Rethinking Recruitment Under New Unfair Dismissal Rules

by Fiona Herrell (Brodies Solicitors)

Extract from the TMM Recruitment 2026 salary guide, originally published December 2025

Landmark employment law reforms are on the horizon in 2026 and beyond. The Employment Rights Act 2025 represents the most significant legislative development in employment law for decades. Its wide-reaching provisions, covering all aspects of the working relationship, will invariably shape future recruitment practices and trends. One way in which it may do this, amongst many, is through overhauling unfair dismissal rights.

Initially, the Government had intended to make protection against unfair dismissal a day one right however, after considerable resistance from the House of Lords, the current two-year qualifying period for most unfair dismissal claims will instead be replaced with a much shorter six-month period. In conjunction with compromising on the length of the qualifying period, the Government made a last-minute and unexpected amendment to the Bill to remove the statutory cap on the compensatory award applied in successful unfair dismissal claims (currently the lower of £118,223 and 52 weeks’ gross pay). Following some challenge by the House of Lords, the abolition of the cap was agreed.

This development, which could not have been foreseen at the outset of the Bill, is momentous and will likely materially influence the recruitment and exit of highly paid / senior employees once in force.

At present, the cap disincentivises higher earners from bringing unfair dismissal claims as the losses they can recover are curtailed. Without the cap, we could see a sharp uptick in claims coupled with an increased reluctance to agree settlements at a reasonable level as the cap will no longer be a negotiating tool.

Once implemented, the reduced qualifying period coupled with the removal of the cap will mean that employers will no longer enjoy the same degree of flexibility when making decisions about continued employment.

The new qualifying period will apply from 1st January 2027, meaning that any employer recruiting from July 2026 onwards must bear in mind that qualifying service will be attained at a much earlier point.

We may see a flurry of recruitment activity as businesses seek to fill vacancies early to afford them adequate time to evaluate recruitment decisions under the comfort of the longer qualifying period and existence of a statutory limit on compensation. Likewise, the candidate pool may increase as employers make difficult decisions regarding staff who currently lack the requisite service to bring a standard unfair dismissal claim. The prospect of strengthened unfair dismissal rights together with ongoing economic challenges may accelerate redundancy exercises.

Appointing the right candidate for the right role will undoubtedly become more critical than ever. In preparation, employers should review their recruitment practices to assess whether these provide for a sufficiently thorough testing of a candidate’s abilities and suitability for the role. Psychometric testing may have a resurgence in popularity along with an increased reliance on work trials, presentations or written exercises to supplement standard interview processes.

If more rigorous recruitment processes are being applied, employers must be mindful of the discrimination risk that can arise if these place a particular group, for instance candidates with a disability, at a disadvantage and make appropriate adjustments.

Employers should also review what their contracts of employment say about a probationary period. Given, under the new regime, a new employee will only need six months service to bring an unfair dismissal claim, employers may consider a probationary period of around three months to be appropriate. This would allow the employee time to settle into the business and their new role before their performance and suitability for the role is assessed. It would also allow time for a short extension of the probationary period if appropriate. Managers will need to understand the importance of ensuring that performance and suitability for the role is assessed by them during the probationary period and that any concerns they have are raised with their HR colleagues well in advance of the six-month mark.

Read the follow-up opinion on the implications of the Employment Rights Act on senior executive hiring from Amanda McCulloch.