Employment law shake-up: what employers need to know

As many employers will be aware, the UK Government has proposed a series of reforms to the existing employment law framework (see our previous updates for further detail).

However, announcements by the UK Government on 27 November 2025 and a vote in the House of Commons on 8 December 2025, signal a further recalibration of the balance between employee and employer rights that could further impact how businesses operate and manage their workforce.

1. Unfair dismissal claims – qualifying period now six months

Generally, employees must have two years’ continuous service to qualify for ordinary unfair dismissal protection (unless certain factors apply). A central feature of the Labour Government’s reform agenda was the proposal to extend unfair dismissal protection to all employees from day one of their employment.

To mitigate employers’ concerns about this – particularly around the reduced ability to address hiring mistakes – a “light touch” process during an initial period of employment (likely around nine months) had been mooted, though details remained unclear as to how such framework would function in practice.

Following consultations with business groups and trade unions, the Government now appears to have recognised that introducing universal day-one unfair dismissal rights could inhibit recruitment – particularly among smaller employers already contending with rising minimum wage and National Insurance costs.

It also seems to have acknowledged that the proposed “light-touch” procedural approach risked creating confusion and legal uncertainty for all parties.

In response, the Government has confirmed that the qualifying period for ordinary unfair dismissal claims will now be reduced from two years to six months, not day one – although day-one rights will continue to apply in the limited number of categories where dismissal would be regarded as being automatically unfair.

Further, Members of Parliament voted on 8 December 2025 to bring forward the date on which the change will take effect, so that it would apply retrospectively from 1 January 2027. This means that anyone hired from 1 July 2026 would gain protection after six months.

While many businesses are likely to welcome the change in the proposals, from day one rights to employees instead being required to have six months service, this will require a more disciplined and proactive management of the initial six month probationary period.

Employment should never drift past the now-critical six month mark without a formal review and appropriate documented action.

Employers should also remember that an employee’s period of employment can be extended by the statutory minimum notice period – one week for an employee with six months’ service – when calculating the qualifying period for bringing claims.

In short don’t leave it to the last moment!

2. Potential compensation cap removal

Another significant change that seemed to have escaped some of the initial major news headlines is the Government’s proposal to remove the compensation cap for unfair dismissal claims.

Currently, payment under the compensatory head for unfair dismissal claims is limited to 52-weeks gross pay or the statutory cap (whichever is the lower). The statutory cap increases each year but at the time of writing is £118,223.

During the House of Commons vote on 8^th December it was also proposed that both caps would be removed.  This would allow for unlimited compensation being awarded for unfair dismissal claims, comparable to whistleblowing and discrimination awards and as such represents a significant increase in the financial exposure for businesses, particularly in relation to higher earning employees.

3. ACAS early conciliation period to become even longer

As of 1 December 2025, the ACAS early conciliation period, a mandatory process before most employment tribunal claims in the UK can be commenced, was extended from six weeks to 12 weeks for early conciliation forms submitted on or after that date.

The rationale for this extension is to further enhance the ability of ACAS to promote the settlement of employment-related disputes at an early stage, reducing the burden on employment tribunals. In reality, it is also likely a recognition of the fact the conciliator officers are stretched, and it is taking longer for the parties to be contacted after confirming interest in using the early conciliation service.

In theory, an extended conciliation period gives employers and employees more time to reach settlement in the hopes of minimising the risk of costly and time-consuming tribunal proceedings, while fostering a more collaborative approach to resolving workplace disputes.

However, it does also mean that resolutions could be delayed, making accurate record-keeping and timely documentation of events critical for employers.

Employers should also note that the time limit for filing a claim is paused whilst in a period of early conciliation, meaning employees will have even longer to file an employment tribunal claim against employers.

Practical steps for employers

1. Stay informed – Monitor developments to ensure ongoing compliance and mitigate risk.
2. Review probationary periods – Consider shortening or strictly managing probation to ensure performance, conduct or other issues are addressed in good time before the six-month qualifying period, noting that failure to do so could result in employees gaining increased protection, not just an increased notice period.
3. Audit internal processes – Ensure compliance, including with best practice guidelines such as those outlined in the ACAS Code of Practice.
4. Train managers – Equip managers with knowledge and skills to handle HR processes, dismissals and early conciliation negotiations fairly and in line with legal requirements.
5. Assess financial exposure – Review the potential financial impact and consider options before committing to any action to mitigate exposure.
6. Maintain comprehensive records – Accurate, contemporaneous records of performance, conduct and HR processes are critical in defending claims, supporting decisions and facilitating early conciliation.

These reforms mark a significant shift in the employment law landscape, increasing both the protections available to employees and the responsibilities placed on employers.

While many of the changes are intended to provide clarity and encourage early resolution of disputes, they also heighten the need for robust HR processes and timely action.

By staying informed, reviewing internal practices and preparing early, employers can navigate this evolving framework with confidence and reduce the risk of costly litigation.

How can Morr & Co help?

If you have any questions or would like any further information on the contents of this article, please do not hesitate to contact our Employment team on 0333 038 9100 or email info@morrlaw.com and a member of our expert team will get back to you.

Disclaimer
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.