The Government has published regulations confirming the timing of changes to the law on unfair dismissals as well as a summary of stakeholder feedback on the reforms.
Key Regulatory Changes
The regulations were made on 26 May 2026 and confirm that on 1 January 2027, the qualifying period for ordinary unfair dismissal claims will be reduced from two years to six months, and the statutory cap on compensatory awards will be removed (Employment Rights Act 2025 (Commencement No. 4 and Transitional and Saving Provisions) Regulations 2026). These changes will apply to cases where the effective date of termination of employment falls on or after 1 January 2027.
Stakeholder Feedback
The Department for Business and Trade (DBT) has also published a summary of stakeholder roundtables held in January and February 2026, with employer and employee representative groups from the public and private sectors. These discussions focused on the likely impact of the legislative changes and on the support needed to implement them (Unfair dismissal changes: summary of stakeholder roundtables, 28 May 2026). There were concerns about the removal of the compensatory award cap, particularly in relation to highly paid employees and senior executives. Participants requested Government guidance on how to manage performance, dismissal, and calculation of compensation for senior executives. The Government has stressed that most unfair dismissal awards currently fall below the existing statutory cap and that there are no changes to the legal framework for calculating compensation, which will continue to be based on actual and projected losses evidenced by a claimant.
Other concerns included the effects on the Employment Tribunal system and its capacity and capability to deal with more claims, as well as the limited availability of other methods for resolving disputes. The DBT has confirmed that it has set up a Dispute Resolution System Taskforce together with the Ministry of Justice to consider longer-term reforms.
Projected Impact
According to a Government impact assessment published in January 2026, the reduction of the qualifying period to six months will protect a further 6.3 million employees 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.
Practical Steps for Employers
Further guidance for employees and employers on the likely practical implications of the reforms is expected later this year. In the meantime, employers are advised to review recruitment processes, probation periods, performance management, and dismissal procedures in order to minimise the risk of unfair dismissal claims once the reforms take effect. It will be particularly important to consider the implications of the removal of the cap on the compensatory award in the context of negotiating exit terms for senior executives. Given the likely delays in reaching a final hearing, employers are also advised to review record-keeping procedures and requirements to ensure that appropriate written evidence will be available to justify decisions.
