From 1 January 2027, a major change to UK employment law will take effect under the Employment Reform Act 2025 (ERA 2025). The reform, which reduces the qualifying period for unfair dismissal claims and removes the current cap on compensatory awards, represents one of the most significant shifts in employment protections in recent years.
Even though the reduction in the qualifying period will not come into effect until 1st of January 2027, it will apply to employees already in employment at that time. This means employers need to act now to ensure their policies, procedures, and employment contracts are prepared for a wider pool of employees who will gain immediate legal protection.
Key changes from 1 January 2027
The ERA 2025 introduces two headline reforms:
- Reduced qualifying period – Employees will no longer need two years’ service to bring an unfair dismissal claim. From 1 January 2027, only six months’ service will be required.
- Removal of the compensatory cap – The statutory limit on compensatory awards for unfair dismissal will be removed, potentially increasing financial exposure for employers in successful claims.
These changes will have a significant impact on how employers manage their workforce and handle dismissals, making it more important than ever to have clear, fair, and robust processes in place.
What this means for employers
The reduction in the qualifying period will substantially increase the number of employees eligible to bring unfair dismissal claims. Specifically:
- Employees hired in 2025 or early 2026 will automatically gain protection from 1 January 2027.
- Employees hired from mid-2026 onward will become eligible once they reach six months’ service.
In practical terms, this means employers could face a broader range of claims from both long-standing staff and relatively new hires. Combined with the removal of the compensatory cap, the potential financial implications of unfair dismissal claims could be considerably higher than under current law.
Act now: preparing for the reform
Employers are encouraged to take proactive steps to reduce risk and ensure compliance ahead of the changes. Key actions include reviewing and updating:
- Offer letters and employment contracts – Ensure terms reflect current and future employment rights.
- Onboarding processes – Reinforce expectations, policies, and procedures from day one.
- Probationary procedures – Check alignment with fair dismissal practices.
- Disciplinary and dismissal procedures – Ensure they are robust, transparent, and consistently applied.
- Performance management frameworks – Document processes to support fair treatment of employees.
By taking these steps early, employers can reduce the likelihood of disputes escalating into claims and demonstrate compliance with fair employment practices from the outset of employment.
How we can help
Our employment law team can assist employers in reviewing contracts, updating procedures, and advising on best practice in light of the ERA 2025 reforms. Acting now will help ensure you are ready for the changes, protecting your business and supporting fair, transparent, and legally compliant employment practices.
Get In Touch
Sylviane Kokouendo is an Associate Partner in our Employment & HR team. She has extensive experience advising clients on all aspects of employment law, from day-to-day HR matters to complex, high-stakes corporate transactions. Sylviane supports both employers and employees with contracts, policies, disciplinary and grievance matters, redundancy processes, restrictive covenants, settlement agreements, and Tribunal proceedings.
If you’re concerned about how the ERA 2025 unfair dismissal reforms will affect your organisation, or you’d like to discuss our HR audit service and how we can support your business through this transition, please contact our employment team on 03300 299 419 or via our online enquiry form
