Unfair dismissal qualifying period: what employers need to know before January 2027
The Employment Rights Act 2025 reduces the unfair dismissal qualifying period from two years to six months, taking effect on 1st January 2027. Most employers haven't acted on this yet and many haven't heard of it.
This will require a different approach to recruitment, probation and early performance management. And there's a second change on the same date that makes this even more pressing: the cap on unfair dismissal compensation is being removed. Currently it sits at £123,543 or 52 weeks' pay, whichever is lower. From 1st January 2027 there will be no upper limit.
More employees will be eligible to claim, and the financial exposure is uncapped.
What the law actually says
Unfair dismissal gives an employee the right to challenge a dismissal if it wasn't for a fair reason (such as redundancy, capability, conduct or statutory illegality) or wasn't handled reasonably. If a tribunal agrees, it can order reinstatement or compensation.
Currently, most employees need two years' continuous service before they can bring a claim. That threshold is what's changing.
The Government originally planned to remove the qualifying period altogether, giving day-one rights to all employees. Following pressure in the House of Lords, they settled on six months instead.
The practical effect is the same for many employers: the two-year window that many relied on as a buffer when managing out a new employee who isn’t working out is effectively gone.
When does the new unfair dismissal qualifying period take effect?
From 1st January 2027, any employee with six months' service can bring an unfair dismissal claim.
The date of 1st July 2026 is therefore also important. Anyone hired from that date will reach six months' service by the time the law changes so if you are recruiting now this will be relevant to them.
How the new qualifying period affects probation
Many employers use probation as the mechanism for managing a new employee who isn't working out. That still works under the new rules, but the timing has to be tighter.
Our recommendation is a three to four month probation period, with an extension where needed. The hard rule is any decision to dismiss must be taken before the employee reaches five and a half months' service. That allows enough time for the statutory notice period of one week to run before the six-month qualifying period is reached (any further notice that is contractual can be paid in lieu of notice if your contract allows).
If you're currently using a six-month probation, that needs to change. A decision taken at the end of a six-month probation, served with even a week's notice, will tip the employee over the threshold. At that point they have full unfair dismissal rights, and the fact they were on probation provides no additional legal protection.
The answer isn't to rush decisions. It's to start the assessment earlier. Regular check-ins, clear expectations, honest feedback and proper documentation all need to happen within the probationary period rather than at the end of it.
Fixed term contracts
One area that often comes as a surprise to employers is that the expiry of a fixed term contract without renewal counts as a dismissal for unfair dismissal purposes under s.95(1)(b) of the Employment Rights Act 1996. It always has. But when the qualifying period was two years, many fixed term contracts didn't run long enough for it to matter.
From January 2027, any fixed term contract of six months or more could give rise to an unfair dismissal claim when it expires. You would need to show there was a potentially fair reason for not renewing (redundancy being the most common) and that you handled the process reasonably. The fixed term nature of the contract is not itself a defence.
If you use fixed term contracts regularly, it's worth reviewing how they're managed at the point of expiry.
What to do now
You've got time to prepare, but not as much as it might seem. July 2026 is the practical deadline for anyone recruiting.
Review your probation period and process. If it's longer than four months, shorten it. Make sure it's written in a way that supports early assessment rather than just marking time.
Check your contracts. The six-month qualifying period is taken from the date employment terminates, not the date you give notice. Statutory minimum notice for an employee with less than six months' service is one week, and that week counts as part of their service. So if you give notice on the day someone reaches five months and three weeks, their employment ends exactly at the six-month mark and they have unfair dismissal rights. The decision to dismiss needs to be made, and notice given, by five and a half months to be safe. If your contract provides for a longer notice period, you should pay in lieu rather than have the employee work it (check your contracts permit that first).
Train your managers. The legal framework and the updated emphasis on the probationary period need to be understood by those making the day-to-day decisions. Managers need to know what a fair probationary process looks like, how to document performance concerns and what to do if someone isn't meeting expectations.
Audit recent dismissals. If you regularly dismiss employees in the first two years, look at the reasons. If it's happening because of issues that could have been addressed at recruitment or during onboarding, that's where the work is.
Good process protects you. That's what this is about.
If you have questions about any of this or want to talk through what it means for your organisation, get in touch.
