Changes to unfair dismissal rights

From 1 January 2027, there are two major reforms coming into force for unfair dismissal in the UK.

The qualifying period for bringing an ordinary unfair dismissal claim will fall from two years to six months, and the statutory cap on compensation will be abolished.

Together, these changes significantly heighten the legal and financial exposure facing employers. In this article we look at the changes and what employers should be doing now to prepare.

Unfair dismissal in 2027: The new six‑month qualifying period

Since 2012, employees must accrue two years’ continuous service before gaining protection from unfair dismissal. This has allowed employers time to assess whether a new recruit is the right person for the organisation and that the role is viable.

From 1 January 2027 this qualifying period will be reduced to six months. This will apply to anyone in employment at that date.  For example, an employee who joined on 1 March 2026 will accrue unfair dismissal protection on 1 January 2027, after just 10 months of service.

Employers cannot get around this by putting probationary periods of longer than six months in employment contracts. 

This change makes management of probationary periods key. Employers will have less than six months to decide if a new recruit is suitable and, if not, dismiss with relative ease.

Employers can still dismiss employees after six months, but to be a fair dismissal a full process will have to be followed. For example a full performance management process, typically involving a written warning (or improvement note), a final warning and then dismissal on notice.  Each stage subject to the right of appeal.

How long should probationary periods now be?

Most employers we speak to are opting for probationary periods of between three and five months. Five months should be the maximum, to leave time for absences, overruns and the minimum statutory notice period of one week.

However long the probationary period is, the most important advice we can give is that probation must be actively managed throughout. This should include objective setting at the start, interim reviews and a timely decision at the end as to whether probation is passed, failed or, if the initial period was short (e.g. three months) extended. All nicely documented, should there be a challenge to the reason for dismissal in the future.

Unfair dismissal compensation awards

Ever since the right to not be unfairly dismissed was introduced in the 1970s, there has been a cap on compensatory awards. The cap has been increased most years to keep up with inflation.

Currently compensatory awards for successful unfair dismissal claimants are capped at the lower of one year’s gross pay or £123,543. From January 2027, both of these safeguards disappear.

The compensatory award is typically made up of financial losses the employee has suffered, so loss of earnings and the value of lost benefits.

With no upper limit on compensation, tribunals will be able to award full losses, potentially stretching across several years if an employee struggles to secure new work. This mirrors the approach currently reserved for whistleblowing, discrimination, and health and safety related dismissals, but will soon apply to all unfair dismissal claims.

If the dismissal follows a poorly executed or insufficiently documented performance process, the employer may face significant financial exposure. With the statutory cap removed, any award could reflect an extended period of post‑dismissal loss, creating a level of liability far greater than would arise under the current regime.

We consider that highly paid employees stand to benefit from this the most. Bringing an unfair dismissal claim with the cap in place was not financially worth it for highly paid employees.  This reduced the level of risk for employers letting go of senior employees.

Now that compensation is unlimited, employers need to review how they handle senior exits. This includes reviewing how they manage senior employees before any exit.  For example, employers will need to actively manage underperforming managers / executives if they are to justify a later capability dismissal.

What employers should be doing now

A large proportion of dismissal decisions for short‑service employees are still made informally, with minimal documentation and an assumption that the two‑year qualifying period provides a buffer. From 2027, that assumption will no longer hold. Any dismissal after six months’ service will require a fair reason, a fair process, and clear evidence to support the decision.

To prepare for the new regime, employers should begin strengthening internal processes well ahead of the 2027 deadline. Key priorities include:

1. Considering how and where you recruit from, and what could be done to increase the chances of new joiners being suitable in the long run
2. Reviewing probation periods. How long should they be in light of the changes?
3. Reviewing probation, capability and disciplinary procedures to ensure they are robust enough for employees who will gain unfair dismissal rights far earlier
4. Implementing structured performance management from day one, including objective setting and regular documented check-ins
5. Training managers on the reduced timeframe for risk exposure and the importance of contemporaneous, accurate record‑keeping
6. Considering how your organisation addresses senior management performance. How would you show that a senior manager is underperforming or redundant?  Start by ensuring that senior managers have up to date contracts, job descriptions and are part of your performance review cycle.

Why early action matters

These reforms form part of a broader shift towards enhanced employee protections. With less than a year to prepare, many organisations remain under‑equipped for the scale of change. Taking proactive steps now will help employers avoid costly disputes and ensure that dismissal decisions can withstand tribunal scrutiny.

If you would like to explore how these changes may affect your organisation, our Employment team can discuss these matters with you and can review your contracts and policies to help you get them ready for the changes.