Employees will gain ordinary unfair dismissal protection after six months rather than two years from January, increasing pressure on retailers to identify and address performance problems earlier.
Retailers across England, Scotland and Wales have less than four months to prepare for new unfair dismissal rules that will significantly reduce the time available to address problems with new hires.
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From 1 January 2027, the qualifying period for ordinary unfair dismissal will fall from two years to six months under the Employment Rights Act 2025.
The change could have particular implications for retail, where high-volume recruitment and decentralised workforces mean probation and performance issues are often handled by store and line managers rather than dedicated HR specialists.
It also comes as retailers seek to control labour costs and improve workforce productivity. British Retail Consortium (BRC) figures show the four-quarter average number of retail jobs fell by 66,000 year on year to 2.79 million in the first quarter of 2026.
Meanwhile, 84% of retail chief financial officers and finance directors surveyed by the BRC ranked labour and employment costs among their three biggest concerns for the year ahead, while 68% said they expected to pursue higher workforce productivity.
Unfair dismissal protection moves to six months
The change does not prevent retailers from dismissing employees for legitimate reasons, including poor performance.
However, once an employee has the required qualifying service, an employer will generally need a potentially fair reason for dismissal and must be able to demonstrate that it acted reasonably and followed an appropriate process.
The financial exposure is also set to increase. Alongside the shorter qualifying period, the existing statutory cap on compensatory awards for unfair dismissal will be removed from 1 January 2027. Compensation will continue to be calculated according to the claimant’s actual and projected losses.
The transition means the reform is already relevant to employees currently working for retailers. Employees who have accumulated at least six months’ continuous service by 1 January 2027 will gain ordinary unfair dismissal protection when the new regime takes effect, while employees recruited later will generally qualify once they reach six months.
This could make the timing particularly relevant to retail employers recruiting ahead of the peak Christmas trading period.
Employment law specialist Philip Vallon, partner at Druces LLP, said the shorter timeframe means employers should treat the six-month point as something to work towards rather than waiting until the end of the period to assess whether an appointment is successful.
“Six months can disappear remarkably quickly in a busy business,” Vallon said.
“If an employer waits until month five to address a serious performance problem, it may have left itself very little room to manoeuvre.”
Retail faces high levels of workplace conflict
The reform comes against a backdrop of high levels of workplace conflict in retail.
Research commissioned by Acas found that 50% of employees in wholesale and retail trade had experienced workplace conflict during the previous 12 months, compared with 44% of employees across Great Britain.
Across all sectors, capability and performance was the most common subject of workplace conflict, accounting for 38% of cases. Among managers who had experienced conflict with direct reports, capability and performance featured in 94% of cases.
For retailers, the findings underline the importance of addressing performance issues consistently as the qualifying period falls.
For store associates, fulfilment workers and other frontline employees, several weeks may pass before training is complete and performance can be properly assessed. Busy trading periods, staff shortages and competing operational demands can also make it tempting for managers to defer difficult conversations.
Allowing concerns to drift could leave considerably less time to clarify expectations, provide support, assess improvement and, where necessary, follow an appropriate dismissal process.
The challenge could be greater for smaller retailers. Acas found workplace conflict was experienced by 46% of employees working for SMEs, compared with 42% at large organisations.
Independent retailers and smaller chains may also lack dedicated HR or employment-law teams, leaving owners and store managers to navigate performance issues alongside the day-to-day demands of running the business.
Store managers face greater responsibility
One of the biggest practical consequences for retailers is therefore likely to be at store and line-manager level.
New employees should receive clear performance expectations from the outset rather than reaching the fifth or sixth month of employment before being told there are serious concerns about their work.
Retailers may need to make probation a more structured process, with regular reviews scheduled in advance and performance concerns recorded and addressed as they arise.
Acas recommends regular formal reviews during probation alongside informal discussions, with employers providing constructive feedback, identifying training needs and giving employees a reasonable opportunity to improve.
Early intervention does not necessarily mean moving more quickly towards dismissal. It can also help retailers retain employees by identifying inadequate training, unclear expectations or other problems before they become entrenched.
Managers will also need to recognise when an apparent performance issue could involve disability, discrimination, sickness absence or another matter carrying separate legal protections.
The reduction in the qualifying period does not alter existing protections that apply from the beginning of employment, including those relating to discrimination and certain automatically unfair reasons for dismissal.
For retailers with large store networks, the challenge will be ensuring policies developed by HR teams are applied consistently by potentially thousands of line managers.
Retailers review probation ahead of January
Existing probation arrangements are also likely to come under greater scrutiny.
There is no legal requirement to operate a probation period, and the six-month qualifying period does not create a statutory six-month probation. However, retailers using contractual probation periods will need to consider how those arrangements operate alongside the new threshold.
A six-month probation period that triggers its first meaningful assessment shortly before an employee reaches six months’ service, for example, may leave managers little practical room to identify concerns, provide support and assess whether performance has improved.
Recruitment processes could also warrant attention. Acas recommends reviewing recruitment where employers experience large numbers of unsuccessful probation periods, reflecting the role that hiring decisions, onboarding and training can play in subsequent performance.
The issue has added significance as retailers reassess staffing levels in response to higher employment costs. The BRC has estimated that the industry is absorbing £6.5bn in additional employment costs over 14 months, while its research indicates some retailers are considering reducing store headcount as they seek higher productivity.
Poor hiring decisions carry costs in recruitment, training and management time, but losing employees who could have succeeded with better onboarding and support can also be expensive.
For larger retailers, preparation for January is therefore likely to involve more than updating employment policies. Businesses will also need to ensure that store and line managers understand how to set expectations, record concerns, support improvement and escalate performance problems appropriately.
Smaller operators may need clearer procedures to help owners and managers identify when specialist HR or legal advice is required.
Vallon said employers should review those arrangements before the legislation comes into force.
“The businesses most likely to struggle are not necessarily those with the worst employees,” he said. “They are the ones without a clear process for recognising when an appointment is not working.”
With the six-month threshold taking effect in January, retailers have less than four months to make sure those processes are in place.
