Please note: This article reflects the Employment Rights Act reforms and the Government’s proposed implementation timetable as understood at the time of writing. The final detail may change before implementation.
The headlines are grabbing attention – but they are asking the wrong question
Employment law rarely changes the way organisations think about managing people. Most reforms refine existing rights rather than fundamentally altering the employment relationship. The next phase of the Employment Rights Act is different.
Whether you are an employer responsible for leading a workforce or an employee seeking to understand your rights, the changes expected from January 2027 deserve close attention.
Much of the attention has focused on whether employers should accelerate dismissals before the reforms take effect. In my view, that is the wrong question.
The better question is this: If the law were not changing, would we still make this decision?
For many employers, the answer will be yes. Every organisation encounters situations where performance declines, relationships break down, misconduct occurs or redundancies become unavoidable.
Those issues should not be ignored simply because the legal landscape is shifting. Good employers have always addressed difficult workplace issues when it is appropriate to do so.
If, however, the only reason a dismissal is being contemplated is fear that it may become more expensive after January 2027, the position is far more complicated.
Employment Tribunals will not be interested in whether an employer acted before or after reform. They will ask why the decision was made, whether there was a fair reason for dismissal and whether the employer acted reasonably.
The Employment Rights Act does not change the importance of fairness. It increases the consequences of getting fairness wrong.
That distinction matters for employees too. The reforms will strengthen protection, but they will not prevent employers from dismissing where there is a fair reason and a fair process. Nor will they create an automatic entitlement to substantial compensation whenever a dismissal is found to be unfair.
The law has never been designed to prevent employers from managing their businesses. It exists to ensure that they do so fairly. That principle remains unchanged.
Rather than viewing these reforms as a reason to panic or celebrate, I believe they should be viewed as an opportunity: for employers to review recruitment, probation, performance management, policies and management capability; and for employees to understand both the rights likely to become available sooner and the responsibilities that continue to accompany those rights.
Why these reforms matter
Two reforms have attracted most attention: the proposed reduction in the qualifying period for ordinary unfair dismissal claims from two years’ continuous service to six months, and the removal of the current statutory cap on compensation for ordinary unfair dismissal.
Taken together, those reforms will require employers to reassess recruitment, performance management, disciplinary action, redundancy and dismissal. Employees will also want to understand what greater protection means in practice.
In my view, the reduction in the qualifying period may ultimately prove more significant than the removal of the compensation cap.
References to “uncapped compensation” inevitably attract attention, but relatively few employers have large numbers of employees earning above the current statutory limit. By contrast, virtually every employer recruits staff.
Six months passes quickly. By the time a new recruit has been inducted, settled into the business and begun contributing fully, they may already be approaching the point at which ordinary unfair dismissal protection arises. Employers who have historically allowed performance concerns to drift will need to make informed decisions earlier.
For employees, earlier protection provides greater security, but it should also encourage constructive engagement with probationary reviews, performance discussions and workplace expectations.
Stronger rights work best where they are accompanied by open communication and a genuine willingness on both sides to resolve concerns before they escalate.
That is why I believe the reduction in the qualifying period from two years to six months may ultimately prove to be the more significant reform.
Understanding what is actually changing
The phrase that has attracted the greatest attention is “uncapped compensation”. It is a powerful headline, but it risks creating the impression that Tribunals will soon award unlimited compensation whenever a dismissal is unfair. That is not how unfair dismissal compensation works.
The proposed reforms remove the statutory ceiling on the compensatory award. They do not alter the fundamental principles on which compensation is assessed. Tribunals do not punish employers for poor decisions or provide windfalls to employees because a process was defective.
The purpose of compensation remains compensatory. The Tribunal will assess, as far as money can, the financial position the employee would probably have been in had the unfair dismissal not occurred.
That involves questions such as whether the employee would have remained employed had a fair process been followed, how long employment would probably have continued, whether alternative work has been secured, whether losses have been mitigated and whether compensation should be reduced.
Removing the cap increases potential exposure, particularly for higher earners, but it does not remove the requirement to prove loss. Employees who quickly secure comparable employment may recover far less than those who remain out of work for a prolonged period.
Awards may also be reduced for contributory conduct or where, applying Polkey v AE Dayton Services Ltd, the employee would probably have been dismissed fairly at a later date even if the original process was flawed.
The proposed reduction in the qualifying period also requires context. It does not create ordinary unfair dismissal rights from day one.
Nor does it replace the protections that already apply regardless of service, including discrimination, whistleblowing, pregnancy, family leave, certain health and safety matters and the assertion of statutory rights.
I occasionally hear businesses refer to employees with less than two years’ service as though they carry little legal risk. That has never been accurate. The reforms expand ordinary unfair dismissal protection, but employers have always needed to approach dismissals carefully where other statutory protections may be engaged.
Viewed properly, the Employment Rights Act is an evolution of existing employment rights rather than a reinvention.
Employers will still be entitled to dismiss where there is a fair reason and a fair process. Employees will still be protected from arbitrary or unlawful treatment. The enduring principles remain fairness, reasonableness, and evidence.
Workforce reviews are legitimate; panic dismissals are not
Many organisations are reviewing their workforce before the proposed reforms take effect. There is nothing improper about sensible workforce planning.
Markets change, commercial priorities shift, and leadership teams must sometimes make difficult decisions about performance, succession, structure, and redundancy.
What carries risk is a dismissal motivated principally by a desire to avoid future legal obligations. The question should not be, “Can we do this before January 2027?” It should be, “Is this decision justified on its own merits?”
In my experience, employers often wait too long rather than act too quickly. Performance concerns are allowed to drift, difficult conversations are postponed, expectations become unclear and informal concerns are never documented. By the time advice is sought, frustration has built on both sides and trust has often diminished.
The forthcoming reforms should therefore be a prompt to improve management, not merely a deadline before which dismissals must be completed. Businesses that fail to document concerns, avoid difficult conversations or leave managers unsupported will not solve those problems by accelerating decisions before the law changes.
Good management has never been about avoiding legal claims. It is about creating an environment in which claims are less likely to arise in the first place.
Good management remains the best legal risk management
Employment law is often seen as something that becomes relevant only when relationships have broken down. In reality, the strongest Tribunal cases are rarely built around one dramatic event. More often, they are the product of small management failures that accumulate over time.
Expectations are not properly explained. Performance concerns are raised inconsistently. Managers have informal conversations but fail to record them. Policies are applied differently across teams. Employees receive mixed messages and are then surprised when formal procedures begin.
Individually, those issues may appear modest. Together, they often form the factual background against which a Tribunal assesses whether an employer acted reasonably.
That is why the greatest opportunity presented by these reforms lies in everyday management: clear expectations, regular review meetings, accurate records, timely feedback, and managers who are confident enough to address difficult issues before they become entrenched.
The employers best prepared for January 2027 will not be those who dismiss employees fastest. They will be those who manage people best.
Do not view unfair dismissal in isolation
Another risk in the current debate is that employers may focus on unfair dismissal alone. In practice, workplace disputes often arise from the same facts but give rise to several claims.
A performance process may lead not only to an unfair dismissal allegation, but also to disability discrimination and failure to make reasonable adjustments. A redundancy exercise may raise indirect discrimination concerns.
Disciplinary action taken shortly after an employee raises health and safety concerns, makes a protected disclosure or asserts a statutory right may generate claims that extend well beyond ordinary unfair dismissal.
The better question is not simply, “Can we defend an unfair dismissal claim?” It is whether the proposed course of action complies with the employer’s wider statutory obligations and whether any other legal issues require consideration before a decision is taken.
Having acted for employers and employees alike, I have found that organisations rarely encounter serious difficulty because they lacked any potentially fair reason. More often, problems arise because they failed to appreciate the wider legal context in which the decision was made.
That is particularly important where capability and health overlap. Declining performance may be linked to depression, anxiety, ADHD, autism, multiple sclerosis, menopause, cancer treatment, chronic pain, long Covid or another condition that may amount to a disability under the Equality Act 2010.
Once that possibility arises, the focus cannot be limited to whether the employee is meeting the required standard. Employers may need to understand the medical position, consider occupational health input and explore reasonable adjustments.
Those adjustments are not simply a legal burden; often they are the means by which a skilled employee remains in work.
Employees also have a role to play. Employers cannot always respond appropriately if they do not know that a medical condition exists or that it is affecting performance or attendance. Open communication, supported where appropriate by medical evidence, frequently enables practical solutions before formal proceedings become necessary.
Another area that I anticipate will evolve as these reforms take effect is the use of settlement agreements.
Preparing for January 2027
The organisations and individuals most likely to benefit from these reforms will not be those who wait until the legislation comes into force. They will be those who use the coming months to prepare thoughtfully, address existing weaknesses and establish better working practices.
For employers, preparation should begin with an honest assessment of how people are managed.
The Act is unlikely to expose entirely new problems. More often, it will magnify existing ones: weak probationary reviews, inconsistent investigations, incomplete documentation, poor feedback and managers who lack confidence in difficult conversations.
Contracts and policies matter, but the more searching question is whether managers consistently apply them in practice. Policies alone rarely prevent disputes. People do.
Recruitment, probation, and performance management deserve renewed attention. Employers should be clear about the role they are recruiting for, the standards expected and how performance will be assessed.
Probation should involve regular review meetings, honest feedback, and appropriate support. Waiting until the final week of probation to raise concerns that have existed for months serves neither party well.
Documentation will also become even more important. Tribunal hearings often take place many months after the events in question. By then, memories have faded, managers may have moved on and witnesses recall conversations differently.
Significant discussions, key decisions and formal procedure stages should therefore be recorded accurately and consistently.
That does not mean creating paperwork for its own sake. It means recording performance concerns when they arise, noting the support offered, explaining the reasoning behind decisions, and ensuring the evidence reflects what actually happened.
If I were advising an employer where to focus its resources before January 2027, my answer would begin with line managers. Employment legislation operates in everyday conversations: probation reviews, sickness absence meetings, performance discussions, misconduct investigations and requests for flexible working.
Managers should understand not only the mechanics of disciplinary and capability procedures, but the principles that underpin them: fairness, consistency, reasonable adjustments, contemporaneous records and knowing when specialist advice is needed.
Employees should also prepare. Stronger protection does not diminish the value of constructive communication, professional conduct or early engagement with workplace concerns. Where expectations are unclear, employees should seek clarification.
Where health affects performance or attendance, employers should be informed where appropriate so that support can be considered. Where concerns arise, raising them promptly may create opportunities for resolution before relationships become irretrievably damaged.
I would also emphasise the importance of taking advice before making irreversible decisions. Once a resignation has been submitted, options may change significantly. Advice beforehand enables employees to make decisions based on legal realities rather than the understandable emotions that often accompany workplace disputes.
Realistic legal advice and settlement agreements
One likely consequence of the reforms is that realistic legal advice will matter even more. The removal of the statutory cap will not transform every workplace dispute into a high-value claim, nor will it automatically result in larger settlement packages. The value of any dispute will continue to depend on its legal and factual merits.
That is why early advice is important for both employers and employees.
Employers need to distinguish between cases that justify robust defence and those where early commercial resolution is the better business decision. Employees need to understand the true strengths and weaknesses of their position rather than relying on optimism about what a Tribunal might award.
Settlement agreements are likely to become even more valuable because they allow both parties to manage uncertainty.
Employers obtain finality. Employees obtain agreed terms, independent legal advice and clarity about the end of the employment relationship. But the strongest negotiations will remain grounded in evidence, not headlines.
What these reforms tell us about the future of UK workplaces
Stepping back from the detail, these reforms tell us something broader about the direction of employment law in the United Kingdom. The legislation is not only about qualifying periods, compensation limits or Tribunal claims. It is also part of a wider shift in expectations about how employers should manage people.
For many years, employment law has moved towards encouraging employers to prevent workplace disputes from arising in the first place: consultation, early intervention, transparency, reasonable adjustments, flexible working, workplace culture and proactive employee relations.
The proposed unfair dismissal reforms sit comfortably within that direction of travel.
Organisations that view the reforms purely as an additional legal burden will spend the coming months asking how to minimise exposure. Those that see them as an opportunity to strengthen leadership, improve management capability and modernise workplace practices are likely to gain benefits that extend beyond legal compliance.
There is also a commercial dimension. Organisations compete not only for customers but for talented people. Businesses that develop a reputation for treating employees fairly are often better placed to recruit and retain high-quality staff than those that compete on salary alone.
Good employment practices are no longer simply legal compliance. They are a competitive advantage.
Ultimately, I do not believe the Employment Rights Act will be remembered only because it reduced the qualifying period or removed the compensation cap. Its longer-term legacy may be that it encouraged organisations to think differently about how they recruit, support, develop, and manage their people.
The Employment Rights Act is not redefining what good employment practices look like. It is making them more difficult to ignore.
The law is changing, but the principles remain the same
Reducing the qualifying period from two years to six months and removing the statutory cap on compensation are significant reforms. They will influence how employers assess risk and how employees understand their rights.
But the real significance of these reforms lies in the broader message they send. Employers will be expected to engage with performance issues earlier, make better-informed decisions, follow fair procedures and equip managers to deal confidently with workplace challenges.
Employees will gain important protection sooner, but will still benefit from constructive engagement, professional conduct and informed decision-making.
The organisations that emerge strongest from these reforms will not be those looking for opportunities to dismiss before January 2027.
They will be those asking more fundamental questions: Are managers addressing concerns early? Are employees receiving meaningful feedback? Are policies applied consistently? Are difficult conversations taking place when they should? Is legal compliance the objective, or the by-product of good leadership?
Employment Tribunal proceedings will always have an essential place in enforcing workplace rights. But they should never be regarded as the benchmark of a successful employment relationship. The most effective employment practices resolve concerns long before a claim form is presented.
If there is one conclusion I hope employers and employees take from these reforms, it is this: the Employment Rights Act is not redefining fairness in the workplace. Fair employers have always recruited carefully, communicated clearly, managed performance consistently and treated employees with dignity and respect.
Responsible employees have always understood the importance of engaging constructively, communicating openly and acting professionally.
The legislation does not change those principles. It simply increases the consequences of ignoring them.
That is why I see the next phase of the Employment Rights Act not primarily as a story about dismissals, compensation or Tribunal claims, but as an opportunity: for employers to build stronger organisations through better leadership, for employees to benefit from earlier protection, and for workplaces across the United Kingdom to place fairness, accountability and good management where they have always belonged, at the heart of the employment relationship.
How Magara Law can help
Whether you are an employer reviewing recruitment practices, preparing managers, navigating disciplinary or capability issues, considering redundancy or responding to a Tribunal claim, early specialist advice can often prevent a manageable issue from becoming an expensive dispute.
Similarly, if you are an employee concerned about your rights, facing performance or disciplinary proceedings, negotiating a settlement agreement or considering a claim, timely advice can help you make informed decisions based on the legal realities rather than the headlines.
At Magara Law, we advise both employers and employees across the full spectrum of employment law. We combine technical legal expertise with practical, strategic advice, helping clients resolve workplace issues wherever possible and providing robust representation where litigation cannot be avoided.
The Employment Rights Act will reshape aspects of unfair dismissal law. Whatever your circumstances, understanding your rights, responsibilities and the practical implications of these reforms will place you in the strongest possible position as the new legal landscape takes shape.
To find out more about how Magara Law can help you strengthen your position, call 01869 325 883, email hello@magaralaw.co.uk or book your consultation direct. Once you have scheduled your consultation, subscribe to our YouTube channel and follow us on social media for all the latest employment law updates and information you need.