From 1 January 2027, changes in employment law means ordinary unfair dismissal protection will apply after six months of service, including for fixed-term employees, and compensation will no longer be capped.
Employers must adapt their probation, performance management, and dismissal procedures to mitigate legal risk, while employees gain earlier access to unfair dismissal protections.
Charlotte Wallage, solicitor in Wake Smith’s employment team, looks at the changes to the Employment Rights Act 2025 and how employers can prepare.
This article covers:
The changes to unfair dismissal rights
Implications for Fixed-Term Contracts
Practicalities for Employers
What is not changing?
How will the changes affect fixed-term contracts?
Fair reasons and processes for not renewing a fixed or limited-term contract
Your next move?
The changes to unfair dismissal rights
Currently, an employee currently needs two years' service before they can bring an ordinary unfair dismissal claim, meaning employers can usually short-cut the dismissal process if needed.
From 1 January 2027, the qualifying period will reduce to six months from two years. It will apply to employees who already have six months' service at that date, and to others once they reach six months' service.
This means employees who have completed six months of continuous service can bring a claim to an employment tribunal if they believe they have been unfairly dismissed, unless the employer can demonstrate a fair reason and a fair process was followed. Employees will be able to ask for written reasons for their dismissal after six months' service;
Compensation for unfair dismissal claims will no longer be capped (currently the lower of 52 weeks' pay or £123,543) increasing potential financial exposure for employers.
Employees with six months’ service as of 1 January 2027 will automatically gain rights to retrospective application.
Day-one protection for discrimination, whistleblowing, and automatically unfair reasons remain unchanged.
Implications for Fixed-Term Contracts
Employees on fixed-term contracts are generally treated the same as permanent employees for unfair dismissal purposes once they meet the qualifying period.
Therefore:
- A fixed-term employee who has worked for six months or more can claim ordinary unfair dismissal if their contract is terminated unfairly.
- Employers must ensure that dismissals of fixed-term staff are procedurally fair, including proper documentation, performance management, and adherence to contractual terms.
- Probationary periods and early performance reviews become critical, as the six-month mark is now the threshold for potential claims.
Practicalities for Employers
- Review probation and performance management processes to ensure fair and documented assessments before the six-month point.
- Manage fixed or limited term contracts differently once the qualifying period is achieved to help reduce unfair dismissal claims.
- Be clear in contracts - fixed or limited term? End date? Why it will end? State why the contract is not permanent. This offers clarity which the employee can understand and accept from the start.
- Note down the contract end date and notice period (if required) and confirm when and reasons for. If you no longer want to keep the employee on, and they have qualifying service, consider if you have a fair reason for dismissal and seek legal advice to assess whether that reason is likely to withstand scrutiny at tribunal.
- If you are considering dismissing someone under a fixed-term contract as part of a restructure/redundancy programme you need to consult with them in the normal way and consider alternatives to dismissal. They are entitled to a redundancy payment if they have worked for you for two or more years.
- Update disciplinary and dismissal policies to reflect the new qualifying period and ensure compliance with employment law
- Train managers to handle early-stage performance issues effectively, particularly for high-turnover sectors or fixed-term staff
- Address any concerns about an employee's performance or behaviour at the time. You can only dismiss them before the end of the fixed-term period if the contract contains a clause allowing it. If you terminate without this, you could be sued for wrongful dismissal.
- Be fair, particularly if the employee has worked long enough to claim unfair dismissal.
What is not changing?
The dismissal of a fixed-term employees is automatically unfair if the main reason for their dismissal is because they have brought proceedings against their employer under the Fixed-term Employee Regulations (or their employer believes they have), or has asked for a written statement explaining why they have been treated less favourably under those Regulations, and in a few other situations.
If a fixed-term employee is made redundant due to doing any of these things, they will also be regarded as having been automatically unfairly dismissed. These rules are not changing.
How will the changes affect fixed-term contracts?
The law treats the expiry of a fixed-term contract as a dismissal if it is not renewed or extended on the same terms as before. This is whether you expressly tell an employee they are being dismissed because their contract has come to an end, or where the contract comes to an end without you doing or saying anything.
Currently, many fixed-term employees cannot claim unfair dismissal because their contracts end before they reach two years' service and they are not re-engaged on new contracts. For example, if an employee is on a one-year fixed term contract (perhaps to cover someone's maternity leave), they will not qualify for ordinary unfair dismissal when it ends.
However, once unfair dismissal can be claimed after six months service, more employees engaged under fixed and limited-term contracts will be able to bring claims if they are unhappy about the way their dismissal has been handled.
Fair reasons and processes for not renewing a fixed or limited-term contract
Once an employee has worked for you long enough to bring a claim of unfair dismissal, you must be able to demonstrate that you have a fair reason for dismissing them and that you have followed a fair procedure. These include:
- Capability
- Conduct
- Redundancy
- Breach of a statutory duty or restriction
- Some other substantial reason (SOSR)
The expiry of a fixed-term contract is not, of itself, a fair reason for dismissal and you must establish the dismissal falls within one of these five, potentially fair, reasons.
For further advice on employment law matters call Wake Smith Solicitors on 0114 266 6660.
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