Employment Rights Act 2025: Unfair Dismissal
The Employment Rights Act received Royal Assent in December 2025; following this, various pieces of new legislation have come into force. One piece mentioned briefly in our March article is the reduction of the qualifying period for employees to claim unfair dismissal from two years to six months.
The change, which comes into effect on 1st January 2027, will impact any dismissals from that date onwards.
Employment law advisor Brendan Bah outlines the current legislation, the upcoming changes and what this means for your organisation.
Fair dismissal
To legally dismiss an employee, an employer must rely on at least one of five potentially fair reasons:
- Redundancy – the role is no longer required
- Conduct – the employee has breached company policy or their employment contract
- Capability – the employee is unable to carry out their duties due to poor performance or ill health
- Statutory restriction - the employee is legally prohibited from performing their role (e.g., visa expiry, or loss of licence)
- Some other substantial reason (SOSR) – a catch-all category for unique, justifiable business reasons
If an employee is dismissed for any other reason, then this opens the door to a claim for ‘Unfair Dismissal’.
Even if an employer dismisses an employee for one of the potentially fair reasons, an employment tribunal may still rule the dismissal was unfair if the employer acted unreasonably or failed to follow a fair process.
Current legislation
At present, employees must have two years’ qualifying service to bring a claim for ordinary unfair dismissal.
That is, unless the dismissal is for one of what is classed as an ‘Automatically Unfair’ reason, which requires zero qualifying service. Examples include dismissals related to:
- Whistleblowing
- Raising H&S concerns
- Trade union membership, or industrial action
- Asserting a statutory right (e.g., the National Minimum Wage)
- Jury service
- Discrimination based on a Protected characteristic (e.g., age, disability, gender, pregnancy)
New Legislation
From 1st January 2027, the qualifying period for ordinary unfair dismissal reduces to just six months' service.
Crucially, this also means that an employee recruited on or before the 1st July 2026 will have the relevant service on the date the new legislation goes live.
The qualifying period has changed a number of times previously; however, the government have also taken away the ability for ministers to change the period at a later date through secondary legislation, meaning any future changes would require full primary legislation (a new Act of Parliament).
Compensation
The Act also abolishes the statutory cap on unfair dismissal compensation, meaning tribunals will be able to award unlimited compensation based on financial loss. This brings unfair dismissal in line with discrimination claims, increasing risks for employers regarding high-earning employees.
Written reasons for dismissal
Additionally, the Act reduces the qualifying period for an employee’s right to request written reasons for their dismissal to six months in line with the qualifying period to raise a claim.
As such, it is important that employers ensure that the written reasons for dismissal match their internal evidence and any findings of formal dismissal procedures to avoid contradicting themselves.
Failure to provide this within 14 days of a request or providing an incorrect reason can result in financial penalties against the employer.
Probation
When the Employment Rights Bill was first introduced, the qualifying period was removed altogether, with the Government stating it would be a day-one right, meaning that employees would be protected from their first day of employment. To support employers, an initial period of employment (Probation period) was proposed, where employers could operate a ‘light-touch’ process to dismiss staff without running the risk of unfair dismissal claims.
However, to ensure the Bill passed through the House of Lords, the day-one right was amended to 6 months, and the notion of a ‘formal’ probation period dropped altogether.
Whilst this doesn’t necessarily mean that you have to scrap your probation policy and re-draft all your contracts, what it does mean is that you need to be aware of how you manage new staff.
For example, if your contractual probation period has the option to go over 6 months (e.g., 3 months with the option to extend for 3 months or 6 months) and you don’t act before the 6 months are up, then even if an employee is classed as being on probation, they will still be entitled to claim unfair dismissal.
It should also be noted that even if you pay an employee their notice period this can be counted as continuous service, for example, if you dismiss an employee after 5 months, 3 weeks and 2 days, and pay 1 weeks pay in lieu of notice, this would take their service to over 6 months, and they would be entitled to claim unfair dismissal if a fair procedure was not followed.
Fixed-term contracts (FTC)
What many employers are not aware of is that even under current law when a fixed-term contract comes to an end, this is still classed as a dismissal, as such if an FTC was for 2-years or more, an employee would have been able to claim unfair dismissal, if the employer failed to terminate the contract in line with one of the five potentially fair reasons for dismissal, and failed to follow a fair process.
This won’t change when the new legislation comes into effect; however, it’s likely that more employees will now be aware of this meaning that employers need to be aware of their options.
Normally, employers use FTCs for one of two reasons:
- A specific piece of work requires doing
- To cover long-term absence
So, when an FTC comes to an end, what can you do? If we look at each of the reasons above:
When an FTC is used for a specific piece of work, then employers should use ‘Redundancy’ as a fair reason for dismissal, as the work has come to an end. The employee would only be entitled to a statutory redundancy payment if they had over 2-years’ service.
Where the FTC is used to cover a period of long-term absence and an employee returns to work, then redundancy wouldn’t be an option. The other option for employers is to use SOSR, which can be used when no other fair option fits, and the dismissal is reasonable.
In both the situations above, the employer should still follow a fair process and, in the case of redundancy, look at suitable alternative roles; they must also either give or pay the required notice.
Unfair dismissal: What employers should do
Although this change doesn't take effect until 1st January 2027, employers should be planning for this change now.
Employers should start by reviewing their probationary policies and procedures, start managing employee poor performance and train line managers to handle procedures effectively.
How can we help?
It's going to be a demanding year for HR teams and employers navigating these changes. Our employment law specialists can help you understand what the new legislation means for your business, review your policies and procedures, and make sure your documentation is compliant and fit for purpose.
For further information and advice on how LCF Law can support your business, including providing an Adverse Weather policy, contact Brendan Bah on 07518 298 838 (or email ku.oc.fcl@habb) or James Austin on 07729 118 961(or email ku.oc.fcl@nitsua.semaj).
Get in touch
Please complete the form below. Fields marked with a * star are required.
