Unfair dismissal drops to six months in January. The date that counts is when the notice ends

Nothing leaves your bank account on 1 January. This change moves something else: how expensive it is to reverse a hiring decision you got wrong. Today a new employee cannot bring an ordinary unfair dismissal claim until they have worked for you for two years. From 1 January 2027 that drops to six months, and the ceiling on what a tribunal can award comes off altogether. So the person you hire this month has a six month window instead of a two year one, and anyone already past six months on your payroll is inside the new rule from the first day of the new year. The date that decides which rule applies is not the day you make the decision. It is the day the employment actually ends.

The line in the regulations that catches people out

The commencement regulations were made on 26 May 2026, and one line in them matters more than the rest.

The changes "have effect in any case where an employee is dismissed before 1st January 2027 but the effective date of termination falls on or after that date", and they "do not have effect in any case where the effective date of termination falls before 1st January 2027".

Read that twice. It is not the date you decide. It is not the date you hand over the letter. It is the effective date of termination, which the Employment Rights Act 1996 defines, where you terminate by notice, as the date the notice expires.

Two identical decisions, a fortnight apart. Take a member of staff with 14 months behind them and a month's notice in their contract:

• Notice given on 20 November 2026 ends on 20 December. Termination lands in 2026, the old rule applies, and at 14 months they have no ordinary unfair dismissal claim.
• Notice given on 5 December 2026 ends on 5 January. Termination lands in 2027, the new rule applies, and 14 months is well past six, so they are fully protected and the award has no ceiling.

Same business, same reason, same paperwork, different exposure. The only variable is a calendar.

Count backwards from 31 December, not forwards from today

Work back from 31 December 2026 by whatever notice you actually owe.

• A month's contractual notice: the last date that lands the termination in 2026 is about 30 November.
• One week, the statutory minimum for anyone with less than two years' service, takes you to about 24 December.

Two warnings before you put anything in the diary.

First, check what your contracts say rather than what you remember. Plenty of small employers wrote a month's notice into a template years ago and have never looked at it since.

Second, there is a wrinkle nobody can settle for you from a web page. Where an employer dismisses without notice, or with less than the statutory minimum, section 97 of the Employment Rights Act 1996 already treats the termination date as the later date on which statutory notice would have expired, for the purpose of working out whether the employee has enough service to claim at all. How a tribunal reads that against the new transitional rule has not been tested, because the rule is not in force yet. If you are within a fortnight of the line, that is a call to an employment solicitor, not a decision to make off a page like this one.

What is changing, and what is staying exactly as it is

Three things change, all of them in section 25 of and Schedule 3 to the Employment Rights Act 2025:

• The qualifying period for ordinary unfair dismissal goes from two years to six months, and the power to change that period again without new primary legislation is removed.
• The qualifying period for an employee's right to written reasons for dismissal goes from two years to six months. Fail to give them within 14 days of a request and the tribunal must award two weeks' pay.
• Section 124 of the Employment Rights Act 1996, the cap on compensatory awards, is removed completely.

What is not changing deserves as much of your attention, because it is the half that gets lost:

• You can still dismiss someone for a real reason, poor performance included. The government's own guidance for employers puts it in plain words: you can dismiss for legitimate reasons "if the decision to dismiss is fair, which includes following a suitable fair process".
• Day one protections are untouched. Discrimination, and the automatically unfair reasons for dismissal such as pregnancy, whistleblowing or asserting a statutory right, never had a qualifying period at all, and compensation for discrimination was never capped.

There is no special transitional favour for staff you already employ, and none is needed. From 1 January the qualifying period simply is six months, so anyone who has been with you that long qualifies that morning. In practice that means everyone who started on or before roughly 1 July 2026. Everyone else joins on their own six month anniversary.

The cap you are losing is smaller than the headline

Worth being precise here, because panic is expensive and this is where the coverage will mislead you.

The cap being removed is the lower of two numbers: £123,543, or 52 weeks' gross pay. Those are the figures set by the Employment Rights (Increase of Limits) Order 2026, in force since 6 April 2026, which also lifted the statutory week's pay to £751.

For an owner-operated business the second number is the one that binds. A full time job on the National Living Wage of £12.71 is a bit over £26,000 a year, so the ceiling on that claim was already about £26,000, nowhere near £123,543. Uncapping does not take that person's claim from £123,543 to infinity. It takes it from 52 weeks' pay to whatever loss they can actually evidence.

The evidence tends to be modest. The Department for Business and Trade's own factsheet, citing Ministry of Justice tribunal data, records 646 unfair dismissal awards in 2023/24 with a median of £6,746, and its economic analysis adds that fewer than 40 of those awards, around 6%, came in above £50,000.

So the award is not really the risk. The cost is that the employment tribunal does not normally order the losing side to pay the winner's legal bill, so what you spend defending yourself is gone whether you win or lose, and a claim that had no legal basis before 1 January now has one.

The government agrees the admin is cheap, and its arithmetic is worth borrowing. DBT prices each extra day of management time at an HR manager's median £29.79 an hour, uplifted 22% for non wage costs, across a seven hour day. That is about £254 a dismissal, which it scales to roughly £30m a year nationally across the 100,000 or so dismissals of people with six to 24 months' service. Two hundred and fifty four pounds is not the number to worry about. It is there to tell you the paperwork was never the expensive part.

Your probation period and the new rule now end on the same day

Here is the trap almost nobody has spotted yet.

Around 40% of businesses run a discretionary probation period, and the vast majority are six months or less. That is the Office for National Statistics business survey figure DBT relied on. From 1 January those two clocks stop at the same moment. A six month probation gives you no buffer whatsoever, and extending probation to nine months buys you nothing, because the statutory right arrives at six months regardless of what your contract says.

DBT is blunt about who carries this. Its analysis says small and micro businesses are more likely to be affected because they are "more likely to employ staff with between six months and two years' tenure", are less likely to use contractual probation processes, and have "more limited legal and HR resources". That is a fair description of most cafes, salons, gyms and clinics in the country.

The fix is not a longer probation. It is an earlier decision.

• Write down what the job has to look like, in three or four lines, in week one. Not a job description. An outcome.
• Put dated reviews in the diary at week six and month three, hold them, and write them up the same day. Ten minutes each.
• Make month four the honest yes or no. If you cannot say yes at month four, you will not be able to say it at month seven, and month seven is now the expensive one.

Three dated notes in a folder is the whole difference between a fair process and an argument about what everybody remembers.

Do not let January make the decision for you

The obvious move is a December clear-out. It is usually the wrong one, and there are three reasons that cost real money.

You throw away the training. Someone at ten months knows your regulars, works a shift unsupervised and has stopped costing you more than they produce. Replacing them costs recruitment, training and a worse service standard for a quarter, and none of that appears anywhere as a saving.

You raise your risk rather than lowering it. A rushed dismissal is exactly how a performance problem turns into a discrimination claim, and discrimination is the claim that never had a qualifying period and never had a cap. Sprinting to beat 1 January so as to dodge an uncapped award is a good way to hand someone an uncapped claim you cannot dodge.

The window has already widened. From 1 October 2026 the deadline for bringing a tribunal claim doubles from three months to six, so a December leaver stays live until roughly June 2027. The year ending does not draw a line under it. We went through that clock and the 30 October harassment duty in the briefing on third party harassment and employer liability.

One more door is due to shut on the same date, though this one sits on the government's published timetable rather than in commencement regulations yet: dismissing someone for refusing a change to core contract terms, meaning pay, total hours, pension, leave or specified shift patterns, becomes automatically unfair from January 2027 unless the business is in severe financial difficulty with no reasonable alternative. If your plan B for an expensive contract was to change the terms, price that in while you still have options.

What it does to what the business is worth

There is an unglamorous, very specific reason this shows up in a sale.

Until 31 December a buyer's lawyer can put a ceiling on an unfair dismissal claim, because the statute does it for them: the lower of £123,543 or 52 weeks' pay, per claim. From 1 January there is no such figure. The exposure is whatever loss a claimant evidences.

A liability that cannot be bounded rarely comes off the multiple. It comes out of your proceeds, as a wider warranty, an indemnity sitting behind it, and cash retained at completion until the claim window closes. Money held back for eighteen months is money you cannot use, and you only see it if nothing turns up.

What shrinks that retention is not a policy document. It is a one page file per person with dates on it: the offer, the written expectations, the reviews, a note of any conversation that mattered. The same file is the whole of your defence if a claim does arrive, which makes it the rare bit of admin that pays for itself twice. It belongs with the rest of your due diligence paperwork, and it is worth seeing where you currently stand on our exit readiness score.