📢 The Future of Unfair Dismissal Rights
- lansburyservices
- Dec 17, 2025
- 2 min read
There has been a major breakthrough in the Employment Rights Bill that will fundamentally change how you manage your workforce from 2027.
What's changing?
The UK Government has officially moved away from its original "day-one" unfair dismissal plan. Instead, following a compromise with the House of Lords, the qualifying period for unfair dismissal will be reduced from two years to six months.
Key details from recent reports and parliamentary debates:
Effective Date: The new rules are slated to come into force on 1st January 2027.
Retrospective Impact: It is expected to apply to existing employees. Anyone with at least six months of service on that date will immediately gain "ordinary" unfair dismissal protection.
Removal of Compensation Caps: To balance the move away from day-one rights, the Government intends to remove the statutory cap on compensatory awards (currently the lower of annual salary or £118,223). This aligns unfair dismissal with discrimination and whistleblowing claims, where awards are uncapped.
What does this mean for you?
This shift creates a "cliff edge" for employers in late 2026. Here is how the service timelines break down:
Employees hired on/before 1st Jan 2025: Minimal impact; they will already have two years of service (and full rights) by the time the law changes.
Employees hired between 2nd Jan 2025 and 1st July 2026: These team members will gain full rights on New Year’s Day 2027 significantly earlier than under current "two-year" rules.
Employees hired after 2nd July 2026: They will hit the new six-month protection threshold shortly after the law goes live.
With the removal of the compensation cap, the financial risk of a "bad dismissal" increases exponentially, particularly for high-earning staff or those with significant pension benefits.
Our advice to you
While 2027 feels distant, the "retrospective" nature of this change means your 2025 and 2026 hiring decisions are already in the spotlight. We recommend:
Tighten Probation Management Now: You no longer have a "two-year safety net." Ensure your probation reviews are rigorous, documented, and completed well before the six-month mark.
Train Your Managers: As the risk of uncapped claims grows, managers must be expert at following fair processes. "Lighter touch" dismissals are becoming a thing of the past.
Review Senior Exits: If you have underperforming high-earners, the cost of exiting them may rise dramatically after January 2027. Audit these roles sooner rather than later.
Audit Your Contracts: Check that your notice periods and "payment in lieu of notice" (PILON) clauses are fit for purpose under a more litigious landscape.
The Bill returns to the Commons on Monday 8th December, and we expect Royal Assent soon. Stay tuned as we track the final amendments on seasonal workers and guaranteed hours.
Need help auditing your current probation processes to prepare for 2027?
Contact Us Now on 01283 373687 or admin@lansburyhr.co.uk
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