New Unfair Dismissal Rules

22 December 2025

Employee rights after six month's service

The Employment Rights Act 2025: A Major Shift in Unfair Dismissal Laws


In December 2025, the UK Parliament passed the Employment Rights Act 2025, marking a radical overhaul of employment law. This reform strengthens protections for employees and modernises the workplace, with one of the most significant changes being the shift in unfair dismissal laws.


New Qualifying Period for Unfair Dismissal


Under the current law, employees must have two years’ continuous service to bring a claim for unfair dismissal. The new law reduces this to just six months of continuous employment, allowing more workers to challenge unfair dismissals much sooner.

This change takes effect 1 January 2027. After that, employees with six months’ service will be able to claim unfair dismissal, lowering the bar for legal redress.


Abolition of the Compensation Cap


The Act also removes the compensation cap for unfair dismissal claims. Under the current law, awards are capped at the lower of 52 weeks’ salary or a statutory maximum (currently around £118,000). The new law allows uncapped compensation, meaning employees could receive significantly higher awards, especially in cases involving lost future earnings, pensions, or bonuses.

Employers will face greater financial risk as a result, especially in high-stakes cases. The mechanics of the uncapped compensation are still being finalised but employers should prepare for increased liability.


Why This Matters


For Employees:

  • Faster Access to Protection: With the qualifying period reduced to six months, more employees can challenge unfair dismissals sooner.
  • Higher Compensation: The removal of the compensation cap means awards could more accurately reflect the full financial impact of dismissal.


For Employers:

  • Increased Risk: With the six-month threshold and uncapped compensation, employers face higher exposure to claims and larger potential payouts.
  • Proactive Management: Employers will need to improve performance management and ensure procedural fairness from the outset to avoid costly dismissal claims.
  • Rising Tribunal Caseload: The reform is likely to lead to a surge in claims, further burdening the already overloaded tribunal system.


Looking Ahead


The Employment Rights Act 2025 is part of a broader package of changes, including enhanced family-friendly rights, statutory sick pay from day one, protections against fire-and-rehire tactics, and improved rights for workers on zero-hours contracts.

Employers need to start preparing now for the impact of these changes. Updating policies, refining performance management practices, and ensuring compliance will be key to navigating the evolving legal landscape as these reforms take effect in 2027.




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