Hiring trends, claim changes and tribunal delays

Answer

On 18 December 2025, the Employment Rights Bill received royal assent, becoming the Employment Rights Act 2025. The act represents the most significant change to employment law in years and forms part of Labour's 'Make Work Pay' initiative. Two changes that’ll have the most dramatic impact for employers are the:

• reduction of the qualifying period for unfair dismissal claims from two years to six months; and
• removal of the statutory cap on compensatory awards (currently the lower of 52 weeks' salary or £118,223).

The changes are expected to take effect from 1 January 2027. This means anyone with six months' service as at that date would gain protection from unfair dismissal. Therefore, any employees hired from 1 July 2025 will come under the scope of the protection. The removal of the statutory cap will eliminate the current limit on compensatory awards for unfair dismissal. The compensatory award represents the employee's financial losses from being unfairly dismissed (eg, loss of income or benefits). Due to the dramatic change of lifting the cap, the government will be completing an impact assessment.

In this article, I’ll discuss the potential impact of these changes, and will cover changes in hiring trends, change in claim types and delays to the employment tribunal (the tribunal).

Change in hiring trends?

The reduced qualifying period will force employers to review employment contracts and how they manage their employees.

For example, most employers have probationary periods in their employment contracts. They typically range between three and six months (longer period more common for senior employees). After the changes, a six-month probationary period is no longer practical.

Employees are entitled to a minimum notice period under statute. For example, an employee with between one month and one year of service is entitled to one week's notice (contractual notice may be longer). To ensure an employee's employment ends before they accrue six months' service and gain unfair dismissal protection, employers must not only serve notice before six-months, but they must also allow for any notice period. For example, if an employee has a one-week notice period, the employer must give sufficient notice, including factoring in the week's statutory notice period, to ensure a person doesn’t reach the six-month qualifying period. This reduced timeframe will require employers to rethink their approach on probation periods.

The reduced qualifying period will undoubtedly affect how employers evaluate performance for new starters. Under the current rules, it’s relatively easy for employers to dismiss an unsatisfactory employee before they reach the two-year qualifying requirement. If an employee's performance was borderline at the end of a six-month period, the employer could extend any probation period, put an improvement plan in place with the employee or give them the benefit of the doubt, knowing that dismissal remained relatively straightforward for a further 18 months.

However, under the new regime, this margin for error has disappeared. Employers must make definitive decisions before the six-months expires and any extension of a probation beyond six-months means the employee will have unfair dismissal protection during that extended period. Consequently, employers may adopt more rigorous assessment criteria and be less willing to give borderline employees the benefit of the doubt. An employer that retains an underperforming employee beyond the critical five months and three weeks faces significantly greater complexity and cost in subsequently dismissing them.

Change in claims?

Under the current rules, unfair dismissal claims are capped at the lower of £118,223 or 52 weeks' pay, while discrimination claims are uncapped. This creates a strategic incentive for employees to include discrimination claims alongside unfair dismissal claims, even where the discrimination element may be weak, in order to access uncapped compensation. Currently, around 35% of claims involve a discrimination element and employees bring an average of 2.3 jurisdictional complaints per claim.

Where an employee's primary complaint is unfair dismissal, the removal of the cap may reduce the incentive to add a discrimination claim purely for tactical reasons. This could lead to a reduction in the proportion of claims involving discrimination complaints.

Such a shift could have implications for the tribunal backlog. Discrimination claims are typically more complex than unfair dismissal claims as they involve additional legal tests (eg, burden of proof shifting under section 136 Equality Act 2010), more extensive disclosure and longer hearings. A reduction in discrimination claims could therefore lead to shorter tribunal hearings and more efficient case processing, potentially providing some relief to the overstretched tribunal system. His Majesty's Courts & Tribunals Service (HMCTS) statistics demonstrate that discrimination cases are particularly difficult to bring successfully. While tribunal claims overall have a 5% success rate at hearing (with the majority being settled, withdrawn or otherwise resolved before trial), only 1% of discrimination claims are successful at trial.

However, there are several arguments to suggest that there’ll not be a reduction in discrimination claims:

• Discrimination claims have no qualifying period, whereas unfair dismissal protection requires six months' service under the new regime. Employees with fewer than six months' service will continue to rely on discrimination claims as one of their only avenues for redress.
• Many discrimination claims are brought because employees genuinely believe they’ve been discriminated against, not merely as a tactical addition to access higher compensation.
• Employment solicitors typically advise clients to plead all potentially applicable causes of action to maximise the prospects of success, and this practice may continue regardless of the cap removal.
• Discrimination claims offer certain advantages beyond compensation levels, including injury to feelings awards and the availability of aggravated damages.

Employers should monitor changing trends to ensure they’re prepared for any changes.

Further tribunal delays?

On 11 December 2025, HMCTS published concerning employment tribunal statistics, indicating the system is failing to keep pace with incoming claims. The severity of the backlog is illustrated by a recent conversation I had with a barrister who attended a preliminary hearing in December 2025 that scheduled a final hearing for late 2028, nearly a three-year wait for a resolution. The HMCTS reports some longer hearings (10 days or more) are being listed for 2029.

Government figures indicate that six million employees will benefit from the reduction in the qualifying period. This is a substantial expansion of potential claimants. Given the tribunal is already facing severe delays, this change is likely to dramatically increase the backlog.  Although the government hasn’t directly proposed any mitigating measures to increase tribunal capacity or simplify the process, HMCTS has announced that it’s looking to employ a further 36 salaried judges and 150 non-legal members in 2026. This is a respective increase of 7% and 21% (not accounting for judges exiting their roles).

The removal of the compensation cap may further exacerbate delays by discouraging settlements. Currently, ACAS settles 71% of claims that don’t progress to tribunal. However, the elimination of the statutory cap may encourage employees, particularly high earners, to reject settlement offers in anticipation of substantially increased awards at the tribunal. Monitoring changes to the ACAS settlement rate will demonstrate whether the removal of the cap discourages settlements.

Prolonged tribunal delays create challenges for companies:

• Defending claims requires extensive time commitment from senior management, resulting in significant opportunity costs for the business.
• Delays make claims progressively harder to defend. The longer the delay, the more likely it is that witnesses leave the company. While companies can apply for a witness summons, many are reluctant to do so as many consider a witness compelled to give evidence is less likely to support their defence.
• The longer the delay, the risk that memories fade and that evidence is lost.

Any increase in waiting times at the tribunal will place an increased burden on business resources. As a result, following the implementation of the reduced qualifying period, businesses may face greater costs in defending a claim or find delays increase the challenge of defending a claim. As a result, we may see an increase in employers opting to settle claims when faced with delays. 

Conclusion

The Employment Rights Act will force employers to review their employment contracts and hiring practices. Employers that fail to react before 1 January 2027 will face increased difficulty and cost when dismissing underperforming employees. Employers should review their workforce to determine whether any employees are underperforming and should start taking action now.

Employers should expect an increase in tribunal claims combined with a delay in proceedings. Employers should review their policies to ensure that once they become aware of a claim, they have robust processes to ensure evidence is maintained and sufficient resources are allocated to defending claims. Additionally, the best way to defend a claim is to avoid them in the first place, so companies should ensure their managers and HR staff are well trained and equipped to deal with any issues.

Finally, employers should also review the budget they assign to paying damages for an employment claim. Particularly when the first uncapped awards are made, there will be uncertainty about how high awards will be. Employers defending claims soon after the change, particularly if the employee is a high earner, should prepare for potentially very high awards. Additionally, if an employer has an insurance policy in place, they should consider whether the terms of the policy would cover an unlimited award for unfair dismissal.

Connor Every is a trainee at Taylor Wessing.