Financial institutions should not wait until the new Employment Rights Act measures take effect before preparing for them. Whether firms realise it or not, the new rules are already impacting workplace decisions made today.
From January 2027, the qualifying period for unfair dismissal will drop from two years to six months, while compensatory awards will be uncapped. These changes could impact any employer, but SMCR requirements and FCA obligations add another layer of complexity for financial firms. They must carefully balance the strict standards required by regulators with the risk of unfair dismissal claims from employees who may have only been in a role for six months.
With recent research suggesting that 91% of employers in all sectors are not fully prepared for the Act, financial services firms have no time to lose. They will need to assess performance early, identify training needs and address them promptly, helping to prevent capability or conduct issues from developing into employment disputes or regulatory problems later on.
In this article, we will examine three areas where financial institutions need to act now: managing probation and tribunal claims, preventing and reporting harassment, and supporting compliance through targeted training.
Key takeaways
- Employees hired over summer 2026 form the first cohort affected by the new six-month unfair dismissal threshold, so firms need to assess performance and address training shortfalls early.
- The six-month tribunal claim window gives former employees longer to challenge their departure, which could leave firms revisiting regulatory references if new material facts come to light.
- Preventing sexual harassment requires relevant training and clear reporting processes, with firms considering both employment and regulatory implications when concerns are raised.
- Firms need to give managers and employees the training and support they need to apply the new rules, manage performance fairly and handle harassment concerns before the provisions take effect.
Unfair dismissal thresholds, probation and tribunal claims
Under Section 25(2) of the Employment Rights Act, the qualifying period for protection against unfair dismissal will be six months from 1 January 2027.
Statutory notice periods count towards continuous service, so employees hired in July or August 2026 will reach the six-month threshold just as the new law takes effect. A standard six-month probation period could therefore run beyond the point at which an employee gains full unfair dismissal rights.
This shortened qualifying period puts greater emphasis on how financial firms manage probation. It should be a period of active assessment and development, rather than a process that culminates in a decision at the six-month mark. Managers need to keep track of performance as employees settle into their roles, identify where they need more training and address those gaps while there is still time to do so.
This is particularly important where employees are subject to FCA requirements. An employee who is struggling to meet the standards expected of them may not yet have the knowledge or confidence to apply those standards in practice. Giving them robust training from the start, then following up on their understanding and performance, can reveal whether they are suited to the job or whether they simply need more support to get there.
In some cases, the right training may be what allows an employee to demonstrate their capability and continue successfully in the role. The earlier firms invest in that development, the more useful the probation period becomes as a genuine assessment of capability.
By the time a decision needs to be made, managers should know what the employee has been asked to learn, what support they have received and how they have responded to it. A well-documented assessment process can then give firms a stronger basis for deciding whether someone is able to meet the requirements of the role, while reducing the risk of an unfair dismissal claim.
“With the qualifying period for unfair dismissal shortening from two years to six months, firms have less time to assess whether new employees are meeting the standards expected of them. Managers need to use that time well, providing the training and support employees need and addressing gaps as they arise. Good training helps employees demonstrate what they can do and gives managers a stronger basis for deciding whether someone is suited to the role.”
The expanded tribunal window and regulatory references
From 1 October 2026, former employees will have six months, rather than three, to bring an employment tribunal claim under Section 152 and Schedule 12 of the Employment Rights Act. For financial firms, the longer window could have implications for regulatory references issued when an employee leaves.
Under FCA rules, firms must update previous regulatory references when new material facts emerge that change an earlier assessment of fitness and propriety. A tribunal claim brought several months after an employee leaves could therefore provide information that requires a firm to revisit a reference it has already issued.
This makes accurate records of an employee’s performance, training and conduct particularly important. Firms should retain the information needed to establish what happened, why decisions were made and whether any later findings change the information contained in a regulatory reference.
Sexual harassment duties and FCA non-financial misconduct
The Employment Rights Act also changes how financial firms need to handle allegations of sexual harassment.
From 30 October 2026, employers must take all reasonable steps to prevent sexual harassment, including harassment by third parties such as clients, visitors and contractors.
For financial services firms, this new duty will have to be considered alongside the FCA’s existing approach to Non-Financial Misconduct (NFM), which treats bullying, sexual harassment and discrimination as breaches of individual Conduct Rules and key factors in assessing an employee’s fitness and propriety.
A sexual harassment allegation can therefore raise both employment law and regulatory issues. Financial firms need to account for both in their approach to sexual harassment, with employees understanding what constitutes inappropriate conduct, how to raise concerns and when an issue may have wider regulatory implications.
This is why targeted and relevant training is so important. It helps establish those standards consistently across the organisation, so employees know what is expected of them and managers are better prepared to respond when concerns arise. Firms should start reviewing their harassment reporting processes now and ensuring that staff have been trained properly, rather than waiting for the October deadline.
The whistleblowing protections under Section 43B of the act add another reason to get this process right. Sexual harassment now qualifies as protected whistleblowing, so employees who raise concerns are legally protected from unfair dismissal or detrimental treatment.
Firms therefore need to ensure that concerns are handled appropriately and that managers understand when a report may also require regulatory action, including a mandatory report or disclosure to the FCA.
Supporting compliance through targeted training and technology
Firms cannot put these changes into practice without giving their people the right knowledge and tools. Managers need to understand how the new rules affect their decisions, while HR, legal and compliance teams need reliable systems for recording, reviewing and acting on that information.
Skillcast provides financial institutions with compliance tools, specialised e-learning hubs and digital registers to help firms meet FCA requirements and manage their obligations under UK employment law. Our FCA Compliance Management Hub and SMCR Compliance Training Hub includes targeted courses covering:
- SMCR in practice
- Conduct rules for senior managers
- Fit and proper assessments
- Preventing sexual harassment
- Non-financial misconduct
Alongside these courses, our digital SMCR registers and conduct rules registers provide an audit trail of employee training records, fitness assessments and historical conduct reports. The platform also allows firms to track third-party policy acknowledgements and vendor due diligence, helping them maintain compliance records across their wider workforce.
“The biggest risk financial firms can take is treating the Employment Rights Act as something that starts on a particular date. The people making hiring, probation, conduct and employee-exit decisions need to understand the new requirements before then. Targeted training gives managers and compliance teams the knowledge to make those decisions correctly, from assessing probation performance earlier to recognising when a harassment complaint or later tribunal finding could have regulatory implications.”
ERA 2025 FAQs
How does the Employment Rights Act change probation reviews for financial firms?
Because statutory notice periods count towards length of service, employees hired in summer 2026 reach the six-month unfair dismissal threshold on 1 January 2027. Managers must therefore complete performance reviews by month four or five to make compliant retention decisions before statutory protections apply.
Why does the extended tribunal window affect SMCR regulatory references?
When the tribunal claim window doubles to six months in October 2026, former employees can challenge their departure long after a firm issues a regulatory reference. If a tribunal ruling changes the findings surrounding an exit, the firm must update the reference provided to the individual’s new employer.
What is the connection between statutory harassment duties and FCA rules?
The FCA categorises sexual harassment and discrimination as Non-Financial Misconduct that breaches Conduct Rules and affects fitness and propriety. An allegation of harassment can therefore create both employment tribunal exposure and regulatory reporting obligations to the FCA.
What updates are required for exit agreements before October 2026?
Firms must update exit documentation, settlement agreements and record-keeping procedures to account for the extended six-month tribunal claim window. These changes ensure that conduct records can support future regulatory reference queries.
How can compliance e-learning assist firms in meeting these requirements?
Structured training equips line managers to conduct defensible probation reviews while educating staff on FCA Conduct Rules. Automated tracking then gives compliance officers clear audit trails that demonstrate proactive risk management to regulators.
Written by: Simon Truckle
As Director of Learning Solutions at Skillcast, I am responsible for ensuring that our partners achieve the best return on their e-learning investment. I help our clients navigate every stage of the learning development process, from risk assessment through to audit, while personalising the approach to the needs of their organisation. Before Skillcast I was Head of eLearning at both Barclays Wealth and Gerard Asset Management, responsible for delivering hundreds of courses to thousands of employees.
