The reforms introduced by the Employment Rights Act 2025 include a shorter qualifying period for bringing unfair dismissal claims, the removal of the cap on compensation and stronger safeguards against fire and rehire. Pregnant employees and new mothers will also receive enhanced protection from dismissal. 

 

Unfair dismissal protection after six months 

From 1 January 2027, employees will only need six months’ service to qualify for ordinary unfair dismissal protection, rather than the current two years. 

Employees who have completed six months’ service by 1 January will immediately gain protection. Those with less service will become protected once they reach the six-month threshold.  

This does not affect claims for automatically unfair dismissal, which do not require a qualifying period. These include dismissals connected to trade union membership or activities, pregnancy and other circumstances that already attract day-one protection.  

The six-month period will be set in primary legislation, making it more difficult for a future government to change it through secondary legislation. The shorter period may also encourage employers to review probation arrangements and reduce probationary periods to less than six months.  

 

The cap on unfair dismissal compensation will be removed 

The existing limit on compensatory awards for unfair dismissal will be abolished. 

Currently, the maximum award is generally the lower of 52 weeks’ gross pay or £123,543. Once the cap is removed, employment tribunals will be able to award compensation based on the financial losses employees can prove resulted from their dismissal, subject to ordinary legal principles of causation, mitigation and remoteness. 

Removing the cap will ensure compensation more accurately reflects the real financial consequences of an unfair dismissal. 

 

Stronger protection against fire and rehire 

Further provisions of the Employment Rights Act 2025 will come into force in March 2027 to restrict the use of fire and rehire. 

A dismissal will be automatically unfair where an employer dismisses a worker because they refused a "restricted variation" or dismisses them so that they or somebody else can be engaged to perform substantially the same duties on changed terms that include a restricted variation.  

Restricted variations will include changes to: 

  • pay and pensions 
  • working hours 
  • specified shift patterns 
  • time-off entitlements 
  • contractual flexibility clauses 

The introduction of a flexibility clause allowing the employer to unilaterally vary these terms will also be a restricted variation. 

Changes to most benefits-in-kind will fall outside of this definition, save certain contractual travel and accommodation benefits, and only shift changes between day and night or weekday and weekend working are protected.  

Dismissals to achieve restricted variations will be automatically unfair, subject to a narrow exception where an employer can demonstrate that the dismissal was unavoidable because of serious financial difficulties. 

Dismissals intended to impose changes outside the restricted categories may still be unfair, but will not attract automatic protection.  

These measures do not amount to a complete ban on fire and rehire, but they represent a significant improvement in protection against employers using dismissal to unilaterally impose detrimental contractual changes. 

 

Enhanced protection during and after pregnancy 

From October 2027, employees who are pregnant or have recently returned from maternity leave will benefit from greater protection against dismissal.  

It is already automatically unfair to dismiss an employee because of pregnancy or maternity. However, from October 2027, when considering unfair dismissal claims brought by someone who is in the "protected period", the ordinary test of establishing whether an employer’s decision fell within a range of reasonable responses will be replaced by a stricter proportionality test. When determining the fairness of a dismissal, the employment tribunal will be required to ask whether the dismissal was a "proportionate means of achieving a legitimate aim".  

This is a significantly higher threshold than the existing reasonableness test. To justify a dismissal in these circumstances, an employer would need to identify a legitimate business objective and

demonstrate that less severe alternatives, such as additional support, training, temporary changes to duties or redeployment, were not reasonably available.  

The protected period will begin when an employee tells their employer that they are pregnant, continue throughout maternity leave and remain in place for six months after the leave ends.  It will apply even where an employer argues the reason for dismissal was unrelated to pregnancy or maternity. This protection will be a day-one right. 

Equivalent protection will apply to employees taking Adoption Leave, Shared Parental Leave, Neonatal Care Leave and Bereaved Partner’s Paternity Leave.  

 

A substantial step forward for workers 

These changes will make unfair dismissal protection available earlier, give tribunals greater scope to compensate workers for their actual losses and introduce long awaited restrictions on the ability of employers to use the threat of dismissal to weaken contractual terms. 

Together with the extension of the time limit for bringing unfair dismissal claims from three months less one day to six months less one day, the reforms will significantly improve access to justice. 

Although the final measures do not go as far as some of the protections originally proposed, they represent a welcome and substantial step forward for workers’ rights.  

If you believe that you have been unfairly dismissed or your employer is trying to impose changes to your terms and conditions, seek advice from your trade union or a specialist employment rights lawyer as soon as possible. 

Wiliam Webb – Senior Solicitor, Trade Union Law GroupÂ