BUSINESS HELPDESK
2027’S UNFAIR DISMISSAL REFORM IS A 2026 ISSUE
Stefan Mars, head of legal at Halborns, which provides the BMF Intelligent Employment Service, explains how the Employment Rights Act will affect recruitment this year
WHEN THE GOVERNMENT confirmed the changes to unfair dismissal under the Employment Rights Act (ERA), many employers looked at the implementation date, January 1 2027, and parked it as an issue for later. You shouldn’t.
The practical and commercial impact of these changes will be felt much earlier. Especially if you’re considering any recruitment in 2026. There is a great deal of
uncertainty in the current trading environment, with an upturn in house-building and housing RMI largely dependent on the return of consumer confidence – hopefully at some point this year. Unemployment at a five-year high only heightens this uncertainty, and in volatile markets, your recruitment decisions carry increased risk. The ERA changes to unfair dismissal are set to raise that risk even further.
What’s changing under the ERA?
From January 1 2027: • The qualifying period to bring an unfair dismissal claim will reduce to six months’ service (down from two years); and • The compensation cap for unfair dismissal will be removed.
In simple terms, employees will gain unfair dismissal protection far sooner than they do now, and the financial exposure of getting it wrong will be higher.
Why is this a 2026 issue?
Here’s the part many won’t spot. The clock starts ticking in 2026. Anyone starting on July 1 2026
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So what should you be doing now? Definitely don’t panic. Preparation is the key. 1. Review employment contracts - check probation clauses, extension provisions and notice wording. Ensure they provide flexibility and clarity to make commercial decisions without drifting past key dates.
2. Tighten probation periods – ensure managers set clear expectations from day one, hold structured reviews, document concern early and address performance promptly. If this isn’t happening, training should be high on the list. “Wait and see” won’t cut it.
will reach six months service on January 2027 and gain unfair dismissal protection. If you operate a six-month probation period, as many employers do, you could find yourself dismissing someone with notice just as they acquire the new legal protection. We often see dismissal
decisions drift towards the end of probation periods - “let’s give it a bit longer”. Sound familiar? That approach could unintentionally push employees past the six- month mark, without managers realising the legal consequences have shifted. The ‘risk clock’ starts ticking from summer 2026, not January 2027.
On top of this, recruitment risk may kick in even earlier. If you’re hiring for July 2026 start dates and candidates are serving three- month notice periods, job offers could be issued from April 2026 onwards. That means the risk profile of hiring decisions increase from spring 2026.
Why this matters in the current climate In challenging trading conditions, headcount becomes a key commercial lever. The departing two-year qualifying period allowed employers a relatively large window of leeway if a new hire didn’t work out, or if economic factors meant there was no capacity to allow underperforming employees to turn it around.
The new six-month qualifying period shrinks that buffer, dramatically. Dismissing underperformers quickly and cleanly becomes legally complex and potentially more expensive. The days of ‘probation exits’ with minimal process will carry much great risk. Whilst it’s technically a change coming into force in 2027, it needs to be factored into your forecast, resourcing, recruitment, probation, performance and training plans now.
3. Strong recruitment decisions – in uncertain markets, the right hire matters more than ever. Better assessments, alignment with your values, and great onboarding now will reduce potentially costly disputes later.
4. Sense-check headcount growth – some may reconsider permanent recruitment timelines or explore alternative resourcing options to preserve flexibility.
The bottom line January 1 2027 is the legal implementation date. Spring/ summer 2026 is when the real risk begins. Plan accordingly.
• To find out more about the BMF Intelligent Employment Service, email: info@halborns. com or call 0115 7180333. BMJ
www.buildersmerchantsjournal.net April 2026
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