Employment Rights Act and Continuity of service
Continuity of service is one of those concepts that sits quietly in the background of employment law until the moment it matters enormously. It can be the difference between an employee having real protection against dismissal and having almost none. And with the Employment Rights Act 2025 now on the statute book, the rules around continuous service are about to shift for the first time in over a decade.
Here’s what continuity of service actually means, why it matters, which breaks in employment don’t count against it, and what genuinely changes from January 2027 (which, it turns out, is not quite what everyone expected).
What continuity of service actually is
Continuity of service, or continuous employment, is the unbroken run of time an employee has worked for the same employer. It’s counted in weeks, starting on day one and running until either the employment ends or something happens that’s serious enough to break the chain.
Under the Employment Rights Act 1996, this running total is the gateway to most of the big employment protections. The longer it runs, the more rights an employee accumulates.
Why continuous service matters right now
A few thresholds do most of the heavy lifting.
Two years for unfair dismissal. Under the current rules (pre January 2027), an employee needs two years of continuous service before they can bring an ordinary unfair dismissal claim. Below that, an employer can dismiss for almost any reason, provided it isn’t discriminatory or otherwise automatically unfair. Above it, the employer has to show a fair reason and a fair process.
One month, for notice. After a month’s service, an employee is entitled to at least a week’s notice. That rises by a week for each complete year of service, up to a cap of 12 weeks.
Two years for redundancy pay. Statutory redundancy payments also require two years of continuous service, and the amount is calculated from the length of that service.
The real story on unfair dismissal reform
This is where a lot of coverage from late 2024 and 2025 got ahead of itself. When the Employment Rights Bill was first published, the headline commitment was to make unfair dismissal a day-one right, with a lighter-touch statutory probation period to cover the first months of a new job.
That didn’t survive the House of Lords. At the final stage, peers pushed back hard, and the government agreed a compromise. The Act, which received royal assent on 18 December 2025, drops the day-one proposal and the statutory probation period entirely. Instead, from 1 January 2027, the qualifying period for ordinary unfair dismissal falls from two years to six months. Nothing changes before that date.
Alongside it, in a change that had far less warning attached, the statutory cap on unfair dismissal compensation is being scrapped entirely, not reduced. Currently, that cap sits at the lower of £118,223 or a year’s gross pay. From January 2027, there won’t be one.
What changes, and what doesn’t
From 1 January 2027:
- The unfair dismissal qualifying period drops from two years to six months
- The compensation cap for unfair dismissal is removed completely
- Anyone who already has six months’ service on that date is covered immediately, which in practice means anyone hired from around the end of June 2026 onwards will have protection from day one of 2027
Staying exactly as it is:
- Redundancy pay still needs two years of continuous service. That threshold isn’t moving.
- Notice entitlements are unaffected.
- The rules on what counts as a break in continuity, covered below, are unchanged.
Because the qualifying period is dropping rather than disappearing, continuity of service actually keeps most of its importance. Six months is a much lower bar than two years, but it’s still a bar, and calculating it correctly still decides who’s protected and who isn’t.
Breaks that don’t break continuity
Not every gap in employment resets the clock. These provisions aren’t affected by the reforms.
- Temporary cessation of work. Seasonal rehiring, temporary layoffs, and short closures don’t break continuity, provided the gap is genuinely temporary and there’s an expectation of return.
- Custom or agreement. A break that’s part of an established pattern, or one both sides have agreed to, such as a sabbatical or career break, keeps continuity intact.
- Family leave. Maternity, paternity, adoption, shared parental, parental, and neonatal care leave all preserve continuity and count towards it.
- Sickness or injury. Absence of up to 26 weeks doesn’t break the chain.
- Industrial action. Strike participation doesn’t break continuity, though the weeks involved don’t count towards service for redundancy pay purposes.
- Tribunal reinstatement. If a tribunal orders reinstatement or re-engagement after an unfair dismissal, continuity carries on as if the dismissal never happened.
- TUPE transfers. Service transfers with the employee, and the original start date stays the original start date.
And even a single day worked in a given week is usually enough for the whole week to count.
What this means for employees
If a dismissal is likely before January 2027, the two-year rule still applies in full. It’s worth knowing exactly where continuous service stands, since a few weeks either side of the threshold can be the difference between protection and none.
From January 2027 onwards, six months’ service becomes the qualifying point, and there’s no cap on what an employee could be awarded if a claim succeeds. Redundancy pay still needs the full two years, so that calculation doesn’t get any easier.
What this means for employers
The two-year rule is still live throughout 2026, so recruitment and performance management decisions made now should be made with that in mind. But the six-month change applies to anyone who reaches that service milestone on or after 1 January 2027, which means new hires from around the middle of 2026 are already heading towards protection under the new rules.
It’s worth reviewing probation periods and early performance management processes ahead of that date, since the lighter-touch approach many employers have relied on for the first two years of employment will need to work within a much shorter window. The removal of the compensation cap also raises the financial stakes of getting a dismissal wrong, particularly for higher earners.
If restructuring is on the cards, make sure TUPE is applied correctly where it’s relevant. Getting continuity wrong at that stage can mean employees losing
Getting continuity calculations right has always mattered, but from January 2027, it’ll matter for more people, sooner in their employment, than it ever has before.
If you’d like to talk through what this means for your business, we’re here to help.
