22 Sept 2026
Highlighting the three key alterations to the Employment Rights Act 2025 which will come into force in January.
Vet Times
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Image: ChayTee / Adobe Stock
One of Labour’s key 2024 election planks was the reform of employment law. With the Employment Rights Act 2025, which is being implemented over a two-year period, employment law will significantly change – especially in relation to unfair dismissals when new rules come into effect from 1 January 2027.
One of the most fundamental protections awarded to employees under the Employment Rights Act 1996 is the right not to be unfairly dismissed.
Mark Stevens, a legal director at VWV, often deals with this form of claim. He said: “[Currently] for an employee to bring an ordinary unfair dismissal claim, they must be able to show that they meet specific criteria.”
This includes a minimum of two years’ continuous service with their employer – the qualifying period. This two-year qualifying period was introduced in April 2012 and doubled the qualifying period of one year in place at the time, with the aim of providing employers with greater flexibility in managing performance and staffing levels within the early periods of employment. Mr Stevens said: “Some forms of dismissal are treated as being automatically unfair from day one, regardless of the length of service that the employee has.”
Included are dismissals connected to pregnancy and maternity leave, whistleblowing, health and safety duties, and trade union activities.
Mr Stevens explained that if an employment tribunal finds that an unfair dismissal has occurred, it has “the power to order the employer to reinstate the employee in their old role, employ them in a different job or pay the employee compensation”.
This would be based on the employee’s age, length of service and weekly pay, and a compensatory award, which is subject to a statutory cap set at the lower amount of one year’s gross pay or £123,543 (2026).
The new act introduces three key changes to the unfair dismissal regime. According to a Department for Business and Trade analysis of Labour Force Survey analysis, based on Q1 2022 to Q4 2024 release, approximately 6.3 million employees have worked for their current employer between six months and two years and have limited protection against unfair dismissal1.
This makes the reduction of the qualifying period for ordinary unfair dismissal claims from two years to six months one of the most significant for Mr Stevens. He explained that, in effect, “all employees with at least six months’ service on 1 January 2027 will automatically gain protection on that date, with newer employees acquiring rights as soon as they reach the six-month threshold”.
The act removes the power to vary the qualifying period by secondary legislation, meaning that any future changes will require primary legislation through Parliament, signifying that the Government intend for this reduced qualifying period to be a lasting feature.
The act also removes both the financial cap and the 52-week gross pay cap on compensatory awards, bringing unfair dismissal compensation in line with discrimination and whistleblowing claims, where awards are already uncapped.
Meanwhile, from October 2026, the act will also extend the time limit for an employee to bring a claim in respect of unfair dismissal from three months to six months.
They will still need to engage with the Acas early conciliation process before lodging a claim.
The changes will have a knock-on effect on collective redundancy processes, given the wider pool of employees who will now benefit from unfair dismissal protections.
Specifically, Mr Stevens highlighted that very few unfair dismissal claims that succeed at an employment tribunal and provide compensation to the employee result in a compensatory award that reaches the current cap. However, he said: “The reforms increase both the legal and financial risks associated with unfair dismissal claims – especially in respect of senior or highly paid staff.
“The compensation cap has previously provided a maximum limit in high-value claims, and without this, successful claimants may be able to recover substantially higher damages for lost earnings.”
These amounts may exceed the current statutory limit of £123,543 – especially in cases where the dismissal has long-term career consequences.
As a result, the lack of a financial cap may encourage individuals who would not have traditionally pursued an employment tribunal claim to do so – particularly if they are high earners in senior roles, as they could recover a substantial financial award.
Further, Mr Stevens believes that “the six-month qualifying period is expected to result in a larger proportion of employees bringing unfair dismissal claims, including those in the early stages of a role or a temporary contract”.
He predicted an increase in the volume of claims and case backlogs, longer turnaround times and additional pressures on the employment tribunal system.
The act is a significant milestone in the way that unfair dismissal claims are dealt with.
Employers who act proactively now by reviewing their practices and policies will be far better placed to navigate the new process when it comes into force in January 2027. If they do not make the necessary changes, it is likely that they will find themselves in front of tribunal judges, arguing claims brought by disgruntled former employees.
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