Employment law changes to prepare for - from January 2027

There are some significant employment law changes coming into force from 1 January 2027, which employers should be preparing for now.

The changes form part of the Employment Rights Act 2025 and will increase the importance of having robust HR processes, clear employment contracts and well-documented decision-making.

The key changes employers need to be aware of include:

1. Unfair dismissal

The qualifying period is reducing from 2 years to 6 months. Currently, an employee will generally need 2 years' continuous service before they can bring an ordinary unfair dismissal claim. From 1 January 2027, this qualifying period will reduce to 6 months.

This is a significant change for employers - it means that employees will have protection against ordinary unfair dismissal much earlier in their employment. Employers will therefore need to be much more careful about how they manage probationary periods, performance concerns, misconduct and dismissals involving employees with less than 2 years' service.

Importantly, employees already have day-one protection against discrimination and certain automatically unfair reasons for dismissal. The new rules do not change that – they extend ordinary unfair dismissal protection to a much larger group of employees.

What should employers do?

Employers should consider reviewing:

• Probation and onboarding processes.
• Performance management procedures.
• Disciplinary, dismissal and capability procedures.
• Staff / employee handbooks.
• Documentation and record keeping.
• Taking training where required.

The key question will increasingly be whether the employer has a fair and defensible reason for dismissal and has followed a reasonable process.

2. The right to written reasons for dismissal will also change

Currently, an employee generally needs 2 years' service to have the right to request a written statement setting out the reasons for their dismissal. From 1 January 2027, this qualifying period will reduce to 6 months.

Employers should therefore make sure that dismissal decisions are properly documented and that the rationale for the decision is clear.

Good record keeping will become increasingly important.

3. The cap on unfair dismissal compensation is being removed

Currently, compensation for an unfair dismissal claim is subject to a statutory cap. The compensatory award is currently capped at the lower of 52 weeks' gross pay or the statutory maximum. The Employment Rights Act 2025 removes this cap from 1 January 2027. This could be particularly significant where an employee has suffered substantial financial loss following dismissal, especially in higher-paid roles.

Removing the cap does not mean that every successful unfair dismissal claim will result in unlimited compensation. Employment tribunals will still consider the employee's actual financial loss and other relevant factors, including mitigation of loss.

However, the removal of the statutory ceiling means the potential financial exposure for employers could be considerably greater in some cases.

What should employers do?

This makes it even more important to:

• Address performance and conduct issues promptly.
• Take advice before making any decisions - ACAS is a useful source of free, impartial information.
• Follow a documented fair dismissal process.
• Document decisions carefully.
• Consider whether settlement discussions are appropriate in higher-risk cases.

The potential cost of getting a dismissal wrong could become significantly higher.

4. Greater restrictions on fire and rehire

This is the practice of dismissing an employee and then offering to re-employ them on new terms and conditions, usually where the employee has not agreed to a contractual change. From 1 January 2027, the Employment Rights Act 2025 introduces much stronger protections around this practice. It is important to note that this is not an absolute ban on every situation involving fire and rehire.

The legislation provides that certain dismissals will be treated as automatically unfair where an employee is dismissed because they did not agree to specified contractual changes, unless the employer can satisfy the statutory requirements relating to financial difficulties and demonstrate that the need for the contractual change was unavoidable.

This means employers will need to think very carefully before attempting to impose significant contractual changes by dismissing and re-engaging employees.

What should employers do?

If you are considering changing any of the following, you should consider whether the proposed change can be achieved through consultation and agreement rather than relying on dismissal and re-engagement - pay, working hours, location, benefits, duties, shift patterns and any other contractual terms.

Employers should also keep detailed records of:

• Why the proposed change is necessary.
• What alternatives have been considered.
• Consultation with employees and their responses.
• The financial circumstances that drove the change, where relevant.

Other Employment Rights Act changes to prepare for during 2027

There are more employment changes due in 2027 but precise implementation dates have not been confirmed. The government has warned that future changes remain subject to parliamentary processes and may change. These include:

Guaranteed hours and greater predictability for workers - new rights are being introduced for qualifying workers on zero-hours and similar arrangements. These reforms are intended to provide greater certainty around working hours and shifts. The proposed measures include a right to guaranteed hours, reflecting hours worked during a specified reference period, together with rights to reasonable notice of shifts and payments where shifts are cancelled, moved or curtailed at short notice.

The detailed rules are still being developed following consultation, so employers using zero-hours, casual or variable-hours arrangements should keep this under review.

Flexible working - further changes to flexible working are also expected during 2027. Employers should therefore keep their flexible working policies under review and make sure managers understand that flexible working requests need to be dealt with properly and reasonably.

Bereavement leave, including pregnancy loss - new rights are expected during 2027, including provisions relating to pregnancy loss. Employers should review their existing compassionate and bereavement leave policies ahead of the new statutory requirements.

Enhanced protection for pregnant employees and new mothers - the government is planning enhanced dismissal protections for pregnant employees and new mothers during 2027. Employers should make sure managers understand the additional protections that apply when dealing with redundancy, capability or disciplinary situations involving pregnancy, maternity leave or a return from maternity leave.

Gender equality and menopause action plans - mandatory action plans covering gender equality and supporting employees through the menopause are also scheduled for 2027. This is likely to require employers to think more strategically about workplace policies, equality data and the practical steps they are taking to address gender inequality and support employees experiencing the menopause.

What should employers be doing now?

If you have an assistant or staff members, these changes will require more than simply updating the employee handbook. You should start reviewing your processes:

1. Review your dismissal procedures - make sure your disciplinary, capability and dismissal processes are robust and consistently followed.

2. Review your probation process - with unfair dismissal protection moving to 6 months, probationary periods and early support / performance management will become even more important.

3. Train managers (if relevant) - to understand that the 2-year rule is disappearing and that dismissing someone with relatively short service can carry considerably greater risk.

4. Improve HR documentation - make sure decisions are properly recorded, including the reasons for decisions, meetings held, evidence considered and outcomes.

5. Review contracts - identify any contractual terms that may need changing and consider how those changes would be implemented lawfully.

6. Be careful with fire and rehire - if you are considering changing terms and employees do not agree, take advice before moving towards dismissal and re-engagement.

7. Review zero-hours and variable-hours arrangements - if your business relies on casual, zero-hours or variable-hours workers, start considering how the forthcoming guaranteed-hours and shift-notice requirements could affect your staffing model.

8. Review your HR policies - look at policies related to disciplinary, capability, dismissal, grievance, flexible working, maternity, pregnancy, bereavement, equality, diversity and inclusion, working hours / zero-hours and casual working.

Keep an eye on the implementation timetable - not every 2027 change has a confirmed commencement date yet. The government's current timetable makes clear that some dates remain subject to further consultation, regulations and parliamentary processes.

The biggest practical change from 1 January 2027 is that employers will no longer be able to rely on the first 2 years of employment as a low-risk period for ordinary unfair dismissal. With the qualifying period reducing to 6 months, the compensatory award cap being removed and much stronger restrictions on fire and rehire, having clear policies is not enough - employers need to make sure those policies are followed and that decisions are properly documented.

For employers, 2026 is therefore a good time to review HR processes, train managers and identify any areas of potential risk before the new rules take effect.