6-Month Unfair Dismissal Rights Are Coming: What Every Employer Must Do Before January 2027

The Employment Rights Act 2025 is set to fundamentally change the balance of power between employers and employees in the UK.

From 1 January 2027, employees will gain the right to bring an unfair dismissal claim after just six months of employment instead of the current two-year qualifying period. At the same time, the statutory cap on compensation for unfair dismissal is being removed entirely.

For employers, particularly SMEs, this creates a very different risk landscape.

Many businesses have historically viewed the first year or two of employment as a relatively low-risk period where concerns about performance, conduct or cultural fit could be addressed with limited legal exposure. That approach will no longer be safe.

Employers who continue using outdated contracts, informal probation processes or poorly managed dismissals are likely to see a sharp increase in claims, settlement demands and employment tribunal disputes.

This article explains what the changes mean in practice, the contractual and policy updates businesses should now be making, and the best strategies for reducing the risk of unfair dismissal claims when terminating employment.

Why These Changes Matter So Much

The reduction from two years to six months may initially sound like a technical legal amendment. In reality, it changes the entire psychology of recruitment and dismissal risk.

Under the current system, many employers feel reasonably comfortable terminating employment within the first year provided there is no discrimination or whistleblowing issue. While claims can still arise, ordinary unfair dismissal protection is generally unavailable until two years’ service.

From January 2027, that protection will arise very quickly.

In practical terms, employers will only have a short window to:

• recruit properly;
• assess performance;
• identify conduct issues;
• provide training and support;
• document concerns;
• run a fair process if needed; and
• make a final decision before unfair dismissal rights attach.

This means probation periods will become critically important rather than merely administrative.

At the same time, the removal of the compensation cap significantly increases financial exposure. Previously, employers could broadly assess the maximum ordinary unfair dismissal liability. Once the cap disappears, claims involving senior staff, high earners or long periods of unemployment may become substantially more expensive.

Many SMEs are underestimating how quickly a relatively straightforward dismissal could evolve into a high-value dispute.

The Biggest Mistake Employers Will Make

One of the most common problems we see is businesses assuming that “probation” automatically gives them legal protection.

It does not.

A probation period is not a legal shield. It is simply a contractual mechanism. If the probation process is badly designed or poorly managed, the existence of a probation clause alone will not prevent claims.

Many employment contracts currently contain extremely basic probation wording such as:

“Your employment is subject to a six-month probation period.”

That is no longer enough.

Employers now need far more sophisticated probation structures that clearly define:

• performance expectations;
• review periods;
• training obligations;
• reporting structures;
• extension rights;
• disciplinary standards;
• attendance requirements; and
• termination procedures during probation.

Without clear contractual wording and supporting evidence, employers may struggle to demonstrate that dismissals were fair and reasonable.

Employment Contracts That Need Updating Now

Many employment contracts currently in use across SMEs were drafted for the old two-year regime and are now likely to be outdated.

Businesses should consider reviewing and updating the following areas.

Probation Clauses

Probation provisions should become substantially more detailed.

A well-drafted clause should:

• clearly state the length of probation;
• allow extensions where concerns remain unresolved;
• confirm reduced notice rights during probation;
• reserve flexibility regarding performance standards; and
• require attendance at review meetings.

Importantly, employers should avoid drafting clauses that accidentally create unrealistic procedural obligations that become difficult to follow in practice.

Overly complicated probation clauses can sometimes create more risk rather than less.

Notice Provisions

Many employers may wish to reconsider notice periods during the first year of employment.

Long notice periods for relatively new hires can substantially increase settlement pressure where disputes arise.

Carefully structured graduated notice provisions can help maintain flexibility while still appearing commercially reasonable to candidates.

Duties and Performance Expectations

Vague job descriptions are likely to become increasingly problematic.

If employers later argue that an employee was unsuitable or underperforming, they will need evidence showing what standards were expected in the first place.

Clear KPIs, reporting expectations and measurable objectives are likely to become far more important under the new regime.

Garden Leave and PILON Clauses

Employers should ensure contracts contain robust garden leave and payment in lieu of notice clauses.

Where disputes arise with newer employees, employers may increasingly prefer to remove individuals quickly and cleanly from the business while limiting disruption and preserving confidentiality.

Without properly drafted clauses, employers can lose strategic flexibility.

Policies That Employers Should Review

Many businesses focus entirely on contracts while neglecting internal policies.

That is a mistake.

Employment tribunals frequently assess whether employers followed their own procedures consistently and fairly.

Outdated or informal policies can seriously undermine a defence.

Probation and Performance Policies

Many SMEs do not currently have standalone probation policies.

That will become increasingly risky.

A proper probation policy should explain:

• review timelines;
• meeting structures;
• documentation requirements;
• extension procedures;
• training expectations;
• performance support mechanisms; and
• decision-making processes.

Managers should also receive training on how to use these procedures consistently.

One overlooked issue is that many managers avoid difficult conversations during probation because they hope performance will improve naturally. By the time concerns are finally addressed, unfair dismissal rights may already exist.

Disciplinary and Capability Procedures

Even during probation, employers should increasingly consider using fair and documented procedures.

This does not necessarily mean running a full formal disciplinary process every time. However, employers should usually be able to show:

• concerns were explained;
• employees were given an opportunity to respond;
• reasonable support was offered; and
• decisions were reached rationally.

Tribunals are often less concerned with perfect procedure and more concerned with overall fairness and reasonableness.

Recruitment Policies

The financial consequences of poor recruitment decisions are increasing substantially.

Employers should therefore review:

• interview procedures;
• reference checking;
• testing processes;
• onboarding systems; and
• management training.

One of the most commercially intelligent ways to avoid unfair dismissal claims is simply to reduce bad hires in the first place.

Many SMEs currently spend more time negotiating office leases than they do designing recruitment systems.

The Best Strategy for Terminating Employment Safely

One of the biggest misconceptions in employment law is that there is a single “safe” way to dismiss someone.

There is not.

Risk reduction depends heavily on timing, documentation, conduct and strategy.

However, there are several practical steps employers can take to minimise exposure.

Move Faster – But More Carefully

Under the new regime, delay becomes dangerous.

Many managers postpone difficult conversations because they wish to avoid confrontation. That approach may become commercially disastrous once unfair dismissal rights arise after six months.

Employers should identify concerns early and address them immediately.

A short but well-managed process is often safer than months of informal drift.

Document Everything Properly

One of the strongest defences to unfair dismissal claims is contemporaneous evidence.

Employers should maintain written records of:

• training provided;
• review meetings;
• concerns raised;
• employee responses;
• support offered; and
• performance outcomes.

A tribunal will often place significant weight on documents created at the time rather than retrospective explanations prepared after litigation begins.

Surprisingly, many otherwise strong employer cases fail because managers simply failed to document discussions properly.

Avoid Ambushing Employees

Some employers still believe sudden dismissals demonstrate decisiveness.

In reality, surprise dismissals often increase litigation risk because employees feel unfairly treated.

Even where dismissal is likely, employees should usually understand:

• what the concerns are;
• why those concerns matter;
• what improvement is expected; and
• what could happen if issues continue.

Employees who feel they were treated fairly are often substantially less likely to bring claims even where they disagree with the outcome.

Train Managers Properly

Many unfair dismissal claims originate not because the business lacked a legitimate concern, but because a poorly trained manager handled the process badly.

Examples include:

• emotionally charged meetings;
• inconsistent treatment;
• careless written comments;
• unrealistic performance targets; or
• procedural shortcuts.

Manager training is therefore becoming a critical legal risk management tool rather than merely an HR exercise.

Consider Settlement Agreements Earlier

Settlement agreements are likely to become increasingly common under the new regime.

Where relationships deteriorate early, a commercially sensible exit package may often be cheaper and safer than defending litigation.

However, employers should approach settlement discussions carefully and strategically to preserve “without prejudice” protections where possible.

Poorly handled settlement discussions can themselves generate claims.

Watch for Hidden Claims Beyond Unfair Dismissal

One particularly important point is that employers often focus solely on unfair dismissal while overlooking other risks.

Many employees bring parallel claims involving:

• discrimination;
• disability issues;
• whistleblowing;
• maternity rights;
• flexible working;
• harassment; or
• breach of contract.

Importantly, many of these claims already have no qualifying service requirement and can involve uncapped compensation.

The new six-month rule is therefore best viewed as part of a wider trend towards greater employee protection generally.

Employers Should Not Panic – But They Must Adapt

Despite alarming headlines, these reforms do not mean employers cannot dismiss underperforming employees.

Businesses will still retain the right to manage performance, enforce standards and terminate employment where justified.

However, employers will need to become significantly more structured, proactive and legally disciplined in how they do so.

The businesses most likely to struggle are not necessarily those making difficult decisions, but those relying on outdated paperwork, informal processes and untrained managers.

The employers who adapt early are likely to gain a substantial commercial advantage because they will be able to recruit and manage staff confidently while competitors become increasingly risk-averse.

How We Help Employers Prepare

At The Jonathan Lea Network, we advise employers on practical and commercially focused employment law strategies designed to minimise disputes while protecting operational flexibility.

We assist businesses with:

• updating employment contracts;
• drafting modern probation procedures;
• reviewing disciplinary and capability policies;
• managing dismissals strategically;
• negotiating settlement agreements; and
• defending employment tribunal claims.

The earlier businesses prepare for the 2027 reforms, the more options they will have available.

If your employment contracts or HR procedures have not been reviewed recently, now is the ideal time to ensure your business is properly protected before the new unfair dismissal regime takes effect.

How we can help?

We provide enquiries with an indicative scope of work and fee estimate, based on the information you share. We aim to respond within one working day.

Photo by Vitaly Gariev on Unsplash

 

 

* VAT is charged at 20%

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.