From 1 January 2027, significant reforms under the Employment Rights Act 2025 will strengthen protection against unfair dismissal for millions of employees.
The changes include reducing the qualifying period for bringing an ordinary unfair dismissal claim from two years to six months and removing the existing cap on compensatory awards.
The qualifying period for unfair dismissal protection falls to six months
Currently, employees need two years of continuous service before they can bring an ordinary unfair dismissal claim in the Employment Tribunal.
From 1 January 2027, employees with six months’ continuous service will gain protection from unfair dismissal.
Reaching six months’ service does not prevent an employer from dismissing an employee. An employer may still dismiss for one of the five potentially fair reasons — capability, conduct, redundancy, illegality or some other substantial reason — provided the employer also acts reasonably and follows a fair procedure.
Employees will continue to have protection from the first day of employment where the alleged reason for dismissal is automatically unfair or where the dismissal is discriminatory, for example in connection with pregnancy or maternity, whistleblowing, health and safety activities or asserting a statutory right.
The compensatory award will no longer be capped
In a successful claim for unfair dismissal, an Employment Tribunal may make a basic award and a compensatory award. The basic award is calculated in the same way as a statutory redundancy payment, while the compensatory award is intended to compensate the employee for financial loss resulting from the dismissal.
Currently, the compensatory award is capped at the lower of £123,543 or 52 weeks’ gross pay.
From 1 January 2027, this statutory cap will be removed so employees can be awarded unlimited compensation. There will, however, be no change to the basis on which compensation is calculated: the Tribunal will continue to assess actual and projected financial loss caused by the dismissal, which may include loss of earnings, pension contributions and benefits. Employees will also remain under a duty to mitigate their losses, for example by looking for suitable alternative employment.
Advice for employees
If you are going through a dismissal process, or dismissal is being considered, take the following steps:
- Check key dates — including your start date, notice arrangements and expected effective date of termination.
- Ask for the reason for dismissal in writing — from 1 January 2027, employees with at least six months’ service will have the statutory right to request written reasons for dismissal.
- Keep relevant evidence — including your contract of employment, relevant company policies, appraisals, written warnings, meeting notes, payslips and records of your job search.
- Engage with the process — attend meetings, raise any concerns or grievances in writing and use any available appeal procedure.
- Act quickly — for most Employment Tribunal claims, the time limit is now six months less one day from the relevant act or effective date of termination. You must notify ACAS within the applicable time limit before issuing a claim in the employment tribunal, so take advice promptly.
The Employment Rights Act 2025 will significantly extend unfair dismissal protection from 1 January 2027, both by bringing employees with at least six months’ service within the ordinary unfair dismissal regime and by removing the cap on compensatory awards.
If you are facing dismissal, redundancy or the non-renewal of a fixed-term contract, contact our Employment Team for advice on your rights and the options available to you.