Employment Law Guide 2026: Unfair dismissal

Changes to unfair dismissal rights are perhaps the most significant of all the changes made by the ERA 2025 as they will affect every employer. In order to get the Act passed by Parliament, the Government had to drop its original plan to allow employees to bring unfair dismissal claims from the first day of their employment. Instead, employees will need six months’ service to bring a claim, rather than the current two years’ service. This change is expected to come into force on 1 January 2027 and anyone with six months’ service on or after that date will have unfair dismissal rights.

Equally important for employers is the removal of the cap on the compensatory award which was an unexpected late addition to the ERA 2025. In most cases, the compensatory award is currently capped at £118,223 (or 52 weeks’ pay, if lower). The Government has not said when the cap will be removed but it is likely that this will also come into effect on 1 January 2027 and apply to claims issued on or after that date.

Implications/Action points

• Employers will need to revisit probationary periods in their employment contracts as a matter of urgency.
• There will need to be a greater focus on performance management during the probationary period so that issues are identified and dealt with at an early stage.
• Ensure managers are trained in how to manage probationary periods and dismissal processes more generally, including performance, capability, disciplinary and redundancy processes.
• Expect to receive more unfair dismissal claims and for settlement costs to increase.
• On the plus side for employers, there could be a reduction in unmeritorious whistleblowing and discrimination claims designed to get round the current compensation cap and other unmeritorious automatic unfair dismissal claims designed to get round the current two years’ service requirement.