TL;DR: The 2-year rule is the qualifying period an employee needs before they can claim ordinary unfair dismissal. From 1 January 2027 it becomes six months and the cap on the compensatory award disappears, and the test is the effective date of termination, so staff already past six months are covered on that day. Two years still governs statutory redundancy pay.
What the 2-year rule actually is
The 2-year rule in UK employment law is one sentence long. Section 108(1) of the Employment Rights Act 1996 says the right not to be unfairly dismissed "does not apply to the dismissal of an employee unless he has been continuously employed for a period of not less than two years ending with the effective date of termination."
Everything people mean by the rule follows from that. An employee with less than two years' continuous service cannot bring an ordinary unfair dismissal claim, so the employer does not have to show one of the potentially fair reasons in section 98 (capability, conduct, redundancy, a statutory restriction or some other substantial reason) or that it acted reasonably in dismissing for it.
The two-year figure dates only from 2012. Before that the period was one year. SI 2012/989 doubled it, and only for people whose continuous employment began on or after 6 April 2012. Anyone already in post kept the one-year threshold. Remember that detail, because the 2027 change handles existing staff the opposite way.
Three limits have always applied. The rule covers employees, not workers. It covers ordinary unfair dismissal only. And section 108(3) lists a long set of reasons where no qualifying period applies at all.
What the rule never covered
A dismissal in week two can still go to tribunal. These routes have never depended on two years:
- Automatically unfair reasons. Whistleblowing, pregnancy and family leave, health and safety, asserting a statutory right, trade union membership, jury service, a flexible working request and more. Our guide to the automatically unfair reasons that need no qualifying service goes through them one by one.
- Discrimination under the Equality Act 2010, which has no service requirement and has never had a compensation cap.
- Wrongful dismissal, meaning failure to give the notice the contract or statute requires. Statutory notice under section 86 starts at one week once someone has worked one month.
The Department for Business and Trade's unfair dismissal factsheet says plainly that the 2025 Act "does not change the current existing day one protections against discrimination and automatically unfair grounds for dismissal." The reform moves the threshold for ordinary claims. The day-one protections stay where they were.
What changes on 1 January 2027
Section 25 of the Employment Rights Act 2025 makes four changes to the 1996 Act:
- In section 108(1), "two years" becomes "six months".
- Section 124, which caps the compensatory award, is omitted in full.
- Section 108(1) is removed from the list of provisions a minister can vary by order, so a future government would need a new Act to change six months.
- Schedule 3 carries the consequential changes, including cutting the qualifying period for written reasons for dismissal (section 92) from two years to six months and removing any qualifying period where the reason is a spent conviction.
The commencement date is fixed in law. The Employment Rights Act 2025 (Commencement No. 4 and Transitional and Saving Provisions) Regulations 2026, made on 26 May 2026, bring section 25 and Schedule 3 into force on 1 January 2027. The government's timeline, updated on 25 September 2026, still shows that date, and the DBT factsheet says no further consultation is planned.
On the cap: from 6 April 2026 the compensatory award was limited to the lower of £123,543 or 52 weeks' gross pay. From January that ceiling goes for ordinary unfair dismissal. The basic award is a separate calculation under section 119, counting years of service and age in the same way as statutory redundancy pay, and section 25 leaves it alone.
Keep the money in proportion. The same factsheet cites Ministry of Justice data showing 646 unfair dismissal awards in 2023/24, with a median of £6,746. Removing the cap matters most for senior, well-paid staff who would struggle to find equivalent work. For most claims the larger change is the number of people who can bring one: DBT puts around 6.3 million employees, 22% of everyone employed aged 16 and over, between six months' and two years' service with their current employer.
Who is covered when the rule changes
In 2012 the longer period applied by start date. In 2027 the shorter one applies by effective date of termination (EDT), whenever the employee was hired.
The transitional provision in SI 2026/559 says the amendments "have effect in any case where an employee is dismissed before 1st January 2027 but the effective date of termination falls on or after that date" and "do not have effect in any case where the effective date of termination falls before 1st January 2027."
In practice:
- An employee with six months' continuous service whose employment ends on or after 1 January 2027 can claim, whenever they started. Broadly, anyone who joined by early July 2026 is already over the line on 1 January.
- An employee told in December 2026 that they are dismissed, with notice running into January, is under the new rule. The date of the conversation does not matter.
- A dismissal with an EDT on or before 31 December 2026 stays under the two-year rule.
The EDT is defined in section 97: the date notice expires, or the date termination takes effect if no notice is given. Section 97(2) then adds a twist that decides borderline cases. Where the employer gives less than the statutory minimum notice, for the purposes of section 108(1) the EDT is pushed back to the date statutory notice would have expired. An employee a few days short of six months who is dismissed with pay in lieu of notice is treated as employed for one more week, and that week can take them past six months. The same extension can carry a late-December dismissal with pay in lieu into January. The transitional provision does not deal with that case expressly, so take advice rather than rely on a December date, and do the same if you are relying on summary dismissal for gross misconduct.
Two other dates sit alongside this one. Since 1 October 2026 the tribunal time limit for unfair dismissal has been six months less a day from the EDT, up from three months, under SI 2026/954; Acas has updated its guidance to match. So a claim arising from a January 2027 dismissal could be filed in the summer. And the statutory right to written reasons drops to six months on 1 January too.
Before six months and after: what the employer can and cannot do
Below the qualifying period, the legal position is the same as it was under two years, just shorter. The employer does not need to prove a section 98 reason or a fair procedure to defend an ordinary unfair dismissal claim, because there can be no such claim. It still has to:
- give the contractual or statutory notice, whichever is longer;
- avoid any automatically unfair or discriminatory reason, and remember that the tribunal decides what the real reason was, whatever the letter says.
From six months' service, the full test applies. The employer has to show a potentially fair reason and that it acted reasonably in treating that reason as enough to dismiss. For misconduct and poor performance, that means following the Acas Code of Practice on Disciplinary and Grievance Procedures or a capability procedure built on the same principles. Section 98(4) allows for the size and administrative resources of the employer, so a 40-person firm is not expected to run the procedure of a bank, though it does need one.
The Act sets no lighter standard for new starters. The government first proposed unfair dismissal protection from day one; the DBT factsheet explains that it settled on six months as a compromise agreed with business groups and trade unions. Section 25 changes the number and nothing else, so from six months the ordinary test applies in full.
The same threshold opens constructive dismissal. A resignation in response to a fundamental breach becomes an unfair dismissal claim at six months' service instead of two years, which matters for anyone handling contract changes or long-running grievances. Our constructive dismissal guide covers that claim in detail.
Where two years still matters
The reform touches the unfair dismissal qualifying period and the written-reasons period. The two-year thresholds below are unchanged.
Statutory redundancy pay. Section 155 still requires "a period of not less than two years ending with the relevant date," and the 2025 Act does not amend it. GOV.UK puts the weekly pay cap at £751 and the maximum payment at £22,530 from 6 April 2026.
That creates a new middle band. From January, someone with nine months' service who is made redundant can challenge how they were selected or consulted, but receives no statutory redundancy payment. Before 2027 those two thresholds matched; now they don't. A redundancy exercise in 2027 will usually include people who can claim unfair dismissal and are owed nothing under section 155. Treat the process as fully contestable for everyone past six months, and use our step-by-step UK redundancy process to run it.
Statutory notice. Section 86 gives one week's notice from one month's service until two years, then one week per complete year up to twelve. That ladder is unchanged, so a six-month employee is protected from unfair dismissal but still entitled to only a week's statutory notice.
Preparing the workforce before 1 January
Audit service dates. List every employee with their continuous employment start date and the date they reach six months. Do not take the payroll start date on trust. Continuity can carry over from a previous employer under section 218, for example after a transfer of the business or a move between associated companies in a group. A staff member who arrived under TUPE eighteen months ago may have five years' service for this purpose.
Review live cases now. Any capability or conduct matter involving someone with roughly five months to two years of service, where the EDT will fall in 2027, should be run as a full fair process from today. Notice moves the EDT, and section 97(2) can add a week where notice is paid in lieu. Some employers will try to complete dismissals before the end of December. The dates allow that, but the reason still has to be clean, and a rushed dismissal shortly after a grievance or a pregnancy announcement is exactly the case that comes back as automatically unfair or discriminatory, where the two-year rule never helped.
Rewrite the documents that quote two years. The usual culprit is a disciplinary or capability policy saying employees "with less than two years' service" may be dismissed without following the procedure. Contract templates, offer letters, manager guides and intranet FAQs often repeat it. Change the figure to six months, or remove the carve-out and keep a short procedure for new starters.
Fix the probation timetable. A six-month probation now ends on the threshold. Probation length, review points and extension rules are covered in our probation article; the point to take from here is that the decision and any notice need to finish before six months' service, counting the extra statutory week section 97(2) can add.
Brief line managers. Informal dismissals often start with a manager who assumes there is a free period. Tell them the new threshold and the date, and that the date that counts is the end of the notice period. Make sure they know which protected acts mean HR must be involved first. When a manager asks "she's been here eight months, can I let her go?" in March 2027, the answer has changed, and they need to hear it from somewhere reliable. If you use Aura, add the updated disciplinary policy to its sources so managers get answers based on your policy and current law, with the question passed to HR when it touches a protected reason.
The two dates to work to
31 December 2026 is the last day an EDT can fall under the two-year rule. From 1 January 2027 the threshold is six months for everyone, existing staff included, and nothing further has to be legislated to bring it in.
Start with the service-date audit, because every other step depends on knowing who crosses six months, and when.