The Employment Rights Act 2025: What Every Employer Needs to Know
The Employment Rights Act 2025 is the most significant change to UK employment law in a generation. If you employ people in the UK, it affects you. If you hire people, it changes how you should be doing it. And if you are not preparing now, you are running out of time.
Here is what you need to know.
What is the Employment Rights Act 2025?
The Employment Rights Act 2025 is new UK legislation that strengthens employee protections and increases employer accountability. It was passed in 2025 and the key changes take effect from January 2027.
The headline changes are:
The qualifying period for unfair dismissal claims drops from two years to six months. This means employees will be able to bring an unfair dismissal claim after just six months of employment, down from the current two-year requirement.
The statutory compensation cap for unfair dismissal is being removed. Currently, compensation is capped at the lower of 12 months pay or a statutory maximum. Under the new rules, there is no cap. A tribunal can award whatever it considers just and equitable.
A new Fair Work Agency will be established to enforce employment rights, including investigating complaints and taking enforcement action against employers.
What does this mean in practice?
For employers, the practical impact is significant. From January 2027, any employee with six months of service can bring an ordinary unfair dismissal claim, including people you have already hired, not only new starters. There is no cap on what they can claim. And it is for you to show the reason for the dismissal and that acting on it was reasonable.
This means three things:
First, keep a record of how each hiring decision was made: what criteria you used and how you assessed the candidate.
Second, your probation process needs to be structured and evidenced. You cannot simply dismiss someone during probation and say it was not working out. You need to document what was expected, what support was provided, and why the employee did not meet the required standard.
Third, the cost of a bad hire just went up significantly. A bad hire has always been expensive: recruitment fees, training, lost productivity, team disruption. Now you can add uncapped tribunal compensation to that list.
Who does this affect?
Every employer in the UK. Every recruitment agency placing candidates. Every HR team making hiring decisions.
Small businesses are particularly exposed because they often lack formal hiring processes and documented assessment criteria. A small business that hires based on a CV and an informal chat has very little record of how the hiring decision was made.
Recruitment agencies face a different risk. When a placement fails, the client will increasingly ask what evidence the agency had that this candidate was suitable. Agencies that cannot answer that question with data will lose clients to agencies that can.
What should you do now?
The changes take effect from January 2027, but the hiring decisions you make today will be tested under the new rules. A candidate hired in June 2026 reaches their six-month mark in December 2026, just weeks before the new legislation takes effect.
1. Audit your hiring process
Look at every hire you have made in the past year. For each one, ask: is it written down why this candidate was selected? If your evidence is limited to good CV and interviewed well, you have a gap.
2. Move to objective, documented assessment
Structured interviews are a start, but they still rely on subjective judgement. Scenario-based assessment, where candidates are tested on realistic work tasks specific to the role, produces documented evidence tied directly to the job description.
3. Structure your probation process
Every new hire should have documented objectives, regular check-ins, and a clear evidence trail throughout their probation period. If you need to dismiss someone, you need to show you gave them a fair opportunity to succeed.
4. Prepare now, not in January 2027
The companies that wait will be scrambling. The cost of preparation is small compared to the cost of an uncapped tribunal claim.
PRODICTA predicts probation outcomes before you make the offer. Try the free risk report tool at prodicta.co.uk or book a demo at prodicta.co.uk/contact.