Employment Rights Act 2025: Commencement Regulations Confirm January 2027 Start Date for Unfair Dismissal Changes

Section 25 of the Employment Rights Act 2025 (ERA 2025) makes various changes to the right not to be unfairly dismissed under Part 10 of the ERA 1996. The section:

• Reduces the qualifying period of employment for bringing an unfair dismissal claim in section 108 of the ERA 1996 from two years to six months (section 25(2)).

• Removes all limits on the compensatory award (section 25(3)).

• Removes the power to vary the unfair dismissal qualifying period by regulations, thereby requiring primary legislation for any further amendments to the period (section 25(4)).

Reduction of the qualifying period – EDT

The reduction of the qualifying period will apply to any case where the effective date of termination (EDT) falls on or after 1 January 2027. It is important to note that for the purposes of the reduction of the qualifying period, this includes cases where the employee was dismissed before 1 January 2027, but the EDT falls on or after that date by virtue of the statutory extension under section 97(2) of the ERA 1996 (where the requisite minimum statutory notice is not given).

What is the statutory extension?

There is a statutory minimum one-week notice period for employees with less than two years' service. Where no notice is given (or a PILON is made), this must be added on to the date of dismissal to extend the EDT for the purposes of calculating qualifying service. This is set out in section 97(2) ERA 1996. This means that an employer cannot dismiss in the last week of the first six months of employment to circumvent the employee gaining unfair dismissal rights when the changes to the qualifying period come into effect.

Removal of the compensatory caps – EDT

The statutory extension of the EDT does not apply to the calculation of the compensatory award. In relation to the removal of the cap, the change will only apply to dismissals where the actual EDT is on or after 1 January 2027.

Why have the government ensured primary legislation will be required to make any changes to the qualifying period in the future?

Although the government already had the power to make the change to the qualifying period by statutory instrument (subject to the approval of both Houses), it opted to do so by means of the ERA 2025 and to remove the power for future governments to make any further changes by statutory instrument. This means that another Act of Parliament would be required for any future changes to the qualifying period, making this process more complex and time-consuming.

How does this affect your business?

The government have recently produced an updated impact assessment on the provisions contained in the Employment Rights Act 2025. As a result of reducing the qualifying period to claim unfair dismissal from two years to six months, it is estimated that a further 6.3 million employees will be protected from unfair dismissal, generating an additional 9,000 Acas early conciliation referrals a year, of which about 3,000 will progress to a tribunal claim, with 570 requiring judicial time. This is the largest expected impact on the tribunal system of any of the measures in the ERA 2025. These claims will add to a system where there is already a significant backlog and delay in matters reaching a final hearing.  

Within the workplace, the reduction in the qualifying period for unfair dismissal claims and the removal of the statutory cap on compensation will inevitably lead to increased employment tribunal litigation, which employers will have to navigate. These changes will also require employers to review their policies and procedures – for example, would a shorter probation period be preferable, in order to assess a new hire before they obtain the 6 months qualifying service to being a claim for unfair dismissal? Record-keeping will also be key, especially notes of meetings and evidence to justify why certain decisions were taken, particularly as it is currently taking a significant amount of time for claims to reach final hearing stage at the employment tribunal and an increase in litigation is anticipated.