The Employment Rights Act 2025: All change on unfair dismissal
19 January 2026
Employment rights: A new era for UK workforce governance
United Kingdom employment law is entering its most transformative phase in decades. The Employment Rights Act 2025 moves beyond a technical recalibration – it's a structural shift that will redefine workforce risk and governance for years to come. For Boards with UK based employees, this is more than a compliance addendum; it's a core imperative.
The headline changes are clear: a significantly reduced qualifying period for unfair dismissal claims (from 2 years to 6 months) and the abolition of the compensation cap. Together, these reforms fundamentally alter the risk calculus for termination decisions. Highly compensated employees will now carry uncapped liability exposure, and the procedural integrity of dismissals will become a key determinant of litigation risk. Boards should anticipate a surge in claims, prepare for higher settlement values, and plan accordingly.
It goes without saying – the implications extend beyond HR. Hiring, probation, and performance management frameworks must be adjusted to enable decisive action within compressed timelines. Governance teams should stress-test dismissal protocols for consistency and defensibility, embedding them across all business units as opposed to leaving them siloed in people management departments. This is not just about avoiding claims – it's about preserving organisational agility, whilst maintaining fairness and transparency across your workforce.
Trade union reforms and staggered implementation timelines through 2026 and 2027 add further complexity. Boards will need structured horizon scanning and targeted scenario planning to manage phased obligation implementation without disrupting operational continuity. Litigation risk is only one dimension; reputational exposure and workforce confidence are equally at stake.
Handled well, embracing these changes not only strengthens organisational resilience, but amplifies trust and cohesion amongst the people that keep your business running. Boards that embed robust employment governance move past simply mitigating risk – they will position their organisations as leaders in responsible workforce management. In an era where talent and reputation are core strategic assets, the opportunity to be a truly differentiated, people-focused employer is yours for the taking.
