The Final Countdown: Practical Steps for Employers Ahead of January 2027

By now, all employers will be well aware of the raft of reforms introduced by the Employment Rights Act 2025. With some of the most significant changes to unfair dismissal law coming into effect on 1 January 2027, employers in England and Wales now have less than 6 months remaining to prepare for the key changes. 

Changes to unfair dismissal

From 1 January 2027, the following key changes will come into force:

• The qualifying period for protection from ordinary unfair dismissal will be reduced from 2 years to 6 months’ service. Employees who have already accrued 6 months' service by 1 January 2027 will gain protection on that date. Those hired after 1 July 2026 will gain protection once they reach 6 months' service.
• The statutory cap on compensatory awards for unfair dismissal claims will be removed. Currently, compensatory awards are capped at the lower of 52 weeks’ pay or £123,543.

What does this mean for employers?

The Government has estimated that the reduced qualifying period will extend unfair dismissal protection to an additional 6.3 million employees, resulting in an estimated increase of 9,000 ACAS early conciliation claims per year, of which approximately 3,000 are expected to progress to a claim in the Employment Tribunal. 

Additionally, the removal of the statutory cap will greatly increase the financial risk for employers who dismiss high earners. 

Taken together, the changes mean that employers who fail to prepare now face a materially greater risk of costly tribunal proceedings in the new year. Employers should therefore be assessing their workforce and reviewing their internal practices in the lead up to January, to minimise their exposure to risk.

Action points 

We have set out five key recommended actions and considerations for employers to take below. 

1. Review probationary periods 

The upcoming changes mean employers will now have a much shorter window in which to assess a new joiner’s performance and suitability. Organisations should therefore review their probationary practices to ensure that clear and structured procedures are in place to properly assess and manage performance during this time and, if necessary, consider dismissing underperforming employees prior to them acquiring 6 months' service. 

Employers should also consider implementing shorter probationary periods for any new hires; we would recommend either four months with the contractual right to extend, or five months without any option to extend. This should allow as much time as possible to assess performance, whilst still leaving time to manage an exit prior to the 6-month service date, if required. Employers should avoid implementing probationary periods any longer than this, to avoid falling foul of the statutory notice period addition rule (see further below). 

 2. Dealing with ‘problem hires’

Employers should assess their existing workforce and avoid carrying any ‘problem hires’ into 2027. Any conduct or performance related issues should be addressed in good time before the changes come into force, either by way of a full management process or, if appropriate, dismissal. This applies to both employees who will acquire unfair dismissal protection on 1 January (by virtue of having 6 months’ service) and those who are already protected under the existing statutory framework, given the risk of uncapped claims in the new year. 

Employers should be mindful of discrimination and/or whistleblowing risks and take appropriate advice.

3. Factor in statutory notice period  

Once an employee has completed one month's service, they are entitled to a minimum of one week's statutory minimum notice (although their contractual notice period may be longer).

Managers should be mindful that when an employee is dismissed without working their full notice period, or part of it, the statutory minimum notice period is automatically added to the termination date for the purposes of calculating whether or not the employee has requisite service to bring a claim for unfair dismissal. This applies even when the employee is given a payment in lieu of notice ("PILON"). 

For example: 

• An employee started work on 1 July 2026. By late December 2026 they will have nearly 6 months' service.
• On 28 December 2026, their employer decides to dismiss them with immediate effect and pays them in lieu of their one week's statutory notice.
• Although the employee's last day at work is 28 December 2026, the law requires their one week's statutory notice to be added on when calculating eligibility for unfair dismissal. This pushes their effective date of termination to 4 January 2027.
• By that adjusted date, the employee will have more than 6 months' continuous service (1 July 2026 to 4 January 2027). They therefore acquire protection from ordinary unfair dismissal.

4. Audit workforce, policies and procedures

To successfully manage the upcoming changes, employers need to start reviewing their practices now, and remain organised and prepared once the changes kick in. Recommendations include:

• Reviewing and updating recruitment, disciplinary, capability and probationary procedures to ensure they are fit for purpose and reflect the upcoming changes.
• Updating company handbooks, template letters, manager guidance, and HR workflows to reflect any new timescales and procedures.
• Setting calendar reminders to diarise important deadlines for new and current employees, such as: performance check-ins, completion and/or extension of probationary periods, and the longstop date for dismissals prior to acquiring unfair dismissal protection (5 months and 3 weeks, or longer where the employee is contractually entitled to more than the statutory minimum notice period).
• Reviewing record-keeping practices and ensuring they are up-to-scratch. It will now be more important than ever to ensure there is a clear paper trail documenting the rationale for dismissal; having good contemporaneous evidence can be the difference between a successful and unsuccessful claim.   

5. Training 

Appropriate training should be given to line managers to ensure they are aware of the upcoming changes and are ready to handle recruitment, probation, performance concerns and dismissals in a consistent and legally robust way. 

Employers should consider scheduling training sessions in or before the autumn so that managers are prepared by January.

Summary

Employers who are caught unprepared in January 2027 will be at a far greater risk of unfair dismissal claims and the removal of the statutory cap means that this will have a much higher price tag for businesses than before. 

Employers who use the next 6 months to review their workforce, policies, and management practices will be in a far stronger position to mitigate their exposure to legal and financial risk when the above changes take effect.

If you would like to discuss any of these changes, or would like to discuss their particular impact on your business - and how we might be able to support you - please get in touch.