How can employers prepare for an increase in Employment Tribunal claims from 2027?

The Employment Rights Act 2025 has introduced several reforms, and some are expected to make employment disputes more common. How can employers prepare for an increase in Employment Tribunal claims and ensure that policies, procedures and management practices are fit for purpose?

Reduced qualifying period for unfair dismissal

From 1 January 2027, employees will only need six months’ continuous service before they can bring a claim for ordinary unfair dismissal. This represents a 75% reduction from the current two-year qualifying period and significantly reduces the time available for employers to assess whether an employee is suitable for their role. Once an employee acquires the right to bring an ordinary unfair dismissal claim, terminating employment becomes more complex, time-consuming and costly.

As a result, employers should place greater emphasis on the effective management of probationary periods. Regular probation reviews, clear performance expectations and documented feedback will be critical. Where concerns arise, managers should address them promptly, set measurable objectives and maintain accurate records of discussions and decisions.

Businesses should also ensure that line managers are properly trained to manage performance issues and identify concerns at an early stage. Good documentation will be key to defending future claims and demonstrating that decisions were reasonable.

Employers should also exercise caution when engaging staff on fixed-term contracts. Where a fixed-term contract expires after the employee has acquired unfair dismissal rights, the non-renewal of that contract may constitute a dismissal. Employers cannot simply rely on the contract coming to an end and should instead identify a fair reason for dismissal and follow a fair procedure. This may require consideration of alternatives, consultation with the employee and a documented decision-making process, particularly where the circumstances resemble those that would apply to a permanent employee.

Removal of the unfair dismissal compensation cap

The Employment Rights Act also proposes to remove the statutory cap on compensatory awards for ordinary unfair dismissal from 1 January 2027. Currently, compensation is limited to the lower of 52 weeks’ gross pay or the statutory maximum (which is currently £123,543). Under the new regime, that cap will be removed entirely.

While claimants will still need to prove their losses and take reasonable steps to mitigate them, we await further guidance and case law on how tribunals will approach compensation in practice. The removal of the cap creates the potential for significantly larger awards, particularly for senior employees, high earners and those who experience lengthy periods of unemployment following dismissal.

As a result, unfair dismissal claims are likely to carry greater financial risk for employers and may have a corresponding impact on litigation strategy and settlement negotiations.

Increase to employment tribunal limitation periods

Another notable change is the extension of the limitation period for most Employment Tribunal claims. This period has increased from three months less one day to six months less one day. This gives employees considerably longer to consider potential claims, seek advice and commence proceedings.

The new limitation period applies to acts occurring on or after 1 October 2026. However, where a claimant alleges a continuing act or course of conduct spanning both sides of that date, disputes may arise as to whether earlier events also fall within the extended limitation period.

The practical consequence is likely to be an increase in the volume of claims being brought, as employees will have more time to obtain legal advice and gather evidence before commencing litigation. Employers may also see more disputes regarding which limitation period applies, particularly in discrimination claims where continuing acts are often alleged.

When combined with the shorter qualifying period for unfair dismissal and the removal of the compensation cap, employers may see a substantial increase in employment litigation over the coming years.

What should employers do now?

While these changes undoubtedly create additional risk, employers can take proactive steps to prepare for what lies ahead and protect their position. In particular, organisations should:

• Review and update record-keeping, probation, disciplinary and performance management procedures.
• Provide training to managers responsible for supervising employees and making employment decisions.
• Ensure that performance concerns are raised and addressed promptly.
• Maintain clear and comprehensive records of workplace discussions, investigations and decision-making.
• Seek legal advice at an early stage where concerns arise.

The reality is that Employment Tribunals place significant weight on process and evidence. Employers that have robust procedures, well-trained managers and a clear paper trail will be in a far stronger position to defend claims and minimise risk.

Please get in touch with our employment & business immigration team for guidance on changes introduced by the Employment Rights Act 2025. 

Our Legal 500-rated employment law & business immigration team are experts in guiding businesses of all sizes and backgrounds through a range of issues that may arise.