The Employment Rights Act 2025 (“ERA”) will extend the time limits for most employment claims from three to six months. Existing rules around the impact of mandatory ACAS early conciliation (which effectively stops the clock) are unaffected. Up until now, the implementation timing of this change has been unclear, with government guidance stating only that the change would take effect “no earlier than October 2026”.
While we are still awaiting the relevant ERA commencement regulations and the government has not updated its implementation timeline, we are now getting some more clarity – albeit by the back door. The ERA itself lists a number of claims for which it will be extending time. That list, however, is not an exhaustive list of all employment claims. The government has now published separate secondary legislation that will extend time limits from three to six months for various employment claims not included on the ERA’s list. These changes will be taking effect – drumroll, please – on 1 October 2026, giving us a pretty heavy hint that we can expect the wider extension of time limits (including for the claims listed in the ERA) to take effect on that date.
We expect the change (in relation to all claims) to be effective for causes of action arising on or after 1 October 2026, rather than for claims presented after that date. In other words, the applicable time limit will be determined by reference to when the thing complained of (or, if a series of things, the last thing in the series) happened, not when the claim was commenced. So, for example, if “Alfie” is dismissed on 30 September 2026 and wishes to challenge that dismissal as unfair, his claim will be subject to a three-month time limit – even if he brings the claim after 1 October 2026. If, however, Alfie is dismissed on 1 October 2026, the time limit will be six months. We do not, therefore, expect the change in time limits to resurrect claims that, as of 30 September 2026, are out of time.
There is nothing you need to do to prepare, and the full impact of the change remains to be seen. While some commentators suggest that the change will provide more breathing space for settlement discussions, we anticipate a potential increase in claims, as employees have longer to consider their position and take advice after an issue has been raised. Anything likely to drive up claims (and this is one of several such changes under the ERA) will put further pressure on an already struggling Tribunal system. We should therefore brace for even greater delays in claims being processed.
How we can help
Our Employment team is closely tracking the extension of employment tribunal time limits under the Employment Rights Act 2025 and what it means for employers. We support clients in adapting their approach to workplace disputes, helping to manage risk and navigate claims efficiently. Contact us to discuss how these changes may affect your organisation.
The changes to unfair dismissal are the centrepiece of the government’s Employment Rights Act 2025 (the “ERA”). They are likely to have a fundamental impact on your hiring and management decisions, and it is important to ensure that you fully understand the implications for your business and what you need to do to prepare.
In this piece, we look beyond the headlines and do a deep dive on the changes, looking at their likely impact on employers and on the employment law landscape more broadly, and giving you the tools to prepare. These changes will affect all employers, big or small.
What is the current law on unfair dismissal?
Employees acquire unfair dismissal rights on completion of two years’ continuous service. After that point, to dismiss an employee fairly, employers must show a fair reason (one of a prescribed set, e.g. underperformance, redundancy or misconduct) and follow a fair process, and dismissal must be reasonable in the circumstances. Employees with qualifying service can challenge a dismissal as unfair in the Employment Tribunal. If that claim is successful, they will be awarded a ‘basic award’ (calculated in the same way as a statutory redundancy payment) and compensation based (for the most part) on losses incurred as a result of their dismissal. This compensatory award has, up until now, been capped at the lower of a year’s pay and a set statutory amount, currently £123,543.
What changes is the ERA making to unfair dismissal?
The ERA will make two changes to the ordinary unfair dismissal framework.
Firstly, the period of continuous service required to bring an unfair dismissal claim will be reduced from two years to six months.
Secondly, the cap on compensatory awards will be removed.
When are the changes coming into effect?
The new regime will apply to dismissals on or after 1 January 2027. The relevant date will be the termination date rather than the date on which notice is served, so this may apply to terminations initiated before the end of the year.
Example – If Alfie (who started work on 1 January 2026) is given one month’s notice on 29 December 2026, his termination date will be 29 January 2027 and he will be able to bring an unfair dismissal claim under the new regime. His compensation will be uncapped.
Note that there is a technical trip-hazard here: where an employee does not work their notice (for example, because the employer makes a payment in lieu of notice, or “PILON”) the law operates to add an employee’s statutory (not contractual) notice to their actual service to determine qualifying service. This rule applies to determining qualifying service and calculating any basic award – but not the compensatory award. An employee with less than two years’ service has a one-week statutory notice entitlement, so you need to exercise caution with last-minute terminations.
Example – If, instead of being given notice, Alfie is paid a PILON of one month’s pay on 29 December 2026 and his employment terminates with immediate effect, his statutory notice entitlement will need to be taken into account to decide whether Alfie has qualifying service. Alfie’s statutory notice entitlement is one week, so his notional termination date for this purpose is 5 January 2027. He can bring an unfair dismissal claim, but his compensation will be capped in accordance with the current regime.
What does the reduction of the qualifying period mean for employers?
The practical effect of the current qualifying service requirement is that employers effectively have a two-year window to assess an employee’s suitability for the role. Within that window, employers can terminate at relatively low risk, and in any rate without any particular procedural requirements.
With these changes, that window will narrow considerably. You will need to make decisions about a new hire’s suitability much more quickly if you wish to take the opportunity to terminate at lower risk and with more limited process. That will put pressure on hiring processes – i.e. to get the decision right in the first place – and on probation periods.
There may also be implications for the management of fixed-term contracts. Slightly counter-intuitively, the termination of a fixed-term contract on expiry is, legally, a dismissal. Most fixed-term contracts are concluded for a duration of less than two years, so employers currently rarely face unfair dismissal risk on expiry of a fixed-term contract. However, with the reduced qualifying period that may well change, and employers will need to manage unfair dismissal risk by identifying a fair reason for the termination and following a fair process. To find out more about the changes to fixed-term contracts, including the key risks and how to approach terminations, read our article here.
What does the removal of the compensation cap mean for employers?
The practical effect of the compensation cap is that the employer’s maximum exposure in connection with a dismissal is quantifiable (absent additional risk factors that might engage uncapped compensation claims, such as discrimination or whistleblowing claims). Particularly for very high earners, that also opens up the possibility for unfair dismissal rights to be effectively bought out and terminations to be concluded on agreed terms, with employers paying a settlement sum negotiated on the basis of the maximum value of an unfair dismissal claim.
The removal of the compensation cap removes that quantifiable maximum. That does not automatically mean that the value of unfair dismissal claims will increase, as compensation will continue to be based on loss (which may anyway have fallen short of the cap). Compensation will also continue to be limited by existing rules – for example, the duty on claimants to mitigate their losses (and reductions where they fail to do so), reductions to reflect actions by the employee that contributed to the dismissal, and so-called Polkey reductions – reductions reflecting the likelihood that an employee would have been dismissed in any event. However, it does mean that:
Maximum exposure in relation to ordinary dismissals becomes more difficult to budget and provide for, which may impact internal risk management processes.
Exposure in some dismissals may increase considerably – for example, where individuals may struggle to obtain new employment and/or have very valuable benefits (e.g. generous pension schemes or share options).
We are likely to see the dynamics of settlement conversations change, as employees will expect higher pay-outs based on the publicity around “uncapped compensation”.
What should employers be doing to prepare?
In light of the reduction in the qualifying period, your first focus should be on tightening up hiring and probation procedures. The first hires acquiring qualifying service on 1 January 2027 (and therefore the first to benefit fully from the changes) will begin work on 2 July 2026 – so you should be aiming to bed any new processes in by 1 July.
We recommend that you take the following steps:
Impact assessment. Does your business have an issue with high turnover in the early years of employment? How much of that is down to dismissals? Are there areas of the business or particular job families that are particularly badly affected? Carrying out this impact assessment will help you understand how big an issue your business faces and what is driving early turnover. That will help you design effective processes to manage your risk.
Hiring. Guided by your impact assessment, the next step is to look at hiring. Where you have identified issues, think about how hiring processes can be enhanced to screen for particular competencies or red flags. This may be as simple as ensuring that key decision-makers are involved in interview processes, or it may require a more fundamental re-design.
Probation procedures. You will then need to review probation processes to ensure that they are effective in assessing new hires’ suitability for a role, and that timelines are managed so that early termination decisions are communicated before the new hire acquires qualifying service. Remember the trip-hazard around extension of service: you will want to make sure that decisions are communicated a few weeks clear of the six-month mark. You will also need to update employment documents (contracts and policies or handbooks).
You should also be looking at your use of fixed-term contracts. If you do use fixed-term contracts, you may need to review and update your internal processes around managing their expiry to mitigate any unfair dismissal risk in this area.
The removal of the compensation cap is more difficult to prepare for, but there are a few steps we recommend you take:
Review your performance management, disciplinary and capability procedures. Consider how they operate in practice and whether there are any updates needed to ensure procedures that may result in termination are run compliantly and smoothly.
Encourage managers not to delay exit conversations, but to manage any problem cases ahead of the 1 January 2027 changes.
With all these changes, it is important to ensure that managers are well-trained to manage front-line conversations with employees, so manager training across all of these areas should be refreshed. While employers are (rightly) focusing on updating their processes, the most effective risk mitigation is generally sensitive, “human” management that makes employees feel their concerns are being heard and engaged with. Empowering managers to deal with issues effectively, with a full understanding of the legal framework and their room for manoeuvre within it, should therefore be front and centre.
Do the changes have wider knock-on effects?
There is a lot of speculation about the wider implications of the changes. Ultimately, we will need to see how things play out as the new regime beds in, but we do foresee a few knock-on effects.
Employment status
Unfair dismissal rights are dependent on employment status, as only individuals classified as ‘employees’ benefit from them. Employment status is a complex area but, in brief, English employment law recognises three status categories – ‘employees’, who benefit from the widest employment protections, more casual ‘workers’, who benefit from basic protections, and the ‘self-employed’. The changes to unfair dismissal may impact this landscape in a few ways.
Firstly, as the government acknowledges[1], the increased unfair dismissal risk may tempt employers to look to meet more peripheral staffing needs with more casual ‘worker’ contracts. That may ultimately reduce job security in the market, particularly as the economic outlook remains uncertain and unemployment is rising.
Secondly, we may see a shift in the focus of employment status litigation which, in recent years, has been focused largely on the boundary between ‘worker’ and ‘self-employed’ status. With unfair dismissal claims becoming more widely available, and with the potential value of an unfair dismissal claim seen to be increasing, we may well see more litigation at the employee/worker margin. That trend may be reinforced by wider changes in the ERA, for example new duties on employers to offer casual workers guaranteed hours contracts in certain circumstances, which may lead to the employee/worker boundary becoming more blurred.
The government is planning to conduct a wider review of the rules around employment status, which may lead to a more radical transformation of the existing landscape. This, and the cumulative impact of the ERA changes on the discussion, will be an interesting area to watch over the coming months and years.
Employment Tribunals
The government acknowledges that the changes are going to result in an increase in Employment Tribunal claims[2]. However, the government also suggests that removing the compensation cap will remove the incentive for high earners to circumvent the cap by raising allegations that engage uncapped claims – e.g. discrimination or whistleblowing allegations. On that basis, the government posits that the changes may reduce the complexity of Tribunal claims and in fact lessen the burden on the system. We are sceptical. Firstly, in our experience, it is relatively unusual for entirely spurious discrimination or whistleblowing claims to be run all the way to hearing – while they may be raised in settlement negotiations, relatively few cases of this nature reach Tribunals and, where they do, Tribunals are skilled at distilling the core complaints at early stages. Secondly, even if we take a cynical view, there are other incentives to bring in complex allegations, for example, to raise the reputational risk for employers and push for settlement. We therefore expect that the changes will simply result in an increase in Tribunal claims and further strain put on a system that is already at breaking point.
How we can help
Our Employment team can help you navigate the changes introduced by the Employment Rights Act.
We work with businesses of all sizes to provide clear, pragmatic advice, from helping you assess the impact of the new unfair dismissal regime to strengthening processes across your organisation.
Fixed-term contracts are governed by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (“Regulations”), but there is little magic about them. Employees working under fixed-term contracts are employees (almost) like any other, and they therefore benefit from the full suite of employment protections afforded to employees.
While the Employment Rights Act 2025 (“ERA”) does not specifically refer to fixed-term employees, the ERA’s centrepiece reform – the changes to the unfair dismissal framework – will impact employers’ practice around the use, and crucially the termination, of fixed-term contracts. This is therefore a good opportunity to revisit fixed-term contracts, and particularly to remind ourselves of the pitfalls involved in terminating them.
What is a fixed-term employment contract?
Under the Regulations, a fixed-term employment contract is defined as a contract terminating on expiry of a fixed-term, completion of a particular task, or on the occurrence (or non-occurrence) of any other specific event[1].
Fixed-term contracts are used widely, for example, for work carried out in connection with a specific project, to cover seasonal requirements or for employees appointed to cover permanent staff’s sickness absence or family leave.
Pitfall 1 – early termination: incorrect notice
A common (and potentially very expensive) trap to fall into on early termination of a fixed-term contract arises from a failure to interpret notice provisions correctly – or, to go back to the root of the problem, a failure to draft notice provisions correctly.
In a permanent, indefinite contract, you will generally find specific notice provisions. If for any reason these are absent, the law implies a provision that the contract may be terminated on reasonable notice.
In our experience, employers often overlook the need to include clear notice provisions in a fixed-term contract, as the contract is concluded for a specific task or duration and the parties are generally not thinking about early termination. Where there are no specific notice provisions, early termination will be a breach of the contract entitling the employee to bring a wrongful dismissal claim. In this scenario, the employee will be entitled to damages designed to put them in the position they would have been in had the contract not been breached – in other words, loss of earnings for the remainder of the fixed-term.
To avoid this issue, you should take professional advice in drafting fixed-term contracts and ensure that early termination is expressly dealt with and appropriate notice provisions included. Once it comes to termination, if you are unclear on applicable notice provisions you should always take advice. You will then have clarity on the potential exposure before you make any decisions, and you may be able to explore alternative exit routes, such as a mutually agreed termination.
Pitfall 2 – termination on expiry: not treating the expiry of the contract as a dismissal
We frequently see employers treat expiry as a natural endpoint rather than a dismissal. That is understandable and, in many ways, intuitive, but incorrect. The expiry (and non-renewal) of a fixed-term contract is in fact a dismissal in law.
That means that, where the relevant fixed-term employee has the necessary qualifying service, they may bring an unfair dismissal claim where a fixed-term contract is not renewed and the employer has not followed a proper process. Up to now, this has often been academic: the qualifying period to bring an unfair dismissal claim is two years and, in our experience, the majority of fixed-term contracts are concluded for shorter periods. However, from 1 January 2027, the ERA will reduce the qualifying period to six months, which will bring unfair dismissal risk in connection with fixed-term contracts into much greater focus. Going forward, it will therefore be important to treat the expiry of a fixed-term contract in the same way as any other dismissal, by identifying a fair reason for the termination and following a fair process.
Pitfall 3 – termination on expiry: treating the expiry of the contract as the reason for termination
Linked to the above, even where employers are alive to the fact that the expiry (and non-renewal) of a fixed-term contract is a dismissal in law, they often fall into the trap of assuming that the expiry of the contract is, in itself, a valid reason for dismissal. That is, however, not enough: to dismiss fairly on expiry, you will need to drill down into the substantive reason why the employee will no longer be required. This may be redundancy (for example, where they were employed for a specific project which has concluded), or some other substantial reason (for example, where they were employed to cover a permanent employee’s family leave and that employee is returning) – but in any event, the simple fact of the expiry of the contract is not enough.
Pitfall 4 – (non-)termination on expiry: accidental extension
We often see situations where, as business needs evolve, fixed-term arrangements drift beyond their original term, or the expiry date is simply overlooked.
Where an extension is dealt with through an express, written, agreement to extend for a specified period, that is generally not an issue. However, where the parties do not clearly document the terms of the extension (or simply forget), the terms of the extension will be left unclear. Subsequent termination can then become very messy, as the employer will need to fall back on terms (and notice periods) implied by law.
To avoid this, you should keep records and implement systems to track the progress and expiry of fixed-term contracts. Where an extension is necessary, you should ensure that any extension is agreed (even informally) in writing. It would also be sensible to safeguard against this situation in the drafting of your fixed-term contracts, by providing for what notice period will apply in the event that the term is extended. This can of course always be amended by agreement, but it will protect your position where an expiry date is missed by accident.
Pitfall 5 – treating fixed-term employees as first in line for termination
It can be tempting to think of fixed-term employees as less integrated into the business than permanent employees, and to therefore put them first in line if headcount needs to be reduced. However, that can be risky. Under the Regulations, a fixed-term employee has the right not to be treated less favourably than a comparable permanent employee – that extends to dismissal decisions and it is generally unlawful to select a fixed-term employee for redundancy purely based on their status (though there are nuances here). The principle applies more broadly, for example in relation to termination payments and/or promotion or redeployment opportunities. To avoid creating a liability, you need to bear that in mind and, generally, avoid distinguishing between permanent and fixed-term employees based on that status.
While many of these risks are not new, they are becoming significantly more important for employers. The operation of fixed-term contracts is going to become higher risk in light of the changes to the unfair dismissal framework shortening the qualifying period and removing the cap on compensation.
How we can help
Ahead of these changes coming into effect on 1 January 2027, we recommend that you audit your use of fixed-term contract and carry out a general ‘health check’ on the terms themselves, and on how you manage fixed-term contracts and their expiry. Our Employment and Partnerships team are well-placed to support you prepare for these changes – please do get in touch to find out more.
