Since receiving Royal Assent last year, the Employment Rights Act 2025 has introduced changes to the employment law landscape in phases. Some of the most significant reforms will come into force over the coming months.
On 1 October 2026, the limitation period for most employment tribunal claims will increase from three months to six months. On 1 January 2027, the qualifying period for ordinary unfair dismissal claims will reduce from two years to six months. From the same date, the statutory cap on compensatory awards for ordinary unfair dismissal will be abolished.
These changes are intended to strengthen employment protections and improve access to workplace rights. They will also significantly increase the number of employees able to challenge a dismissal as unfair.
For employers, however, the reforms bring a longer period of potential legal exposure and increased financial risk. The ability to manage performance and suitability during the early stages of employment without the risk of an unfair dismissal claim will be substantially reduced.
The new qualifying period will apply to employees who have accrued six months’ continuous service by 1 January 2027. Employees hired early as 1 July 2026 will therefore benefit from the change. Employers should also exercise caution when managing dismissals near the implementation date, as an employee’s statutory or contractual notice period may extend their termination date beyond 1 January 2027, giving them the requisite six months’ service to bring an unfair dismissal claim.
As a result, employers will have a much shorter window in which dismissals can be effected without unfair dismissal risk. This makes it essential to reconsider how probationary periods are used. Probation should be treated as a genuine period of assessment, support and development, enabling employers to make objective and evidence-based decisions about suitability rather than simply relying on an employee’s short service.
Employers should review probationary policies and contractual provisions before the new qualifying period takes effect. Policies should clearly set out the duration of probation, review processes, objectives and expectations, extension rights, and the criteria against which suitability will be assessed. Where performance falls below expectations, a well-managed and properly documented process leading to an objectively justified dismissal will be considerably safer than relying on length of service alone. Employers should also remember that employees continue to have day-one rights in relation to claims such as discrimination and whistleblowing.
The extension of tribunal time limits will also have important practical consequences. Employment disputes will remain “live” for longer, requiring employers to retain documentation, preserve witness evidence and maintain robust audit trails for extended periods. Record-keeping practices should therefore be reviewed and strengthened. On the other hand, the longer limitation period may create greater opportunities for early resolution, giving individuals more time to obtain advice and engage in meaningful settlement discussions before proceedings are issued.
The removal of the statutory cap on compensatory awards for unfair dismissal further increases employers’ financial exposure, particularly in higher-earner cases. It is also likely to influence settlement negotiations. Without a statutory ceiling against which parties can assess risk, settlements may become more difficult to reach. Employers will therefore need to undertake earlier and more detailed assessments of potential liability to inform both litigation and settlement strategy.
Taken together, these reforms require more than a simple policy response. The shift in the balance of employment protection cannot be addressed solely through measures designed to mitigate risk.
Instead, employers should focus on stronger management practices, better decision-making and earlier intervention when issues arise. Organisations should view these reforms not merely as a compliance exercise, but as an opportunity to improve employee relations and management capability. In the long term, this approach is likely to be the most effective way to manage increased litigation risk while fostering productive, engaged and resilient workforces.
