The UK Employment Rights Act: unfair dismissal

The Employment Rights Act (“Act”) received Royal Assent on 18 December 2025 and the government plans a staged implementation over 2026 and 2027.

The Act includes 28 employment reforms and, cumulatively, the scale, breadth and complexity of the changes are significant for employers (read our tracker to keep abreast of developments across the Act and timescales for implementation).

To support employers as they respond to the Act’s diverse measures, our more detailed briefings focus on specific topics within the Act and include the latest developments and practical implications. In this briefing, we review the changes to unfair dismissal, following the government’s decision not to introduce day-one rights, in favour of six month’s qualifying service, and to remove the compensation cap. 

For our briefings focusing on the Act’s changes to:

• zero hours and low hours contracts, read our update
• trade union and collective rights, read our update
• collective redundancies, read our update
• family-friendly rights and SSP, read our update
• enforcement, read our update
• dismissal and re-engagement (“fire and rehire”), read our update
• equality and harassment duties, read our update

What does the Act say?

Unfair dismissal

The Act reduces the current qualifying period from two years’ continuous service for claims of ordinary unfair dismissal to six months.

The unfair dismissal compensation cap will be abolished, removing both the limit of 52 weeks’ pay and the fixed maximum (currently £118,223). Implementation will be in January 2027 (exact date to be confirmed).

The government has also confirmed that the change to the qualifying period has been made via primary legislation rather than a statutory instrument, to ensure that this cannot be easily reversed in the future. It has also committed to implementing the change from 1 January 2027, extending protections from that date to employees who already have six months’ service or more. Other employees will gain protection once they reach six months’ service.

Practical implications

Employers will be relieved that the government decided in favour of six month’s qualifying service, in contrast to its initial proposal of a day-one right. It also abandoned the “light touch” dismissal process during an initial period, akin to a statutory probationary period. Again, this avoids adding complexity to the management of employers’ own probationary periods. However, the reduction from two years to six months will necessitate a strong focus on how they are effectively managed within the shortened period. 

Employers should take the time now to review the use of probationary periods (including how they are monitored and extended), enhance recruitment processes to better assess candidate suitability, prepare to update HR systems (including to provide key deadlines and reminders), and train line managers and HR in the upcoming changes. 

Abolishing the compensation cap has the potential to result in more complex compensation claims. For example, where employers have higher-paid workers benefiting from a range of share, pension, bonus and other remuneration arrangements. Previously, the cap acted as a fixed limiting factor. Furthermore, without the certainty provided by the current cap, any settlement negotiations may prove more challenging and time-consuming. 

As a result, employers should review their approach to managing capability, performance and disciplinary issues for senior, higher-paid or other employees with potential compensation calculations exceeding the existing cap. For example, where settlement agreements are currently preferred, considering how the cap’s removal may alter the potential costs, reputational and legal risks associated with “buying out” employees’ rights.

Finally, the government asserts that the cap’s removal will deter claimants from adding in “bogus” whistleblowing and discrimination claims to sidestep the cap. It remains to be seen whether that happens in practice, and whether it would offset the potential increase in tribunal claims resulting from the totality of these unfair dismissal changes. 

Originally published: December 17, 2025