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Unfair Dismissal: Key Changes Employers Need to Know from 1 July 2026


Significant changes to unfair dismissal rights are on the horizon under the Employment Rights Act 2025, and employers should already be reviewing their recruitment, probation, performance management and dismissal practices to prepare.


What Is Changing?


From 1 January 2027, employees will gain protection from unfair dismissal after six months of service, replacing the current two-year qualifying period. Importantly, the changes have a retrospective effect. Employees hired on or after 1 July 2026 will be able to benefit from the new six-month qualifying period once the legislation takes effect.


Another major development is the removal of the unfair dismissal compensation cap, potentially increasing the financial risk associated with successful claims.


Why Employers Need to Act Now


Although the new qualifying period does not come into force until January 2027, practical preparations need to begin from 1 July 2026.


Employers should:

·       Review recruitment, probation, performance, and dismissal procedures.

·       Train managers and leaders on the new legal requirements.

·       Ensure robust record-keeping practices are in place.

·       Gather and retain evidence that may be required to defend future unfair dismissal claims.


Preparing Policies and Documentation


Review Contracts, Policies and Guidance


Take the opportunity to review and update:

·       Recruitment processes

·       Induction programmes

·       Probation arrangements

·       Performance management policies

·       Employment contracts and associated documentation


Ensure that all policies reflect the new legal landscape and provide clear guidance for managers and employees.


Develop or Refresh Your Probation Policy


A well-structured probation policy will become increasingly important.

Your policy should:

·       Clearly outline probation processes and timelines.

·       Define how performance will be assessed and measured.

·       Set expectations for review meetings and feedback.

·       Explain possible outcomes at the end of probation, including confirmation of employment, extension, or dismissal.


Review Employment Contract Wording


Employers should carefully examine contractual provisions relating to probation periods. Consider:

·       Whether probation periods should be reduced to between three and five months.

·       How probation extensions are managed and documented.

·       Whether any probation periods extending beyond six months remain appropriate.

·       Reviewing notice provisions during probation.

·       Ensuring Payment in Lieu of Notice (PILON) clauses are up to date.

In addition, review any template letters or documentation used to provide written reasons during dismissal processes.


Strengthening Record-Keeping


Good documentation will be critical in reducing legal risk.

Ask yourself:

·       Are performance concerns recorded consistently?

·       Are attendance and conduct issues documented promptly?

·       Can managers provide evidence of the support and guidance provided to employees?

Strong records may prove invaluable if a dismissal decision is later challenged.


Briefing Managers and Senior Leaders


Managers will play a central role in ensuring compliance with the new framework.

Employers should:

·       Brief managers on the upcoming changes.

·       Clarify responsibilities during probation periods.

·       Provide training on performance management and documentation requirements.

·       Ensure senior leaders understand the potential legal and financial implications.

Organisations should also consider how the removal of the compensation cap may affect settlement strategies, particularly for senior or highly paid employees.


Communicating Changes to Employees


Clear communication is essential.

Consider whether:

·       New starters are properly informed about their probation period.

·       Objectives and performance expectations are clearly communicated.

·       Review processes are explained from day one.

·       Any updates to performance management or probation policies have been shared with employees.


Transparency can help manage expectations and reduce the risk of disputes later.


Additional HR Considerations


HR teams should also take a broader view of the potential impact.

Key actions include:

·       Reviewing approaches to performance management for senior and higher-paid employees.

·       Assessing conduct and capability procedures.

·       Auditing performance and conduct records for employees hired after 1 January 2025.

·       Identifying and addressing employee relations issues proactively before 1 January 2027.


What Are Your Views on the Changes?


Opinion remains divided:


Arguments in Favour


Many employment specialists and employee representatives welcome the changes, arguing that:

·       Earlier protection strengthens job security.

·       Employees gain greater protection against arbitrary dismissal.

·       The reforms help balance the employer-employee relationship.


Concerns Raised by Employers


Some employers and industry representatives have expressed concerns that:

·       Removing the compensation cap could significantly increase financial exposure.

·       Businesses may become more cautious when recruiting senior or highly paid positions.

·       The number of tribunal claims could rise.


The Practical Reality


Perhaps the most common concern is not the law itself, but an organisation's ability to manage performance, conduct and attendance issues effectively.


The changes will require:

·       Earlier intervention when concerns arise.

·       Shorter and more focused probation periods.

·       Consistent performance management practices.

·       Improved record-keeping and evidence gathering.

·       Greater emphasis on fair process and fair reason when making dismissal decisions.

 

With potentially uncapped compensation awards, particularly for senior employees, employers will need to ensure that both their decision-making and their procedures can withstand scrutiny.


The message is clear: employers who prepare now will be in the strongest position to manage risk and adapt successfully to the new unfair dismissal regime.


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Disclaimer

  • All information within the post is provided for guidance only; always seek your own legal advice.

  • The information with this post was correct at the time of publishing, July 2026 but may be subject to change.


 
 
 

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