Managing new employees: preparing for upcoming changes to unfair dismissal rights

This article, originally published in September 2025, has been updated to reflect the passing of the Employment Rights Bill into law in December 2025.

Employers often adopt a relaxed approach towards the management of new employees due to their ability to dismiss reasonably simply within the first two years of employment, and with a low risk of claims (save for more complex cases involving discrimination or whistleblowing). This is as a result of the current two year ‘qualifying period’ for bringing an unfair dismissal claim.

The Employment Rights Act 2025 became law in December 2025, and with it came confirmation that the qualifying period for unfair dismissal will be reduced to six months, with effect from 1 January 2027. This put to an end to over 12 months of speculation as to what the new unfair dismissal laws might look like, and finally confirmed the Labour government’s abandonment of its manifesto pledge to make unfair dismissal a ‘day one’ right.

From the start of next year, then, employers will no longer have the luxury of waiting for two years to see how things go with new employees. Rather, they will need to ensure they are ready to make decisions about employee performance and conduct at an early stage.

What was not anticipated was the removal of the cap on unfair dismissal compensation, currently £118,223, which is also expected to happen on 1 January 2027. While the majority of compensatory awards do not come close to this figure, this will be significant in the case of senior executives and other high earners, and may well make exit negotiations significantly more difficult.

By way of a reminder, in order to dismiss an employee fairly, an employer needs a fair reason and must follow a fair process. This is particularly the case where performance is concerned. There is often scant evidence of poor performance that employers can rely on if managers have not taken the time to deal with performance issues or, if they have, they failed to document them.

It is important to bear in mind that a fair dismissal for performance is almost impossible without giving the employee prior warnings and the opportunity to improve, so an employee having unfair dismissal rights from day one presents real problems for employers – they may find themselves having to go down the route of a negotiated settlement and paying over the odds to remove the employee.

• Improved policies (and training)
  Performance management policies should be clearly drafted and make the consequences of failing to improve during a performance improvement period clear. Equally, disciplinary policies should be very clear on the types of behaviour that may constitute misconduct and employers should think carefully about how any workplace rules or expectations around conduct are communicated so that they are clear to all employees.
• Rigorous management
  Policies are of no use if they are not implemented, so managers may need to become more disciplined in dealing with performance and conduct issues when they arise. Understandably, managers often do not want to tackle these difficult issues, but the consequences could be significant if they fail to do so. Managers should be diligent in noting concerns from the outset of the employment and documenting those concerns by way of email exchanges with the employee. They should then move to more formal performance management processes or disciplinary proceedings as and when necessary. Managers should be trained on these policies and they should be properly communicated to all staff.
• Tackling issues head on
  This is really about workplace culture. Employees should expect to be challenged about performance and conduct issues, and managers should be free to do so in a constructive way. All too often, the urgency of a task and the need to get work out of the door can take over, and feedback can get forgotten. Employers should provide training to managers on how to manage difficult issues, together with the support needed to enable them to do this. Equally, employees need to be aware of the standards that are expected of them, and should expect ongoing feedback, whether informal or formal.
• Keeping up with timetabled processes
  It should go without saying that probation reviews should be carried out on time and any extension to a probation period should be considered carefully before the process is documented; however, it is not uncommon for managers to not deal with the expiry of probation periods when they come up, meaning employees can find themselves effectively having their employment confirmed without any performance review.Equally, some employers can be lax with carrying out appraisals in a timely manner or sticking to the agreed timeframes in performance improvement plans, which may be due to a lack of time, or a lack of confidence in tackling issues of concern head on. These issues cause problems for HR professionals and employment lawyers when reviewing cases where there is alleged underperformance or misconduct, as there is often limited evidence for it. Regular meetings and reviews, whether through one-to-ones, probation reviews or appraisals, are essential in order to manage issues effectively and reduce the risk of unfair dismissal claims.
• Think about dismissals
  Employers should consider whether they have any employees who are not performing to the required standard, who do not currently have two years’ service, and/or who will have six months’ service by 1 January. Grasping the nettle and tackling performance issues now could avoid the potentially greater risks of doing so in 2027. Similarly, in certain circumstances, it may make sense to consider exiting senior executives while the compensation cap remains in place and disputes may be easier to settle.
• Consider timing of recruitment
  It may also be important for employers to think about the timing of recruitment, and only recruit when they will have capacity to manage new employees. This may mean, for example, avoiding taking on new staff at their busiest time of year, or not recruiting just before Christmas or the summer, when both new recruits and line managers may take longer periods of time off and/or there could be less work, making it more difficult to assess performance.

Effectively managing employee performance and conduct undoubtedly involves time and effort, however, doing it well should not only reduce the likelihood of Employment Tribunal claims but should also, and more importantly, lead to better performing employees.

There is no better time than now to start improving performance and conduct management processes. The next few months present the perfect opportunity for employers to put in place effective procedures and ensure that managers are properly trained in readiness for the forthcoming changes.