For decades, the two-year qualifying period for unfair dismissal protection gave employers significant breathing room when managing new starters. A dismissal within the first two years carried relatively limited legal risk for most conduct or performance issues.
That protection disappears on 1 January 2027. Under the Employment Rights Act 2025, the qualifying period for unfair dismissal drops from two years to six months. An employee with six months and one day of service will have full unfair dismissal rights. At the same time, the compensatory award cap, currently set at the lower of one year’s gross pay or approximately £115,115, will be removed entirely.
This is the single most significant change employers will face under the Employment Rights Act 2025. With less than ten months to prepare, the time to act is now.
What the Change Actually Means
At present, an employee dismissed within their first two years has very limited grounds for a tribunal claim. Day-one rights exist for whistleblowing, discrimination, and trade union activity, but for the vast majority of conduct or performance dismissals, the two-year period provides a practical safety net.
From January 2027, an employee dismissed at month seven, eight, or nine will be able to bring a full unfair dismissal claim. The tribunal will assess whether the dismissal was for a fair reason, whether a fair procedure was followed, and whether the decision fell within the range of reasonable responses open to the employer.
If any of those tests are failed, the employer faces an uncapped compensation award. A tribunal can order whatever it considers just and equitable, including multiples of the individual’s annual salary, depending on their losses and circumstances.
The Probationary Period Problem
Many businesses currently use the two-year qualifying period as an informal substitute for active performance management. An employee not working out at 18 months is simply let go before the two-year mark. That approach becomes legally untenable from January 2027.
Probationary periods, whether three or six months in length, will need to function as genuine, structured assessments. That means documented review meetings, clear and honest feedback at the one, three, and five-month marks, and a fair process before any dismissal decision is made.
A dismissal at month seven with no documented performance concerns, no review meetings, and no opportunity for the employee to improve will be vulnerable at tribunal. A dismissal at month seven with a clear documented record, a fair process, and a genuine reason will be far more defensible.
The businesses most at risk are those that continue to manage new starters informally, relying on a two-year safety net that no longer exists.
The Compensation Cap Removal: Why This Matters for Senior Hires
The removal of the compensatory award cap deserves particular attention. Currently, even a successful claimant faces a ceiling on recovery. From January 2027, that ceiling is gone.
In practice, most unfair dismissal tribunal awards are modest. The median award is well under £15,000. However, uncapped liability fundamentally changes the risk calculation for employers who take on senior, specialist, or well-paid staff. A manager or director dismissed unfairly at six months could, in principle, recover many multiples of the current statutory cap.
What Is Coming Alongside This Change?
The unfair dismissal changes do not arrive alone. January 2027 also introduces significantly strengthened fire and rehire protections, making it far harder to dismiss employees and re-engage them on reduced pay or worse terms as a mechanism for forcing through contractual changes.
The broader context matters too. April 2026 is already bringing significant changes to Statutory Sick Pay, family leave rights, and trade union recognition. The Fair Work Agency launches on 7 April 2026 with powers to investigate employers and enforce payment obligations. The direction of travel is clear: employee rights are expanding, enforcement is strengthening, and the cost of non-compliance is rising.
What Should You Do Now?
Audit your probationary process. Are formal review meetings actually happening? Are they documented? Are managers having honest performance conversations at the one, three, and five-month marks, or are concerns left unaddressed until there is a problem?
Update your contracts and documentation. Probationary clauses, review forms, and performance management templates all need to reflect the new legal landscape. Generic or out-of-date documentation will not support a dismissal at tribunal.
Train your managers. The businesses that will be caught out are those whose managers have never been shown how to conduct a structured probationary review, give documented feedback, or navigate a fair dismissal process. That training investment needs to happen before January 2027.
January 2027 is closer than it looks. Redesigning a probationary process, training managers, and updating employment contracts all take time. Businesses that leave this until autumn 2026 will be scrambling.
How Employment Law Solutions Can Help
Employment Law Solutions works with businesses across the UK on a retained basis. We help employers build legally defensible processes, train managers to have difficult conversations, and navigate dismissals, including during probation, in a way that minimises tribunal risk.
Do not wait for the change to catch you out. Speak to the Employment Law Solutions team today. We offer a free initial consultation and can help you assess where your probationary and performance processes need strengthening. Visit employmentlawsolutions.co.uk or call us now.
This article reflects the law as at March 2026. It is for general information purposes and does not constitute legal advice.
