Unfair Dismissal Reform Under the Employment Rights Act 2025: What Employers Need to Know

The Employment Rights Act 2025 introduces one of the most significant reforms to unfair dismissal law in decades. While the Government originally proposed introducing day-one protection from unfair dismissal, following consultation with employers and trade unions, the legislation instead reduces the qualifying period for ordinary unfair dismissal from two years to six months.

The changes are due to come into force for dismissals taking effect from 1 January 2027. At the same time, the current statutory cap on compensatory awards for unfair dismissal will also be removed, increasing the potential financial exposure for employers.

For employers, this means the first six months of employment will become more important than ever. Having a well-managed probationary period, robust performance management processes and clear documentation will be essential.

How Will This Impact Employers?

1. Increased Exposure to Unfair Dismissal Claims

Currently, employees generally need two years’ continuous service before they can bring a claim for ordinary unfair dismissal.

From 1 January 2027, this qualifying period will reduce to six months, meaning employees will gain protection much earlier in their employment.

Although this is not the day-one right originally proposed, it still represents a significant shift. Employers will have much less flexibility to dismiss employees after the initial stages of employment without demonstrating a fair reason and following an appropriate process.

In addition, the removal of the statutory cap on compensatory awards means successful unfair dismissal claims could become considerably more expensive, making effective people management even more important.

2. The Importance of a Structured Probationary Period

One of the biggest practical consequences of the reform is the renewed importance of probationary periods.

While probationary periods have always been considered good practice, they will become a vital tool for employers to assess suitability before employees gain ordinary unfair dismissal protection.

Employers should ensure they:

  • Clearly define probationary periods within contracts of employment.
  • Set measurable objectives from the outset.
  • Hold regular review meetings.
  • Provide constructive feedback throughout probation.
  • Address concerns promptly rather than waiting until the end of probation.
  • Extend probation where appropriate and contractually permitted.
  • Keep accurate written records of discussions and decisions.

Going forward, ensuring that probationary periods are actively managed rather than treated as a formality will be crucial.

unfair dismissal

3. Stronger Justifications for Dismissal

Once an employee reaches six months’ service, employers will need to demonstrate:

  • a potentially fair reason for dismissal; and
  • that a fair process has been followed.

Whether the dismissal relates to capability, conduct, redundancy or another potentially fair reason, employers should be able to evidence the rationale behind their decision.

Performance concerns should be supported by objective evidence, documented discussions and reasonable opportunities to improve.

4. Increased Focus on Fair Process

Employment Tribunals do not simply consider whether an employer had a good reason for dismissal – they also assess whether the process followed was fair.

This means employers should ensure they:

  • investigate issues properly;
  • communicate concerns clearly;
  • allow employees the opportunity to respond;
  • provide reasonable support where appropriate;
  • follow their disciplinary or capability procedures consistently; and
  • maintain thorough documentation throughout.

A fair process is often just as important as the reason for dismissal itself.

Preparing for the Changes

1. Review Contracts and Policies

Employers should review:

  • employment contracts;
  • probation policies;
  • disciplinary procedures;
  • capability and performance management procedures; and
  • manager guidance documents.

Policies should clearly explain how probation will operate and the standards expected of employees during their first six months.

2. Invest in Manager Training

Training should cover:

  • conducting effective probation reviews;
  • giving constructive feedback;
  • documenting performance concerns;
  • managing difficult conversations;
  • following fair dismissal procedures; and
  • recognising when HR support should be sought.

Many unfair dismissal claims arise not because there was no reason to dismiss, but because managers failed to follow a fair process.

management training

3. Improve Performance Management

The reforms reinforce the need for proactive performance management from the very beginning of employment.

Best practice includes:

  • setting clear expectations during induction;
  • regular one-to-one meetings;
  • documented probation reviews;
  • early intervention where concerns arise;
  • agreed improvement plans where appropriate; and
  • consistent record keeping.

Addressing issues early is usually far easier than attempting to resolve them once statutory protection has been acquired.

4. Keep Accurate Documentation

Good documentation has always been important, but it will become increasingly valuable moving forward.

Employers should retain records of:

  • probation meetings;
  • objectives set;
  • feedback provided;
  • performance concerns;
  • training offered;
  • support provided; and
  • decisions reached.

These records may prove invaluable should an Employment Tribunal claim arise.

What About Day-One Rights?

It is worth noting that the Government ultimately decided not to introduce universal day-one protection against ordinary unfair dismissal.

However, employees already have day-one protection against dismissal in certain circumstances, including where the dismissal relates to:

  • discrimination under the Equality Act 2010;
  • whistleblowing;
  • asserting certain statutory rights;
  • health and safety activities;
  • trade union membership or activities; and
  • pregnancy, maternity and other automatically unfair reasons.

These protections will remain in place.

Need HR Support?

Although the Government has stepped back from introducing day-one unfair dismissal rights, reducing the qualifying period from two years to six months still represents one of the most significant employment law reforms in recent years.

Combined with the removal of the compensatory award cap, employers face increased legal and financial risk if dismissals are not handled fairly and consistently.

The businesses best prepared for these changes will be those that invest in strong recruitment processes, structured probationary periods, effective manager training and robust performance management from the very start of employment.

By reviewing policies now and embedding good HR practices, employers can reduce the risk of claims while building a more engaged, productive and high-performing workforce.

Get in touch with the Norton Loxley team today to arrange a review of your current HR policies and workplace practices.