Unfair Dismissal and the Employment Rights Act

In this article we return to the Employment Rights Act 2025 (ERA), focusing on changes to unfair dismissal and their potential impact on employers.

6-month service requirement (estimated in early 2027)

When the Labour government swept to power they promised a day-one right to claim unfair dismissal for employees. Since then they have backtracked somewhat. Currently and since 2012, an employee needs 2 years continuous service to be able to bring a claim of unfair dismissal. This will be reduced to 6 months continuous service which we anticipate will be implemented on 1st January 2027.

Time limits for unfair dismissal claims to be extended to 6 months (estimated in October 2026)

Currently, this is 3 months; something that has not changed since 1971! Doubling this to 6 months means that negotiations and risk planning periods increase. Dismissing an employee in early January but discovering in mid-summer that they are considering a claim will require memories to be kept fresh and the keeping of documents for longer. 

Automatic unfair dismissal for “fire and rehire” (estimated in October 2026)

The way that “fire and rehire” has worked, and will do until later this year, can be described by the following general example. Occasionally, an employer might seek a change to an employee’s terms. This might be in relation to the hours they work or, perhaps, a contractual benefit that they can no longer justify.

However, the employee might say no and refuse any change. Rather than breach the contract and impose the change, the employer can serve notice to end that employment contract. They can then offer a new contract with the new terms. If the employee accepts, then the change is successful.

If not, then the employee is out of a job and, if they have (currently) 2 years’ service, they can bring a claim of unfair dismissal. But as long as the employer acts reasonably and follows a fair process, then such claims are not too difficult to defend.

Upcoming Change: Automatic Unfair Dismissal for Contract Variations

However, from this Autumn, it will be an automatic unfair dismissal to dismiss an employee for not agreeing to a variation to their contract or dismissing them to replace or re-engage them on varied contractual terms.

Limited Financial Difficulty Exception for Employers

There is planned to be an exception to this, and that is where the employer is able to show that the reason they need the variation is to significantly reduce the effects of financial difficulty, which affects their ability to carry on the business and meaning the need to make the change is unavoidable.

This is, of course, subject to further consultation. But showing that, say, a change to a bonus or a rate of pay is unavoidable rather than financially desirable will be a high hurdle for employers to negotiate and —much higher than it currently is.

Uncertainty Around Qualifying Service Requirements

What is not clear at present is whether this type of automatic unfair dismissal claim will still require 6 months’ service, like “normal” unfair dismissal, or whether it might be from day 1, like whistleblowing.

Preparing Early for Changes to Terms and Conditions

Any employer contemplating the need to make changes to terms and conditions would be best starting such a process well before the Autumn.

Extension of pregnancy/maternity protection from dismissal (estimated in 2027)

This change has flown a bit under the radar of public awareness, in comparison with the reduction in the service requirement, but it is likely to be as significant in practice. Currently, women have protection from being dismissed because of their pregnancy/maternity leave or reasons related to the pregnancy. In cases of redundancy, whilst pregnant or on maternity leave (or in the period after returning), they also have the right to be offered a role if any suitable alternative vacancy exists.

Proposed Extended Protected Period for Pregnant Employees

The new proposal is that from the point the woman notifies the employer that she is pregnant until 18 months after the birth (or 6 months after she returns from maternity leave), during this protected period, it will be automatically unfair to dismiss her for any reason, unless specific procedures and evidence requirements are met.

Potential Restrictions on Fair Reasons for Dismissal

These requirements are subject to consultation, as is the proposal for a separate test of fairness or a narrowing of the existing, potentially fair reasons to dismiss. For instance, the consultation suggests that dismissal for conduct be narrowed to gross misconduct only, and a removal of the potentially fair reason of capability altogether for such protected women.

If this were adopted, a protected woman on a final warning for repeated lateness could not be dismissed. A woman on a final warning for performance issues also could not be dismissed. This would apply from when she announces her pregnancy. It would last until 18 months after the birth.

To drill down with this example further, if a woman on an existing final warning informs her employer that she is pregnant and the birth is six months away, then no matter what lateness or lack of performance come after, that final step of dismissal will need to be stayed for roughly 2 years, that is 6 months before the birth/maternity leave and then 18 months after.

We should stress that the above is subject to consultation. The government may heed the unintended consequences in our example. It may then moderate the proposals. However, the fact they are on the table is important. It suggests that, at the very least, dismissing a woman in a protected period needs care.

This applies even if the reason is not linked to pregnancy or maternity leave. It will require a very different approach than for employees outside that protected period.

Removal of the financial cap for the Compensatory Award in unfair dismissal cases

This award, broadly, covers loss of wages and it is currently capped at £118,223 or a year of whatever the relevant employee’s gross pay was, whichever is the lower.

This does not affect most cases as the employee will either be paid a lot less than £118,000 and/or they find another job well within the year. However, for those who have (genuine) difficulty in finding comparably paid work or if they have been made ill due to the manner of the dismissal then this allied with the delays in the Tribunal system will mean that the value of claims will rise.

At present, the government has agreed not to remove the cap until a full consultation has been had about it and the impact on businesses has been assessed. This is likely to be in 2027 at the earliest.

Contact the team for more information on the Employment Rights Act and how we can help you business negotiate the changes.