Hiring strategy & employment law
The Employment Rights Act 2025: what every founder hiring needs to know
The unfair dismissal rules change in January 2027. But if you have hired anyone since mid-2025, or you are hiring now, this already applies to you.
ISL Talent · Hiring strategy & employment law · 10 min read
What is the Employment Rights Act 2025?
The Employment Rights Act 2025 is the most significant overhaul of UK employment law in a generation. It covers a wide range of changes - from day one family leave rights and statutory sick pay to trade union legislation and new protections against harassment.
But for early-stage founders building teams right now, one change stands above the rest: the reduction of the unfair dismissal qualifying period from two years to six months, taking effect from 1 January 2027.
This is not a minor adjustment. It fundamentally changes the risk profile of every hire you make from this point forward.
Why this is already relevant - not a January 2027 problem
Most founders who are aware of this change file it under Q4. They know something is coming, but January 2027 feels distant enough to deal with later.
Here is why that thinking is wrong.
The new six-month qualifying period is applied based on when an employee started, not when the law formally changes. Which means the employees protected under the new rules are not just those hired after 1 January 2027 - they are the ones whose six months of service falls on or before that date.
| 90% Of people hired in June 2026 will have started after 1 July - inside the new rules | 100% Of people hired from 1 July 2026 onwards are covered from day one of the new regime | 18 months Anyone hired after July 2025 will never reach the old two-year threshold - the new rules arrive first |
In other words - if you have hired anyone since mid-2025, or are hiring now, the clock on this has already started.
What does unfair dismissal protection actually mean? It does not mean you cannot let someone go. It means that if you do, you have to follow a proper process to do it fairly - performance management, documented conversations, clear warnings where appropriate. Get that wrong and an employee can bring a tribunal claim. Previously you had two years before that exposure kicked in. From January 2027, you have six months - and for anyone hired from July 2026 onwards, that window starts from day one.
There is also a second change that compounds the risk. The statutory cap on unfair dismissal compensation is being removed from January 2027. Right now, awards are capped at the lower of 52 weeks' gross pay or £118,223. From January, that cap disappears. For anyone hiring at a senior level, the financial exposure from getting a dismissal wrong increases significantly.
A timeline of the key changes
For the full government timeline, visit the GOV.UK implementation page and the Business.gov.uk guidance for employers.
The real problem the Employment Rights Act exposes
Here is something worth saying plainly: the actions the Employment Rights Act requires are not new or radical. They are just good hiring practice. The reason they feel urgent now is that the law is removing the safety net that allowed founders to get away with not doing them.
The safety net was two years. That felt like enough time to course-correct an early mis-hire without significant legal exposure. From January 2027, that window is three quarters shorter. The qualifying period has not halved - it has dropped to a quarter of what it was. You previously had four times longer.
And the problem it exposes is one we see repeatedly with early-stage founders hiring their first CTO, Head of Sales, or other senior leader.
They spend weeks on the hiring process. They get the right person through the door. And then the question of how to actually measure whether it is working gets quietly kicked down the road.
Hiring and performance management get treated as two completely separate processes. One ends when the offer is signed. The other starts - vaguely, informally, eventually - sometime after that. Usually when something has already gone wrong.
That gap is where the risk lives. From July 2026 onwards, founders hiring into that gap have six months - not two years - before it becomes a legal problem.
What good looks like: joining up hiring and performance management
The founders who navigate this best are not the ones with the most robust HR infrastructure. They are the ones who stopped treating hiring and performance management as two separate things in the first place.
The questions you need to answer for good performance management are exactly the same questions you should be answering before you make an offer.
Questions to answer before the offer goes out
- What does success look like at 30, 60, and 90 days in this role?
- What would need to be true at six months for us to know this is working?
- Where are the likely risks or gaps in this hire?
- What support, resource, or context will this person need to get there?
- How will we have performance conversations, and how often?
These are not HR questions. They are hiring questions. And they should be answered before someone accepts an offer - not six months after they start.
Use those expectations in the hiring process itself
Once you have clarity on what good looks like, share it with candidates before they accept. Walk them through your expectations for the first six months. Ask them how they feel about it. Where do they see the risks? Where would they need support or resource to get there?
This does two things at once. First, it gives you genuinely useful signal in the hiring process - a strong candidate will engage with those questions thoughtfully and specifically. A weak one will give you vague reassurances. Second, it sets clear, documented expectations before day one so there are no surprises when you need to have a difficult conversation at month four or five.
The best candidates will want this conversation. They are evaluating you as much as you are evaluating them. A founder who has thought clearly about what success looks like, what support they will provide, and what the first six months will involve is a more attractive employer than one who says "we'll figure it out together." Aligning expectations before day one is not just good legal practice - it is a signal of a well-run organisation.
What this means for your job specification
Most job specifications are static documents. They describe what a person will do and what experience they need. They are written to attract candidates, not to define success.
Under the new employment landscape, a job specification needs to do more than that. It is the starting point for a conversation about what good looks like - a document that gets refined through the hiring process into a set of clear, agreed expectations that then form the foundation of your performance management from day one.
Done properly, the same clarity you develop in the hiring process becomes your 30/60/90 day plan, your probation checkpoint framework, and your documentation if things go wrong. It is one joined-up process, not two separate ones.
Three things worth doing now
Review your probation structure. Six months should be your default minimum, with documented checkpoints at 30, 60, and 90 days. Not just a calendar reminder at the end of six months - structured conversations with a written record that both parties have seen.
Build the habit of recording performance conversations. Not for legal box-ticking, but because a clear written record is the only thing that protects you if a dismissal is challenged. If it was not written down, it did not happen.
Get your contracts and policies reviewed. If your employment contracts and HR policies have not been looked at in the last 12 months, they may not reflect the new obligations. Take legal advice if you have anyone currently in post who you have concerns about - the timeline for acting is shorter than most founders realise.
Good recruitment is not just about finding the right candidate
At ISL, we work with founders at Seed to Series A stage who are often making their first or second senior hire. The stakes are high, the timelines are tight, and the consequences of getting it wrong - commercially, culturally, and now legally - are significant.
Part of what we do is help founders get clarity before the search starts. That means working through what success actually looks like in the role - not just the skills and experience required, but the outcomes expected, the support available, and the context the hire is walking into.
That clarity feeds directly into the search. It shapes how we brief candidates, how we assess them, and what we ask them to engage with before an offer is made. It also means the expectations that get set in the hiring process are the same ones that form the foundation of your performance management from day one.
Your job specification is not a static document. It is the start of a conversation - one that, handled well, joins up your hiring process and your performance process into something coherent and defensible.
In a world where the Employment Rights Act has shortened the window significantly, that joined-up approach is not just good practice. It is becoming essential.
If you are hiring and want to think through what the Employment Rights Act means for your process, we are happy to talk it through - no obligation.
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