Guide
Unfair dismissal from January 2027: six months, and no compensation cap
Updated
This is the single change with the largest effect on how employers manage new hires, and it is also the one most often misdescribed as a day one right. It is not.
What section 25 actually does
Section 25 of the Employment Rights Act 2025 amends section 108 of the Employment Rights Act 1996 to substitute "six months" for "two years", and omits section 124, the limit on the compensatory award (legislation.gov.uk). Both changes were commenced on 1 January 2027 by S.I. 2026/559, with a small part of section 25(5) brought into force earlier, on 1 July 2026, so that consequential amendments could be made (legislation.gov.uk).
The transitional rule that decides your case
Regulation 4 of S.I. 2026/559 is the provision to read. The amendments have effect where an employee is dismissed before 1 January 2027 but the effective date of termination falls on or after that date. They do not have effect where the effective date of termination falls before 1 January 2027. So a notice given in December 2026 that expires in February 2027 is caught by the new rules. Effective date of termination has its ordinary meaning under Part 10 of the Employment Rights Act 1996.
Three things it is not
- Not a day one right. Six months of continuous employment is still required for an ordinary unfair dismissal claim.
- Not a statutory probation period. A lighter touch dismissal process during an initial period has been discussed in consultation, but no such regime is in force. Your contractual probation clause has no statutory effect on unfair dismissal rights.
- Not a change to automatically unfair dismissals. Those, and discrimination claims, have never needed qualifying service and still do not.
What to change before the date
- Move the real performance decision earlier. If a hire is not working, a decision at month four is a very different risk from a decision at month seven.
- Write and keep the evidence. With no compensation cap, the value of a documented fair reason and a documented fair procedure rises sharply.
- Train the managers who dismiss. Most unfair dismissal findings come from process, not from the underlying reason.
- Check your time limits planning: from 1 October 2026 the tribunal claim time limit rises from three months to six, so the tail on any dismissal is longer.
Dismissing before the change to avoid it is not a strategy: the effective date of termination has to fall before 1 January 2027, and a rushed process creates the exact procedural unfairness the uncapped award now prices.