With so many changes introduced under the Employment Rights Act 2025 over the past few months, from industrial action rules to statutory sick pay, it would be easy to overlook what is still to come. However, one of the most significant reforms is yet to take effect.
From 1 January 2027, the qualifying period for unfair dismissal will be reduced from two years to just six months. For Businesses, this has serious implications for how new employees are managed, how performance is reviewed and how decisions around dismissals are made.
What is changing?
Currently, employees must have worked for their employer for at least two years before they can bring an unfair dismissal claim. From 1 January 2027, this qualifying period will be significantly reduced to six months. Alongside this, the cap on compensatory awards for unfair dismissal will be removed entirely. The existing cap which will be abolished, is currently the lower of either £123,543 or 52 weeks’ gross pay. The economic analysis by the government estimates that this change will have a significant impact on approximately 6.3 million employees who have been working with their current employer for between six months and two years, as it means they have limited protection against unfair dismissal as of now. It is also anticipated that the changes will lead to an additional 9,000 Acas claims and the estimated impact of an additional 3,000 Employment Tribunal claims per year.
Why this matters for businesses and next steps
While this change will undoubtedly affect all businesses, it can have a more significant impact on smaller businesses financially and in terms of reputation. For businesses that have previously relied on the two-year qualifying period as a safety net, this change means that a shift in mindset and practice is required.
With businesses still catching up on the changes that have already taken effect under the Employment Rights Act, it is easy to think that January 2027 is still a long way off, thinking it is possible to delay planning until then. However, the key message is ‘do not wait’. While the qualifying period will not change until January, there are important steps that businesses should be taking now for them to be properly prepared.
This significant change implies the need for better people management practices around the following:Firstly, businesses that operate a contractual probationary period should consider how it will function under the six-month qualifying period when it is in place. It is important to ensure that clear performance standards are clear and communicated effectively. Also, any formal concerns raised should be addressed promptly.
Documentation will also become increasingly important. Accurate records of discussions, concerns, feedback and any other relevant information should be kept. In addition, managers should familiarise themselves with the Acas Code of Practice on Disciplinary and Grievance Procedures. The code sets out the minimum standards that employment tribunals expect employers to have followed, making it important for managers to understand how to apply these principles effectively in practice.
The reduction in the qualifying period does not mean that businesses will be unable to dismiss employees where there is a legitimate reason for doing so. However, employers will need to place greater emphasis on fair, consistent and well-documented processes.
This is a great opportunity and taking these steps now will help businesses be better prepared for January 2027, while laying the groundwork for a healthy workplace culture that supports and retains talent.
