Less time, greater exposure, reduced flexibility: what January 2027 means for employers

Here’s what employers need to be thinking about now:

Six months to get the hire right
From 1 January 2027, the qualifying period for unfair dismissal will reduce from two years to six months, giving employers a much shorter runway to decide whether a new hire is working out.

The traditional six-month probationary period will need to be reconsidered. Employers will need to actively manage probationary periods, identify concerns and make decisions early. Waiting until month six to address performance or suitability concerns would be too late. Probation should be an active management tool, not a date in the diary.

What to do now?
Review probationary periods and processes, build in clear, structured objectives and review points. Make sure managers identify problems early, document them and make decisions sufficiently in advance of the six-month milestone.

Uncapped compensation: higher stakes for senior exits
The compensatory cap for unfair dismissal will also disappear from 1 January 2027. Compensation will remain loss-based, so this will not automatically result in larger awards across the board, but the potential exposure could be considerably greater for senior and highly paid employees, particularly where it takes time to secure a comparable role.

That changes the commercial dynamics of settlement negotiations. Without the cap, a senior employee with a credible unfair dismissal claim may have greater leverage when negotiating an exit and a higher expectation of the settlement package required to resolve the dispute.

What to do now?
Review senior hires and address any concerns about whether they are right for the business early. Once unfair dismissal protection has been acquired, the combination of uncapped compensation and a high salary could make an exit considerably more expensive. For senior exits after 1 January 2027, assess potential unfair dismissal exposure and settlement strategy at the outset.

Less flexibility to change terms and conditions
From 1 January 2027, employers will have significantly less flexibility where they need to change employees’ contractual terms and agreement cannot be reached.

Dismissal and re-engagement has traditionally been a last resort. Under the new rules, dismissing an employee for refusing certain “restricted variations”, including (but not limited to) changes to pay, pensions, working hours and contractual time off, will generally be automatically unfair.

This means businesses will need to plan changes earlier, consult more carefully and potentially offer greater incentives to secure agreement.

What to do now?
Review any planned changes to terms and conditions and consider whether they should be progressed before January. At the same time, review existing contracts to understand where the business currently has flexibility and where employee agreement will be needed. If it is found there is limited flexibility on the employer’s behalf, update contracts for new hires.

January is closer than it looks
These reforms provide less room for manoeuvre. Employers should consider taking action now to prepare:

– Review and tighten probationary processes
– If a senior hire is not working out, make the call sooner rather than later
– Audit employment contracts and implement changes where necessary

At Greenwoods, our Employment team is well placed to support employers through these significant changes. With recent hires and continued growth in the team, we are helping clients prepare for the Employment Rights Act 2025 reforms and their practical impact. Whether you need support with dismissals, changes to terms and conditions or wider workforce planning, we can assist you in finding a commercially sensible way forward.