Six months to decide: the unfair dismissal change tech employers face

On 28 May 2026 the Department for Business and Trade (DBT) published a summary of the roundtables it held in January and February on the coming changes to unfair dismissal law. Alongside general sessions with employer and employee groups, DBT held sector roundtables where they were requested, including with technology, finance and professional services. The changes, made by the Employment Rights Act 2025, are set to take effect on 1 January 2027, the date the government told Parliament it intends to implement them.

Two of them matter most to employers. The qualifying period for claiming ordinary unfair dismissal falls from two years to six months, as does the qualifying period for an employee’s right to request written reasons for dismissal. And the cap on compensatory awards, which since 6 April 2026 has been the lower of £123,543 or 52 weeks’ gross pay, is removed entirely, according to DBT’s unfair dismissal factsheet.

The roundtables recorded concern that removing the cap could affect business decisions, including hiring, “particularly for employers that recruit into highly-paid roles”, and a request for guidance on managing performance and dismissal in executive roles. Many technology employers will recognize the worry.

The right response is not to hire less. For small and mid-sized tech firms, the six-month line turns probation from a formality into the real hiring decision, and the firms that treat it that way will carry little extra risk.

Probation becomes the decision

DBT’s factsheet says around 40% of businesses operate discretionary probationary periods, the vast majority of them six months or less. Under the two-year rule, a weak hire who passed probation could still be let go in the second year without an ordinary unfair dismissal claim being available. From January 2027 that cushion goes. The government argues the six-month period still lets employers “properly assess whether new recruits are a good fit during their first months of employment”.

Taking the government at its word means running probation properly: written objectives at the start, documented reviews along the way and a decision taken before the six-month mark rather than drifting past it. That discipline is easy to skip in a 40-person software company where the managing director is also the hiring manager. It will be harder to defend skipping it.

Timing matters too. DBT intends the new protection to apply from 1 January 2027 to employees who already have six months’ service. Counting back six months from that date, anyone hired by about the start of July 2026 would be covered on the day the law changes, if that approach holds. Hires made from summer 2026 onward are the first whose six-month point falls under the new rules.

Nor is the answer to swap employees for contractors. Protection against ordinary unfair dismissal applies only to employees, but DBT’s factsheet says the government intends to continue exploring its extension to others and is still assessing options for the employment status framework. A workforce model built on that gap may not last.

Senior hires carry the most risk

The cap matters most at the top of the pay scale. Ministry of Justice figures cited in DBT’s factsheet suggest most awards are modest: in 2023–24 there were 646 reported unfair dismissal awards at employment tribunals and the median award was £6,746. The roundtables acknowledged that most claims fall well below the cap and that the method of calculating awards will not change. The exposure is concentrated in highly paid roles, where an award based on actual losses could exceed the old ceiling.

For a scale-up hiring a chief technology officer or a head of sales from a larger rival, that raises the cost of a bad appointment. The sensible reaction is to invest more at the start: objectives agreed before the offer, early checkpoints with the board and an honest decision within six months.

Firms should not expect official guidance to do this work for them. DBT says it will publish guidance for employers and employees, but that “guidance will not be able to change the law or anticipate developments in case law”. The government does not intend to consult further on these provisions. The roundtables also raised concerns about tribunal capacity, and DBT and the Ministry of Justice have set up a Dispute Resolution System Taskforce, but its reforms are framed as longer term.

The work starts before January

Around 6.3 million employees, 22% of those in work, have been with their current employer for between six months and two years, according to DBT’s analysis of the Labour Force Survey. Many of them gain protection on a single day. For people leaders at small tech firms, the work between now and January is practical: check probation clauses in contracts, train managers to hold and record review conversations, and decide what evidence a six-month decision needs.

The two-year rule let employers put off hard conversations. The new rule gives them six months to have them.