Employment Rights Act 2025: unfair dismissal, probationary periods and the new reality for new hires

The Employment Rights Act 2025 marks the most significant reform to UK employment law in over a generation. The most immediate and practical impact for many will be felt in unfair dismissal law and, closely linked to that, probationary periods. 

What is changing?

Currently, employees generally require two years’ service to bring a claim for ordinary unfair dismissal. Under the Employment Rights Act 2025 (the ERA):

• The qualifying period will reduce to six months;
• The statutory cap on compensatory awards will be removed entirely,

with these changes taking effect from 1 January 2027. Any employee who has at least six months' service by 1 January 2027 will have unfair dismissal protection from that date.

This represents a fundamental shift in the balance of employment rights. Employees will gain access to unfair dismissal protection much earlier and the potential financial exposure for employers will increase significantly.

The end of the “two-year safety net”

Historically, employers have relied on the two-year qualifying period as a form of buffer. Provided the correct (non-discriminatory) reasons were relied upon, early-stage dismissals typically carried relatively low litigation risk. However, that position will no longer apply. While the ERA stops short of introducing true “day one” unfair dismissal rights, the reduction from two years to six months is still a transformational change.

Effect on probationary periods

Interestingly, the legislation does not directly regulate probationary periods - there is no longer any concept of statutory probation in the ERA. However, the practical effect of the six-month qualifying period is that probation has become more significant than ever.

The most common six‑month probationary period used by UK employers will now align directly with the unfair dismissal qualifying threshold. Employers will need to reach a view on a new hire’s suitability before that six‑month point is reached, significantly reducing the window for making lower‑risk dismissal decisions.

Consider a typical six-month probation period:

• Under the current regime, issues identified at month four or five could still be addressed with relative flexibility;
• Under the new regime, delays in decision-making risk the employee acquiring unfair dismissal protection before a final probation decision is made.

This creates a compressed assessment and decision-making window. In practice, employers may therefore want to:

• Shorten probationary periods to around three months;
• Build in the ability to extend probation where necessary;
• Ensure that any final decision is taken (and acted upon) in good time before the six-month threshold.

Increased litigation and financial exposure

Perhaps the most significant change for employers and employees is the removal of the compensation cap. Currently, the unfair dismissal compensatory award is limited to the lower of the statutory cap (£123,543) or 52 weeks’ gross pay.

In the event of a successful unfair dismissal claim, employment tribunals will still be required to assess compensation on the individual’s financial loss, considering factors such as contributory fault and mitigation. However, having an uncapped compensatory regime will inevitably lead to uncertainty for employers in terms of financial risk. It will influence settlement negotiations, with claimants potentially overstating their losses, and impact the length and complexity of remedies hearings with additional evidence on issues such as pension loss. It could also lead to an increase in high earners bringing claims in the employment tribunal, adding to the strain and delays the system is already facing.

Steps for employers to consider

These changes will impact any employee who has at least six months' service by 1 January 2027 and, therefore, employers should take steps now to prepare. 

• A sensible starting point is to review existing probation frameworks. Consider whether the length of probation remains appropriate in light of the new six‑month qualifying period for unfair dismissal and whether any provisions allowing for extension are clear, workable and consistently applied.
• Alongside this, there should be a renewed focus on strengthening performance management during the early stages of employment. This is likely to require clear goals and standards for employees to meet from day one and more structured review points, together with regular and meaningful feedback (and support / training as appropriate). It will also be important to ensure that managers are properly trained and equipped to deliver feedback and keep a record of review meetings / outcomes in a clear and consistent way.
• Given the increased importance of managing probationary periods effectively, consider having a probationary policy and/or internal guidance for line managers / HR. A standalone policy could, amongst other things, explain your process for managing probationary periods, document clear expectations and set out a 'curtailed' dismissal process that applies during the probationary period.
• It is important to ensure that all processes are aligned with the evolving legal landscape. Employment contracts, policies and internal guidance should reflect the increased emphasis on fair process and evidence. Also, consider whether any changes are needed to notice periods, payments in lieu of notice, benefits contingent on completing a probationary period etc.
• Decisions taken during probation should be supported by contemporaneous documentation, so that they can be clearly explained and, if necessary, defended at a later stage.
• Finally, employers should place greater emphasis on recruitment quality. With a shorter window to assess suitability and a reduced margin for correcting a poor hire, front-end hiring processes will become increasingly critical. Ensuring that candidates are the right fit from the outset will be key to managing both legal risk and operational effectiveness.

If you would like to discuss how these changes impact your organisation, or support with updating contracts and policies, please get in touch with the Brodies employment and immigration team.

Employment Rights Act 2025 timeline and webinar series 

To keep up-to-date with all the reforms in the Employment Rights Act 2025 see our Employment Rights Act page and timeline. We are also running an Employment Rights Act webinar series, hosting 30-minute webinars providing practical guidance on key aspects of the Act. 

Workbox by Brodies

Workbox by Brodies users can access practical guidance on the forthcoming changes at the pages on Unfair Dismissal, Probationary Periods (including an example probationary policy) and Employment Rights Act: Preparatory Steps. To arrange a short Workbox demo, please get in touch.