Employment Rights Act (ERA) update – Unfair Dismissal Changes and How to Prepare

If you have missed any of our previous articles, you can read them here.

The ERA is introducing increased worker protections, and in this article, we will focus on the forthcoming changes to unfair dismissal and how to prepare. From January 2027, the qualifying period for ordinary unfair dismissal claims will reduce from two years to six months. At the same time, the cap on the unfair dismissal compensatory award will be abolished.

What is changing and why?

Unfair Dismissal: Reduced Qualifying Period

A major change introduced by the ERA 2025 is the reduction of the qualifying period for ordinary unfair dismissal claims from two years to six months.  The implementation date for this change is 1 January 2027.

This means that employees with continuous service of six months or more at the effective date of termination, who are dismissed on 1 January 2027 or after will be protected from unfair dismissal (including constructive dismissal).

It is important to note that the length of service will be retrospective meaning that anyone hired on or after 1 July 2026, who is dismissed on or after 1 January 2027, will acquire protection by the time the law changes.

It is also important to be aware that if you do not give the statutory minimum notice to the employee (e.g. you pay in lieu of notice), the employee’s statutory minimum notice will be added onto their effective date of termination to determine if they have sufficient service to bring an unfair dismissal claim.

Removal of the Unfair Dismissal Compensation Cap

Compensation for successful ordinary unfair dismissal claims is currently capped at a statutory maximum of £123,543 (which increases annually), or a year’s gross pay, whichever is lower.

The Employment Rights Act 2025 will remove the existing cap on unfair dismissal compensation entirely from 1 January 2027. This will mean that the Employment Tribunal can award compensation reflective of the individual’s full loss of earnings, regardless of how high their remuneration package (including bonus and long-term incentives) might be.

Some elements of compensation assessment will remain the same. These include areas such as contributory fault, where an employee’s own conduct, actions, or omissions partially caused or contributed to their dismissal, and the duty on the employee to seek to mitigate their losses. 

The removal of the unfair dismissal compensation cap is significant, particularly for those working at senior levels, or those with public sector pensions where losses could be significant.

Why This Matters

Reducing the qualifying period to six months will increase the number of employees able to bring unfair dismissal claims. For employers, the practical consequence is a much shorter window in which to assess new hires. Dismissals after six months’ service will attract essentially the same legal risk as those involving long‑serving employees.

The combined effect of a shorter qualifying period and uncapped compensation will reshape how employment disputes are handled. Employers that prepare early - by tightening recruitment, managing probationary periods and embedding robust processes - will be far better prepared to manage the forthcoming changes.

What This Means For Schools and Trusts

Bearing in mind that anyone who is hired on or after 1 July 2026 will acquire protection by the time the law changes in January 2027, schools/trusts should start to prepare by focusing on the following areas:

• Review recruitment processes and ensure robust procedures are in place before employment commences.
• Update contracts and policies, particularly in relation to probation clauses and dismissal procedures.
• Before offering positions on fixed term contracts (FTCs), consider if the situation is a genuine fixed term-since the employee will gain rights to unfair dismissal after six months - meaning a fair process and fair reason for dismissal will be required.
• Consider if you can reduce the fixed term period of standard FTCs, and include provisions to allow for earlier termination.
• Consider shortening probation periods to three months to allow for timely decision-making. If you allow a further extension, consider a maximum extension of two months - giving a total period of no more than five months, enabling you to go through any process in plenty of time before the six month period is reached.
• Ensure managers proactively manage probation and that they act promptly where performance concerns arise.
• Don’t delay in terminating the contract if probation is failing due to performance issues.
• Provide training to people managers and key recruitment decision makers.

How Judicium Can Help You

To reflect the forthcoming changes to protection from unfair dismissal, we are updating the following policies and supporting documents, ready to support you in your school/trust:

• Recruitment Policy and related documents
• Probationary Period Policy and related documents
• Contracts, including Fixed Term Contracts
• Disciplinary Policy and Procedure
• Capability Policy and Procedure 

We will let you know when these are updated.  If you are already an ELHR client, you can access these documents in the usual way. If you would like us to review any of your policies or documents, please feel free to send them to the team.  We can also provide training - details are outlined below.

For non-ELHR clients who wish to purchase a copy of our template policies, please contact enquiries@judicium.com. These are priced at £99 plus VAT per policy, and a package of template letters is also available at £99 plus VAT per topic. 

Stay Informed... 

The Employment Rights Act represents a major shift in employment law. Most changes are not immediate, but schools/trusts that prepare now will be better placed to manage risk, control costs, and maintain positive staff relations.

We will continue to send out regular updates on the different aspects of the Act to keep you informed of the changes. Watch out for more updates, which will focus on forthcoming changes and how you can prepare.

Subscribe here to keep informed of the proposed changes and how best to prepare for them. Our team are also here to help our clients review policies, train managers, and prepare for the new landscape.

As always, we're here to support you with any questions you may have in relation to the Employment Rights Act 2025. Please don’t hesitate to get in touch via the usual channels if you need advice or assistance.   

You can contact us at employmentlawadvice@judicium.com and you can find information regarding our Employment Law and HR service  here. 

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