A major shake-up in the law on unfair dismissal is on its way and employers need to adapt their HR processes from 1 July onwards. Waiting for next year could lead to multiple problems.

From 1 January 2027, the qualifying period for an unfair dismissal claim will reduce from two years to six months. The change in itself shouldn’t be a surprise to most employers – it’s been well publicised ahead of time.

But what may well catch out employers is just how many of their staff the changes will apply to and what they must do now to prepare for them.

Crucially, the new threshold doesn’t just apply to anyone hired on or after 1 January 2027, but to anyone with six months’ (or more) service on that date, including:

  • Employees recruited on or after 1 July 2026
  • Employees recruited from January 2025 onwards, who currently have to wait two years before being able to bring a claim.

From 1 January, both groups will be eligible to claim for unfair dismissal once they’ve completed six months in their role.

This has significant impacts for employers of all sizes, and we’re finding that these have not yet fully landed with some organisations and managers. As a result, they’re not ready with the practical recruitment and management changes that should be in place from 1 July onwards.

Recruitment and probationary periods

With a much shorter time to assess people’s performance and behaviour, recruitment becomes more pressured than ever. And so will the usefulness of probationary periods for employers.

One question we’re seeing regularly is whether employers who currently use six-month long probationary periods, should reduce that period. And yes, we believe they should.

With the new six-month qualifying threshold, a six-month probation period becomes too long. Employers now need to focus much earlier on whether recruits are performing adequately – for example, introducing three-month probation clauses with an option to extend for up to two months.

Managers may also need refresher training on applying this, such as how to conduct, document and follow up from probationary interviews and extensions. And, with new hires, the probationary clauses in contracts will need to be updated and carefully drafted.

Processes and paperwork

Performance management for existing staff and those who’ve passed their probationary period also becomes more important.

Currently, employees need two years’ service to bring a claim for unfair dismissal (unless on specific protected grounds such as whistleblowing, discrimination, pregnancy or trade union activities). As a result, employers are often relaxed about performance management processes and documentation for recent employees and can decide to dismiss those employees for any non-discriminatory reason during the first two years of employment without first having to go through a performance management process, which can be very time consuming.

With the qualifying period for continuous service requirement reducing to six months, the opportunity for employers to dismiss without going through performance management also reduces and will significantly increase the workload on employers.

Now employers can no longer afford to take a hands-off approach. Processes for dealing with performance or conduct issues need to be drafted skilfully and followed rigorously. But that doesn’t necessarily mean documenting every concern from day one. This can become counter-productive. These are nuanced areas that require tailored legal and HR advice – which you’re unlikely to find with a DIY search on the internet.

Already, it is advisable to review the performance of employees hired between January 2025 and now. If there are any serious concerns about their suitability for their role, they’re best addressed before the new rules take effect.

Compensation limits and escalating claims

Another important element of the New Year’s Day changes is the removal of the ceiling on compensatory awards for unfair dismissal. At the moment, the maximum an employment tribunal can award is one year’s gross pay or £123,543, whichever is lower; this cap of £123,543 will no longer apply.

In practice, this is unlikely to affect most employers given that the average annual earnings for full-time employees is just over £39,000. However, I believe it will fuel a trend we’re already seeing: an escalation in the size and number of employment claims by employees.

AI may not reflect reality

This trend is driven, in part, by the growing use of AI for employment law advice. People ask AI about a dispute or grievance and receive plausible-sounding responses about their legal rights, potential claims they may be able to bring, and the level of compensation they might expect. However, as with AI content generally, those responses can be inaccurate, irrelevant or unrealistic.

If you’re asking AI for advice on a holiday itinerary or how to improve your CV, its limitations may be inconvenient but inconsequential in the long term. With legal issues, the ramifications of poor advice can be more serious and expensive – for example, encouraging people to bring claims that are unlikely to succeed or to reject a settlement offer as being too small, only to end up with nothing.

With the end of the cap on compensatory awards, more employees may well believe it worthwhile to bring unfair dismissal claims, having understood from AI that they could receive an unlimited amount. Even if unsuccessful, these claims will generate more work for employers and place additional pressure on the employment tribunal system.

Employers need to engage early

All of this makes it doubly important for employers to engage with the unfair dismissal changes now – and not the week before Christmas – so that their processes are robust and ready.

Through our fixed-fee Prism service for employers, there’s practical help available on the steps you need to take – from reviewing probationary periods to refreshing your approach to performance management and record-keeping. Unlike legal advice from AI, it’s both up-to-date and sufficiently nuanced to be effective in real life.