purpose? How robustly are employers dealing with probationary periods? If you're not actively managing probation, then the six months qualifying service period is going to really pass quite quickly. And I think employers will need to take a look at performance and absence management processes as well.

Claire Rosney 10:36

Thanks, Emma. Yeah, I agree. I think this is going to be a big change for employers, especially as we see even with a two-year qualifying period, some employers, you know, that that time does go quite quickly. Um, and equally, um, you know, people might think, oh, well, not a lot of uh claims actually um get awarded the cap or close to the cap. But I think the thing that people have not taken account of there is, well, they don't because those people are not litigating in the employment tribunal for the reasons that you've just said, whereas now the employment tribunal obviously um becomes a lot more attractive for those claims to be brought. So, what do you think are the steps that employers should be taking now to prepare? Do they need to prepare now, given it's not until 1st of January?

Emma Capper 11:26

I think um employers are uh best advised to start preparing now, Claire. Um, in relation to the reduction of the qualifying period, I think it's imprudent, it would be prudent for employers to consider current recruitment practices and um how they're using probationary periods. So um do your organisation's recruitment procedures need to become more strategic and robust with the aim of ensuring that new hires are right for the job before they're taken on, um, or are you suitably assessing them uh during the first three or so months of their employment? Think about whether your organisation needs to adopt more thorough pre-employment screening, so asking more questions about unexplained uh employment gaps, following up on references more diligently as well. And think about the length of your current probation periods. So, you know, perhaps a probation period of three to four months might be more appropriate now to try and enable you to review how an employee is getting on in the role without getting too close to that six-month qualifying service mark. And that also builds in a buffer to enable you to extend the probationary period um without getting too close to six months as well. Also, have a look at how you're effectively monitoring probationary reviews and diarising them, and do your line managers uh need some training around how to conduct probation reviews and uh considering suitability for the role.

Claire Rosney 13:14

Yeah, I think all really good advice there, especially around the um probationary review periods, you know, a lot of organisations already have six months built into contracts or policies, so you know, probably going to need an update in terms of their contracts and policies because if you leave it at six months, by the time you've got to the end of that probationary period, they've qualified for protection. And what about removal of the cap? Is there anything you think employers should be thinking about here?

Emma Capper 13:44

I think on this point, Claire, employers really need to be ensuring that any process that might lead to dismissal is robust, and uh that means looking at your disciplinary processes, performance management and absence management processes. I think it's also important to make sure that managers have had adequate training on how to work through those processes, and I think that they understand the importance of documenting the processes that they're going through and really getting that evidence trail in place to support why the process is being undertaken in the first place and um you know what what the need is around that.

Claire Rosney 14:32

Yeah, um I think certainly from my time um, you know, defending employees and the employment tribunal, one of the things I used to say time and time again is is um all great stuff what you're telling me about, you know, the the performance concerns, but where is the evidence? Um and I think it's going to become even more crucial now, um, you know, for managers to be proactive and as you say, document not just the process itself, but the underlying reason that's led to this uh process. So if you were thinking about your top tips, what would they be? What would your suggestions for employers to be doing?

Emma Capper 15:14

I think looking at the length of probationary periods is the absolute must. That's that that's the top one for me. So is it suitable if you have a probationary period that is six months or even longer? Um, think about the fact that by the time that probationary period has expired, the employee will already have service to bring an unfair dismissal claim. So um reviewing the length of probationary periods and considering whether something like three to four months might be more suitable depending on the nature of the roles that are being undertaken. And then looking at the processes that are in place around things like probationary periods and any process that is going to lead to a dismissal and making sure that your uh managers are properly trained on how to work through those processes. Um I think those are the two key points for me: probationary periods and getting your managers upskilled on those processes.

Claire Rosney 16:19

Yeah, thanks, Emma. I agree with them. I suppose if I was gonna add one myself, it would be for maybe boards to be thinking about how they manage exec recruitment and you know, executive level performance. Um, as you rightly said, you know, six months is is gonna go by really, really quickly. Um, and I think there's gonna be a fundamental shift in um where execs are not performing, how you manage that within a business. Well, I think that's all we've got time for today. Thank you everybody for listening. We hope you found it useful. If you'd like to keep up to date with all things Employment Rights Act 2025, we do have a hub which can be found on our website. We are also going to be hosting a Employment Rights Act 2025 webinar on the 25th of March, where we're going to be looking at changes that have already come into force, the changes that are coming in this April, and we're also going to have a closer look at the changes to unfair dismissal, as well as mentioning the other changes that are on the horizon. We hope you've enjoyed today's uh conversation, and thanks again for listening.