Significant changes to UK employment law have already required, and will continue to require, businesses to adapt proactively.
On 01 January 2027, several key provisions of the Employment Rights Act 2025 (“ERA 2025”) will significantly reshape unfair dismissal claims and related protections. These changes will have broad implications for business owners, directors, and investors.
Two changes under the ERA 2025 are about to collide:
- From 01 October 2026, a range of employment tribunal claim time limits are extended from three months to six months.
- From 01 January 2027, ordinary unfair dismissal will generally require only six months’ service, and the statutory cap on compensatory award will be removed.
Put simply, a decision you took this month could be examined by a tribunal in 2027, with no cap on the cost to the business. For founders, directors and investors, that is no longer an HR matter. It can be a balance-sheet risk.
What changes on 1 January 2027
01 January 2027 marks the most significant changes to UK unfair dismissal law. They include:
- Shortened qualifying period. Protection against ordinary unfair dismissal starts after six months of continuous employment, not after two years.
- No compensation cap. The statutory limit on the compensatory award for unfair dismissal is removed. Today it is the lower of 52 weeks’ gross pay or £123,543.
- Written reasons. Employees can request written reasons for their dismissal after six months’ service, not two years.
- Spent convictions. The qualifying period for protection against dismissal because of a spent conviction is removed altogether.
- Trade union statement. Employers must give workers a written statement of their right to join a trade union: new starters from 1 January 2027, and existing workers by 06 April 2027.
From 01 January 2027, an employee qualifies for ordinary unfair dismissal if they have six months’ continuous employment ending on their effective date of termination, provided the effective date of termination falls on or after 1 January 2027.
Why this matters to owners and investors?
Ignoring the changes from ERA 2025 could cost your business. Employers should monitor the provisions that are now in force and those that are coming. Where changes affect your organisation, plan ahead: review relevant workplace policies and contract terms, brief and train managers/HR, and prepare any employee notices.
Three things change for the people who own and fund the business:
- The actual cost of a mistake is no longer known. A badly handled dismissal had a ceiling. From January 2027, a senior hire’s claim can reflect their full actual and future losses.
- The risk lasts longer. For most, a six-month claim window means a dismissal is a live liability for businesses for at least half a financial year.
- More people can claim. With protection starting at six months, growing businesses will face greater risk when dismissing employees early in their employment.
In one defended unfair dismissal claim, the employee argued that colleagues who had committed the same offence received a lesser sanction. The employer believed the cases were different, but it would have struggled to answer the inconsistency argument on the evidence.
The lesson is simple. If you treat two people differently for the same conduct, record the reason when you decide, not when a claim arrives. Starting from 01 January, relying on chance will cost more, as compensation is no longer capped.
What to do in the next ten weeks
- Map your service dates. Mapping service dates is essential to identify employees who will qualify for unfair dismissal protection under the new six-month threshold. Employers must account for statutory notice, which can extend the EDT and affect eligibility. For example, an employee dismissed without notice on 27 December 2026 may have an EDT of 3 January 2027 if statutory notice is added, making them eligible for protection
- Bring probation reviews forward. Hold probation reviews at months three and five, documenting decisions in writing
- Review contracts and policies. Examine probation and notice clauses in employment contracts, and update policies to align with ERA 2025, including the employer’s duty under the Equality Act 2010 to take reasonable steps to prevent harassment.
- Train HR and relevant staff on disciplinary procedures, grievance processes, and the requirements for providing written reasons for dismissal.
- Record retention. Keep disciplinary, grievance and dismissal records well beyond the six-month claim window. Do not let a policy delete them at six or twelve months.
- Contract variation by agreement. Consult and agree any changes to pay, hours, or shift patterns before implementing them through dismissal and re-engagement.
- Trade Union statement. Provide the required statement to new starters from 01 January 2027, and to existing staff by 06 April 2027.
- Review existing disputes. With no statutory cap on compensation from 01 January 2027, consider settlement agreements or mediation to resolve disputes before they escalate.
If you are buying, scaling or investing
These changes reach well beyond the HR file. Over the coming weeks we will look at each of these in turn:
- Buying a business. Employment liabilities you inherit may be larger and can last longer. Due diligence, warranties and specific indemnities need to reflect that, and post-deal plans to harmonise terms through fire and rehire no longer work.
- Selling a business. Contracts, records and disputes left untidy become price reductions or indemnities once a buyer looks.
- Scaling up. Hiring in waves creates waves of six-month dates. Growth needs contracts, policies and probation processes that keep pace.
- Investing in the UK. There is no “at-will” employment here. Overseas investors setting up a UK company with staff need to build ERA 2025 into their plans from day one.
How PJS Advisory can help
Ten weeks is enough time to get this right, but not if you start in December. We offer a fixed-fee pre-January employment risk review: a service-date map, a contract and policy check, and a plan for any live or likely disputes, including mediation and settlement support.
PJS is a trading name of PJS Business & Advisory Ltd, which is not a firm of solicitors and is not regulated by the Solicitors Regulation Authority. This article provides general information about employment law changes and should not be relied on as legal advice. For support with employment contracts, workplace policies, dismissal procedures or employment disputes, contact PJS.
