Unfair dismissal after six months: what employers must do before 2027

For more than a decade, owners of small firms have had a quiet safety net. If a new recruit was not working out, there was a two-year window in which, for most ordinary dismissals, the employee could not bring an unfair dismissal claim. Plenty of businesses have leant on that window more than they would care to admit — a vague probation, a few unrecorded chats, and a parting of ways if things did not improve.

That window is about to shrink to six months. From 1 January 2027, the Employment Rights Act 2025 cuts the qualifying period for ordinary unfair dismissal from two years to six months, and removes the cap on compensation at the same time. With roughly three months to go, now is the moment to look at how you hire, how you run probation and how you record the conversations that matter.

What the rule actually is

The Employment Rights Act 2025 received Royal Assent on 18 December 2025. Section 25 makes two changes to unfair dismissal, and the commencement regulations confirm that both take effect on 1 January 2027.

• The qualifying period falls from two years to six months. Once an employee has six months’ continuous service, they can claim that a dismissal was unfair. The right to ask for written reasons for dismissal drops to six months as well.
• The cap on the compensatory award is removed. Today, the compensatory award is limited to the lower of 52 weeks’ gross pay or £123,543 (the figure from 6 April 2026). From 1 January 2027, that ceiling disappears. Tribunals will still assess compensation on the employee’s actual and projected losses, but there will be no upper limit.

Two points are easy to miss. First, the Act also removes the government’s power to change the qualifying period by regulation, so six months is set in primary legislation. Second, nothing changes for the protections that already apply from day one — discrimination, whistleblowing and the other automatically unfair reasons for dismissal never needed two years’ service, and still do not.

The test is the effective date of termination, not the date you make the decision. If that date falls on or after 1 January 2027, the new rules apply — even if you gave notice in December. Anyone with six months’ service on 1 January 2027 is protected immediately, which means everyone who started on or before 1 July 2026 will be covered on New Year’s Day.

How the rest of the Act is phased

The unfair dismissal changes are one part of a staged rollout. Some measures took effect in April 2026, including day one paternity leave and unpaid parental leave, and a further group took effect in October 2026. Still to come in 2027, according to the government’s timeline, are changes to flexible working, bereavement leave, enhanced dismissal protection for pregnant women and new mothers, and the new rights around guaranteed hours for those on zero-hours arrangements, with dates for that last group still to be confirmed after consultation. Today’s focus is the change that will touch almost every small employer: the six-month line.

A worked example

Take a Sussex couple — call them Mark and Helen — who run a kitchen-fitting business with 18 staff. These names and figures are purely illustrative.

In June 2026 they took on a surveyor, Daniel. In August 2026 they took on an office administrator, Priya. Both have six-month probationary periods in their contracts, and, like many owners, Mark and Helen tend to “see how it goes” and review people when the probation runs out.

Daniel has been patchy. Mark has spoken to him twice about late reports, but nothing is written down. Because Daniel started before 1 July 2026, he will have six months’ service on 1 January 2027 and gains unfair dismissal protection that day. If Mark ends his employment in late December with a month’s notice, the effective date of termination falls in January — and the new rules apply. A decision that would have carried little tribunal risk under the old regime now needs a fair reason and a fair process, with nothing on file to show either.

Priya started in August. Her six months run out in February 2027. If Helen waits until the last week of probation to raise concerns for the first time, she has left herself no room. By the time notice runs, Priya may have passed the six-month mark — and Helen would need to show a fair reason, a fair process and a reasonable decision, with no limit on what a tribunal could award for lost earnings if she got it wrong.

Neither situation is unusual. Both are fixable, provided Mark and Helen act in the next few weeks rather than the next few months.

The traps

Treating probation as a formality

A probationary period has no special legal status on its own. What protects you is what you do during it: setting clear expectations, reviewing progress and recording the outcome. A six-month probation that ends on the same day the employee qualifies leaves no margin at all.

Forgetting that notice moves the date

Because the effective date of termination is what counts, notice can carry a dismissal across the six-month line or into January 2027. Statutory minimum notice can also extend the date for these purposes, even if you pay in lieu. Leave yourself a clear buffer.

Conversations that were never written down

Owners of small firms often manage informally and well — a word over a coffee, a quiet chat in the van. The difficulty comes later, when a tribunal asks what was said, when and what support was offered. If it is not recorded, it is very hard to prove.

No written procedures

A tribunal can increase compensation by up to 25 per cent where an employer has unreasonably failed to follow the Acas Code of Practice on disciplinary and grievance procedures. With the cap removed, that uplift is applied to an uncapped figure.

Assuming you are too small to be caught

There is no small business exemption. A firm of eight is held to the same standard of fairness as a firm of eighty, although a tribunal will take your size and resources into account when judging what was reasonable.

What to do now

1. Hire carefully

The six-month window puts more weight on getting the decision right at the start. Write a proper job description, ask structured interview questions that link to the role, take up references and, where it makes sense, use a practical task or trial exercise. A little more care before the offer saves a great deal of difficulty afterwards.

2. Rework your probationary periods

Consider shorter probationary periods — three or four months is common — with a contractual right to extend once, provided the extension is agreed and documented before the six-month point. Build in formal reviews: at four weeks, at the halfway mark and before the end. Diarise them on the day the person starts.

3. Review the people you already have

Make a list of everyone who started in 2026. For anyone who joined on or before 1 July 2026, any concerns need addressing properly now, on the basis that they will be protected from 1 January. For those who joined later, work out the date each one reaches six months and plan the final review well before it.

4. Put contracts and procedures in writing

Every employee is entitled to a written statement of particulars from day one. Alongside it, have a clear disciplinary procedure and a capability procedure for performance concerns, both in line with the Acas Code. These need not be long. They need to be followed.

5. Record performance conversations

After any meaningful conversation about performance or conduct, send a short note or email: what was discussed, what needs to improve, what support you will give and when you will review it. Keep it factual and polite. Those few lines are often the difference between a defensible decision and an expensive one.

6. Train whoever manages people

If a supervisor or office manager runs the day-to-day, make sure they know the new timetable and the basics of a fair process. In small firms, most problems start with a well-meaning manager who did not realise the rules had changed.

The price of getting it wrong

A successful unfair dismissal claim can bring a basic award — based on age, length of service and a week’s pay capped at £751 from 6 April 2026 — plus a compensatory award for lost earnings. From January 2027 there will be no ceiling on that second element. Then there is the management time, the distraction and the effect on the rest of the team. For a business with 5 to 50 staff, one badly handled exit can absorb months of an owner’s attention.

It is worth remembering why this matters beyond the day-to-day. A business with sound contracts, clear procedures and well-documented management is a more valuable business — easier to run, easier to pass on and more attractive to a buyer. The same discipline that protects you at a tribunal protects the value you have spent years building.

This is general information rather than advice on your own situation; for a specific employment matter, speak to an employment specialist.

In short

From 1 January 2027, six months is the new two years, and compensation is uncapped. The firms that will feel it least are the ones that hire with care, review people early and write things down. Three months is enough time to get that right, if you start now.

If you own a business, how it is run today and how it passes on tomorrow are closely linked. A Discovery Call is a 30-minute conversation about your business, your family and your estate. The fee is £30, credited against fees if you go on to instruct us. Since 1996, we have helped business owners make sure what they have built is protected.