Unfair dismissal reform: what the stakeholder roundtables suggest employers should prepare for

The Government has published its summary of the stakeholder roundtables on the Employment Rights Act 2025 unfair dismissal reforms. Helen Russell, lead HR consultant and employment solicitor, and Eva Hood, HR assistant, explain what the reforms mean for employers and the practical steps they should be taking to prepare.

The direction of travel is clear, from 1 January 2027, ordinary unfair dismissal protection is expected to apply after six months’ service, rather than two years, and the cap on compensatory awards will be removed.

For employers, this is not a procedural footnote. It materially changes the risk profile of dismissals in the early stages of employment and may make high-value unfair dismissal claims more commercially significant, particularly for senior or highly paid employees.

What is changing?

• The Employment Rights Act 2025 will reduce the qualifying period for ordinary unfair dismissal from two years to six months. It will also reduce the qualifying period for requesting written reasons for dismissal from two years to six months.
• The Act will remove the existing statutory cap on compensatory awards for unfair dismissal (noting that as of 6 April 2026, that cap is the lower of £123,543 or 52 weeks’ gross pay).
• The Government intends the unfair dismissal package to come into force on 1 January 2027. This stated commencement approach would give protection immediately from that date to employees who already have six months’ service, with other employees gaining protection once they reach six months’ service.
• Existing day-one rights, including protection against discrimination and most automatically unfair dismissal grounds, are not changed by these reforms.

What came out of the roundtables?

The Department for Business and Trade (DBT) convened roundtables with trade unions and business representatives, including sector-specific discussions for professional services, finance and technology.

The published summary is deliberately non-attributed, reflecting the confidential basis on which the discussions took place. The key messages were as follows:

• Participants recognised that most successful unfair dismissal awards are currently well below the statutory cap, and that the method for calculating compensation will not change.
• Business representatives raised concern that removing the cap could affect hiring and location decisions, particularly where employers recruit into highly paid roles.
• Stakeholders sought clearer guidance on how awards will be calculated, with particular focus on senior and executive dismissals.
• There were concerns that the reforms could increase pressure on the already stretched employment tribunal system. DBT has said it will issue guidance, and the Government has established a Dispute Resolution System Taskforce with the Ministry of Justice to consider longer-term reforms.

Why the six-month period matters

The factsheet frames the six-month qualifying period as the outcome of tripartite discussions between Government, business groups and trade unions.

It also gives useful context for employers: around 6.3 million employees, representing 22% of employed people aged 16 and over, have between six months’ and two years’ service with their current employer.

Many businesses already operate probationary periods, and the vast majority are six months or less.

In practical terms, probationary management will need to become much more disciplined. Employers should not assume that a contractual probation period gives a safe dismissal window; once the six-month threshold is reached, dismissals will need to link back to a potentially fair reason, such as conduct, capability, redundancy, statutory restriction or some other substantial reason, and will need to follow a fair process.

What should employers do now?

• Undertake rigorous recruitment and selection and train managers to assess candidates properly.
• Audit probationary periods and early-service dismissal processes.
• Ensure managers understand when reviews must take place, what evidence should be recorded and how that evidence should, and should not, be expressed.
• Audit and update template contracts, offer letters, probation clauses and dismissal letters so that they reflect the new six-month framework before commencement.
• Strengthen performance management during the first six months, including documented objectives, feedback, support and review points.
• Plan for senior exits carefully. The removal of the cap does not create automatic windfall awards, but it increases exposure where a high earner can evidence significant loss.
• Review settlement strategy. The commercial calculus for early resolution may change in cases involving senior employees or employees with strong arguments on mitigation.
• Train line managers. Their proximity to the issues, and their ability to handle matters well or poorly in the immediate aftermath, mean they will have a powerful influence on outcomes.
• Earlier unfair dismissal protection will make informal or poorly evidenced early dismissals more vulnerable to challenge.

Summary

The most important message from the roundtables is that the reforms are intended to proceed, not to be reopened. The Government has said that it does not intend to consult further on the core provisions; employers should therefore treat January 2027 as the date to work towards.

The legal test for unfair dismissal is not being rewritten, but the population of employees able to rely on it will expand significantly.

Employers best placed for the change will be those that use the first six months of employment actively: setting expectations, addressing concerns promptly, documenting decisions and ensuring dismissals can be justified by both reason and process.

It is worth remembering that this recommended approach has another benefit: employees tend to perform better when managers are clear about what is required and what standard is expected.

As such, these activities not only help to defend exits, but also lay solid foundations for a productive employment relationship, which is what employers will usually seek, having invested the time, effort and resources involved in recruitment.

Our employment and HR team will be happy to speak to you if you would like to understand these issues. Contact them by calling 01772 258 321.