Employment Rights Act 2025: what education institutions need to know

Unfair Dismissal: The new six-month qualifying period

Background to the Change

On 27 November 2025, the government announced a significant change to its original proposal regarding the day one right to claim unfair dismissal. The government has scrapped its proposed plan of introducing an “initial period of employment”, which would have effectively created a new probationary status for the first nine months of employment and a special process for a fair dismissal during this period.

Instead, the government has accepted an amendment from the House of Lords to introduce a new six-month qualifying period.

The New Position

The current qualifying period of two years’ continuous service for ordinary unfair dismissal claims will be reduced to six months.

This change is set to come into effect on 1 January 2027. Any employees who have six months’ continuous service as at 1 January 2027 will have unfair dismissal rights.

This represents a substantial reduction from the existing two-year requirement, significantly expanding the pool of employees who will be able to bring unfair dismissal claims.

Practical Implications

This change greatly reduces the length of time staff need to be in post before acquiring the fundamental employment right not to be dismissed without a good reason and fair process.

The move to a clearer six-month qualifying period is widely seen as a positive step for staff, offering certainty compared to the previously suggested (and somewhat precarious) nine-month arrangement.  However, until employers change their processes to assess new joiners’ capability and performance carefully within a much shorter window, it is likely that both employers and tribunals will see an increase in claims from staff.

Key Legal Considerations

It is important to note that the existing day one protections against discrimination and automatically unfair grounds for dismissal remain unchanged. Education institutions should therefore continue to ensure that their dismissal practices comply with all existing legal requirements, including those relating to protected characteristics and whistleblowing.

Removal of the Compensation Cap on Unfair Dismissal Awards

Background to the Change

Initially, the government hinted about “lifting” the compensation cap on unfair dismissal awards but did not provide further detail. However, following challenge from the House of Lords, on 16 December 2025, the government has decided to remove the statutory cap on unfair dismissal compensation entirely.  This change is set to come into effect on 1 January 2027.

The Current Position

Currently, the statutory cap on unfair dismissal compensation is the lower of 52 weeks’ pay or £118,223 (for dismissals taking place on or after 6 April 2025). This cap provides employers with a degree of certainty regarding their maximum exposure in unfair dismissal claims.

The New Position: Uncapped Compensation

If a claimant is successful in an unfair dismissal claim, the tribunal could award unlimited compensation. This will potentially expose employers, especially organisations with highly paid or long-serving staff, to uncapped compensation based on actual financial loss.

Practical Impact on Settlement Negotiations

The removal of the compensation cap is also likely to influence settlement negotiations. It will be crucial for education institutions to consider this when entering into discussions about settlement from 1 January 2027. Where currently education institutions can calculate their maximum exposure with relative certainty, they will need to factor in the possibility of significantly higher awards when determining settlement strategy. This may lead to more protracted negotiations and potentially higher settlement sums, particularly in cases involving employees with lengthy service records.

Forthcoming Changes in April 2026

In addition to the unfair dismissal reforms, education institutions should be aware that several other significant changes are set to take effect in April 2026. These include:

Day One Rights: The day one right to statutory sick pay, paternity leave and unpaid parental leave will come into effect in April 2026.

The Fair Work Agency: The government has announced that it will be launching the Fair Work Agency around the same time. This new enforcement body will have significant powers to ensure compliance with employment legislation.

Recommended Next Steps

In light of these substantial reforms, education institutions should take the following steps to ensure they are prepared:

Immediate Actions (Now): Education institutions should begin updating policies, payroll systems and contracts now to prepare for the April 2026 changes. This includes reviewing statutory sick pay arrangements, paternity leave policies and unpaid parental leave provisions to ensure they will be compliant with the new day one rights framework.

Medium-Term Actions (Throughout 2026): Education institutions should prepare for changes coming in 2027 and consider what updates will be needed to contracts, handbooks and policies to reflect the new six-month qualifying period. Particular attention should be paid to probation procedures, performance management processes and dismissal protocols.

Ongoing Monitoring: It is anticipated that the government may continue to experience challenges in relation to some of the changes, and further guidance or amendments may be forthcoming.

Review of Risk Management: Given the removal of the statutory cap on unfair dismissal compensation, education institutions should review their approach to managing employee relations disputes. This may include enhanced training for line managers on performance management, more robust documentation practices, and a review of insurance arrangements to ensure adequate coverage for employment tribunal claims.

Conclusion

The Employment Rights Act 2025 represents a watershed moment in UK employment law. The reduction of the unfair dismissal qualifying period from two years to six months, combined with the removal of the statutory cap on compensation, fundamentally alters the risk landscape for employers.

Education institutions who take proactive steps now to update their policies, train their managers and strengthen their performance management processes will be best placed to navigate these changes successfully. Those who delay may find themselves facing increased claims and potentially substantial awards as the new regime takes effect.