The Hiring Rules Are About to Change

We covered the employment law changes that took effect on 6 April a few weeks ago. That post was about sick pay, paternity rights, and the new Fair Work Agency. This one is about something bigger, and it has not had nearly enough attention.

From the 1st of January 2027, the qualifying period for unfair dismissal protection drops from two years to six months. And the compensation cap is being removed entirely.

If you employ anyone, or plan to hire anyone in the next few months, this changes the game.

What is changing#

Right now, an employee generally needs two years of continuous service before they can bring an unfair dismissal claim against you. That has been the rule since 2012. It gives employers a long window to assess whether someone is the right fit, and to let people go relatively easily during that period if things are not working out.

From the 1st of January 2027, that window shrinks to six months. An employee who has been with you for half a year will have the legal right to challenge their dismissal at an employment tribunal, on largely the same basis as someone who has been with you for ten years.

This is part of the Employment Rights Act 2025, which received Royal Assent last year. The government has confirmed the January 2027 date, and it is not being delayed.

The compensation cap is gone#

This is the part that should get your attention.

Currently, the maximum compensatory award for unfair dismissal is capped at £123,543 or 52 weeks' gross pay, whichever is lower. From the 1st of January 2027, that cap is removed. Completely. Both the numerical limit and the 52-week limit are being abolished.

In practice, most tribunal awards are much lower than the cap. The median compensatory award in the most recent data was around £6,700. But removing the cap changes the ceiling. In cases where a dismissal goes badly wrong, where there is no process, no documentation, and no good reason, the potential exposure is now uncapped.

For a small business with tight margins, even a £15,000 or £20,000 award is serious. The fact that awards could theoretically go much higher should focus your attention on getting the process right.

Why this matters right now#

January 2027 sounds like a long way off. It is not.

Anyone you hire from July 2026 onwards will have six months of service by the time the new rules take effect. That means the hiring decisions you make this summer are the first ones that carry the new level of risk.

And it is not just new hires. Anyone already on your team who has six months of service by the 1st of January 2027 will gain protection on that date. For most businesses, that means your entire workforce.

The two-year buffer that let you take a "wait and see" approach to underperformance is about to disappear. If someone is not right for the role, you will have a much shorter window to address it before their dismissal becomes legally challengeable.

The lighter touch process#

The government has acknowledged that six months is a short time to assess a new hire. To balance this, they are introducing a "lighter touch" dismissal process during what they are calling the initial period of employment.

The details are still being finalised, but the stated intention is that during the first nine months, employers will be able to follow a simpler process when dismissing someone who is not right for the job. The government's starting position is that this means holding a meeting with the employee to explain your concerns, where they can bring a colleague or union rep, and then making a decision.

That is less onerous than a full capability or conduct procedure. But it is still a process. It still requires you to articulate your concerns clearly, give the employee a chance to respond, and document what happened. "It just was not working out" said verbally with no record is not going to be enough.

What to do now#

You do not need to wait until January. The businesses that prepare now will not think about this again. The ones that leave it are the ones who end up in front of a tribunal.

Review your probation process. If your employment contracts include a probation period, check what it says and whether it matches how you actually manage new starters. A three-to-six month probation period with structured check-ins, clear expectations, and written reviews is the minimum. If your current approach is "we will see how it goes," that needs to change.

Start documenting performance from day one. If a new hire is struggling, note it down. Have a conversation. Follow it up in writing, even if it is just a short email confirming what was discussed. If you eventually need to dismiss someone, the tribunal will ask what steps you took. "I mentioned it once in passing" is not a step.

Do not let problems drift. The biggest risk under the new rules is the same as the biggest risk under the old ones: ignoring a problem for months and then dismissing someone suddenly. The difference is that under the current system, you have two years of breathing room. From January, you have six months. If something is wrong, address it early.

Update your contracts. Make sure your employment contracts reflect a defined probation period with clear terms. If they do not mention probation at all, or if the probation period is longer than six months, talk to your HR adviser or solicitor about getting them updated.

Brief anyone who manages people. If you have team leaders, supervisors, or managers who handle day-to-day staff issues, they need to understand that the informal "give it a bit longer" approach is not going to work the way it used to. This does not mean being harsh. It means being clear, early, and documented.

The bigger picture#

This is the most significant change to unfair dismissal law in over a decade. It affects every employer, from a sole trader with one part-time member of staff to a company with fifty. The intent is to give workers meaningful protection earlier in their employment. That is reasonable. But the practical reality for small business owners is that hiring, managing, and dismissing people now carries more legal weight, sooner.

The good news is that the process is not complicated. Set clear expectations. Have regular check-ins. Write things down. Act on problems when they appear rather than hoping they resolve themselves. If you do that, the change in qualifying period will not matter, because you will have done everything a tribunal would expect of you.

If you do not, the gap between "this is not working" and "this is going to cost me" just got a lot shorter.