Employment Rights Act 2025: Changes to unfair dismissal

The Employment Rights Act 2025 (“ERA 2025”) will make significant changes to the law on unfair dismissal. Below we consider what is changing, when it is due to come into force and what steps organisations should be taking now to prepare.

What is the existing law on unfair dismissal?

Two-year qualifying period

Currently, to qualify for ordinary unfair dismissal protection employees need a minimum of two years' service with their employer (unless they are dismissed for an automatically unfair reason such as pregnancy or whistleblowing, which does not require qualifying service).

Cap on compensation

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:

• £118,233 (current rate for 2025/2026)
• 52 weeks' pay

Failure to provide written reasons

Employees can also bring a claim in respect of an employer’s failure to provide a written statement of the reasons for dismissal provided they have at least two years’ service.

Spent criminal convictions

Failure to disclose a spent criminal conviction is not a “proper ground” for dismissal under the Rehabilitation of Offenders Act 1974. However, employees are still required to have at least two years’ service to bring a claim.

What is changing under the ERA 2025?

Six month qualifying period

The government had made a manifesto commitment to offer all employees ‘day one’ protection from unfair dismissal.  As originally drafted, the ERA 2025 would have repealed the current two-year qualifying period necessary to bring a claim of ordinary unfair dismissal. Therefore, employees would have had the right to bring an unfair dismissal claim from day one of employment, provided they had started work. However, following opposition from the House of Lords, the government reached a compromise in order to get the Bill to pass.

Under the ERA 2025:

• The qualifying period of employment for bringing an unfair dismissal claim is reduced to six months.
• The power to vary the qualifying period by regulations has been removed, meaning it can only be amended by primary legislation so it can’t be easily changed by future governments.

Removal of compensatory cap on awards

Both the financial cap and cap of 52 weeks' gross pay will be removed.

This means that there will be no cap on the compensatory award, bringing it in line with compensation for automatically unfair dismissal and discrimination.

Failure to provide written reasons

The qualifying period to bring a claim in respect of an employer’s failure to provide a written statement of reasons for dismissal will be reduced to six months (mirroring the reduction in the qualifying period to bring an unfair dismissal claim).

Spent criminal convictions

The qualifying period of service in relation to spent convictions will be removed.

When will the changes come into force? 

The government has confirmed that it intends to bring all the changes relating to unfair dismissal protections into force on 1 January 2027. This means that all employees with six months' service on this date will qualify for the right. Going forward employees will qualify for the right as soon as they reach six months' service (for example an employee who commenced work on 1 December 2026 will qualify for the right not to be unfairly dismissed on 31 May 2027).

At present, the government has not released any details about which claims the change to the cap on compensation will apply to. However, it is thought that the change will apply to all dismissals that occur on or after 1 January 2027.

What can employers do to prepare?

Reduction of qualifying period

It would be prudent for employers to consider their current recruitment practices and use of probationary periods. It may be helpful to consider the following questions and make changes as appropriate:

• 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 are taken on, or suitably assessed, within the first three months?

• Does your organisation need to adopt more thorough pre-employment screening, ask more questions about unexplained employment gaps and/or follow up on references more diligently? 

• How long are current probationary review periods - does your organisation effectively diarise and monitor probationary reviews?

• Do line managers proactively manage new recruits to review performance and suitability for the role during the probationary period?

Removal of cap on compensation

The most obvious consequence is that litigation in the Employment Tribunal will become more attractive for high earners. High earners may also be less likely to be willing to negotiate exit settlements for sums equal to the cap on the basis this was all they could hope to recover in the Employment Tribunal and High Court litigation brings with it the risk of costs. Therefore, the monetary value of the cap will no longer fetter expectations for senior level departures.

The removal of the cap may also make it difficult to negotiate with litigants in person who have unrealistic settlement expectations.

Employers may therefore need to ensure that their processes that could lead to dismissal are robust to ensure fairness (for example disciplinary, performance management and absence). Equally it would be prudent to ensure that managers are trained and understand the importance of documenting evidence in support of why processes are being undertaken (for example evidence of underperformance) as well as documenting the process itself.

If you would like to discuss how our team of experienced employment lawyers can support your organisation, please get in touch.