The Employment Rights Act 2025 introduces a major change to the relationship between employers and employees. Organisations best positioned for 2027 are unlikely to be those with the largest legal teams, but the ones that use the next eighteen months to strengthen recruitment, management capability, and internal processes.
From 1 January 2027, employees will gain unfair dismissal protection after six months of service rather than two years. At the same time, the statutory cap on unfair dismissal compensation will be removed. Together, these changes create a different operating environment for employers, managers, and leadership teams.
These reforms will affect hiring decisions, performance management, probation processes, and leadership accountability across organisations. While much of the debate has centred on legal exposure, the reforms should be viewed as a preparation challenge rather than a compliance exercise.
Start With Your Managers, Not Your Policies
Many employment disputes begin long before lawyers become involved. They often stem from poor communication, inconsistent expectations, unclear feedback, or delayed decision-making.
This is why manager capability should be one of the first areas employers review.
There is growing importance placed on line managers as organisations prepare for the new framework. Managers will increasingly be responsible for handling probation reviews, performance discussions, capability concerns, and difficult conversations within a shorter timeframe.
Many organisations assume managers already possess these skills. In reality, some have never received formal training in performance management. Employers should identify gaps now and provide practical development before the reforms take effect. Strong management capability is likely to prevent more problems than any policy update.
Audit Probation Processes Before They Become a Risk Area
Probation periods are likely to attract far more attention over the next year. With unfair dismissal protection beginning after six months, employers will have less time to assess whether someone is performing at the required level.
A surprising number of organisations operate probation periods informally. Reviews happen late, objectives are unclear, documentation is inconsistent, and managers often wait until problems become obvious before taking action. The upcoming reforms make that approach much harder to defend.
Employers should review whether probation periods currently include:
- Clear performance expectations
- Scheduled review meetings
- Written records of feedback
- Defined decision points
- Manager accountability
The objective is to create consistency, not bureaucracy. When concerns emerge during probation, organisations need evidence that issues were identified, discussed, and managed appropriately.
Review Recruitment Quality Rather Than Recruitment Speed
The reduced qualifying period places greater emphasis on getting hiring decisions right the first time. Many businesses have spent recent years focused on reducing time to hire. Speed remains important, but quality becomes more valuable when the consequences of a poor appointment increase.
The government’s economic analysis recognises that employers may adapt hiring and recruitment behaviour as the reforms take effect. This creates an opportunity for employers to examine how they assess candidates.
Questions worth asking include:
- Are interview processes structured?
- Are hiring managers assessing future capability or only technical experience?
- Are cultural expectations clearly defined?
- Are references used effectively?
- Are decision makers aligned on what success looks like?
A stronger recruitment process reduces pressure later.
Strengthen Documentation Habits Across the Business
Documentation often becomes an afterthought when workloads increase, yet many employment disputes ultimately come down to what was recorded and what was not.
The legal principles around unfair dismissal remain largely unchanged, and employers must still demonstrate fair process and reasonable decision-making.
Good documentation supports that process. Employers shouldn’t wait until a dispute arises to discover weaknesses in record-keeping. The most effective organisations tend to build documentation into everyday management activity rather than treating it as a separate administrative burden.
Simple records of objectives, feedback discussions, development plans, and performance reviews can become highly valuable if decisions are later challenged.
Test Existing Performance Management Systems
Many organisations already have performance management frameworks in place. The question is whether managers actually use them consistently. Before the reforms arrive, employers should stress test existing systems. Questions you should ask include:
- Do managers address issues promptly?
- Do employees receive clear feedback?
- Are improvement plans realistic and measurable?
- Do senior leaders receive visibility of ongoing concerns?
This exercise often reveals that the framework itself isn’t the problem. The challenge is inconsistent application. Addressing those weaknesses now is considerably easier than doing it after new protections come into force.
Revisit Leadership Development Priorities
The conversation around unfair dismissal reform is often framed as a legal issue. In practice, it’s equally a leadership issue. The strongest organisations will not rely solely on HR or legal teams to manage risk, but will build leadership capability across the business.
This includes areas such as decision making, communication, performance conversations, conflict management, coaching skills, and accountability. Leaders who can address issues early and constructively are less likely to face formal disputes later.
The reforms provide another reason for organisations to invest in management development, particularly for newly promoted managers who may have strong technical expertise but limited people-management experience.
Prepare for Greater Scrutiny at the Senior Level
The removal of the compensation cap is likely to attract particular attention regarding senior appointments. Although most unfair dismissal awards currently fall below the existing cap, removing that limit will change how organisations assess their potential exposure.
For boards and executive teams, this places greater emphasis on:
- Thorough recruitment processes
- Clear contractual arrangements
- Well-documented performance discussions
- Strong governance around senior employment decisions
The financial impact of getting these decisions wrong may become more significant. The government notes that higher-earning employees with complex remuneration packages are among those who may benefit most from the removal of the compensation cap.
Don’t Leave Preparation Until 2027
One of the risks surrounding the reforms is that organisations view January 2027 as the starting point. Preparation should begin much earlier.
Reviewing management capability, strengthening recruitment processes, improving documentation, and refining probation practices all take time. Organisations that wait until the final months before implementation may find themselves reacting rather than preparing.
The next eighteen months provide an opportunity to identify weaknesses and address them gradually.
Novo’s Perspective
The organisations best prepared for unfair dismissal reform will not necessarily be those with the most detailed policies, but the ones that use the time available to strengthen management quality.
The reforms place greater emphasis on early decision-making, structured probation management, clear communication, and consistent leadership behaviour. Those are management, not legal, skills.
At Novo Executive, we believe the most effective preparation strategy is unlikely to involve creating entirely new systems. It’s more likely to involve improving the systems already in place and ensuring managers have the confidence to use them effectively. Although the legal framework is changing, organisations that adapt successfully will focus on leadership readiness as much as legal readiness.
