Unfair dismissal changes: what every UK employer needs to know before 2027
The rules around unfair dismissal are changing, and the clock is already ticking. From 1st January 2027, the Employment Rights Act 2025 introduces two of the most significant shifts in UK employment law in over a decade. If you employ people in England, Scotland, or Wales, now is the time to understand what is coming and get your house in order.
This post covers exactly what is changing, who is affected, and the practical steps you can take right now to protect your business.
What are the unfair dismissal changes?
The qualifying period drops from two years to six months
Under the current rules, employees must have worked for you for two years before they can bring an ordinary unfair dismissal claim. From 1st January 2027, that threshold drops to six months.
That is not a small tweak. It means that any employee who joined your business from July 2026 onwards will have unfair dismissal rights within months of starting work. Employees already in post who reach the six-month milestone on or after 1st January 2027 will gain protection immediately.
Around 6.3 million employees in the UK currently fall into the gap between six months and two years, meaning they have had very limited protection until now. The unfair dismissal changes 2026 legislation shifts the balance considerably.
The compensation cap is being removed
Currently, employment tribunal awards for unfair dismissal are capped at the lower of 52 weeks’ gross pay or the statutory maximum (£118,223 as things stand). From January 2027, that cap disappears entirely.
Awards will still be calculated on the basis of actual and projected losses evidenced by the employee, so for most claims, the figure will not change dramatically. But for higher earners, older employees, or those in specialist roles who struggle to find comparable work, the numbers can get very large, very fast.
To illustrate: a 50-year-old sales manager earning £79,000 per year who is dismissed on performance grounds could, under the new framework, put forward a future loss claim covering 15 to 17 years of lost earnings, reaching close to half a million pounds. This is a realistic scenario for businesses that do not have robust dismissal processes in place.
What does not change
It is worth being clear about what these reforms do not touch.
Day one protections remain exactly as they are. Employees can still claim automatic unfair dismissal from their first day of work if a dismissal is linked to:
- Discrimination under the Equality Act 2010
- Whistleblowing or protected disclosures
- Pregnancy or maternity
- Health and safety concerns
- Trade union activities
The way compensation is calculated does not change either; the method stays the same. The Government has also confirmed there will be no further public consultation on these specific measures. The 1st January 2027 date is fixed.
One additional change: the qualifying period for employees to request written reasons for dismissal also reduces from two years to six months. That means dismissal letters need to be legally sound much earlier in the employment relationship.
Why this matters for SMEs
For larger businesses with established HR functions, these changes are significant but manageable. For smaller employers, the stakes are higher.
If you currently operate with a light-touch approach to probation (no formal reviews, no documented concerns, no structured process), that approach is going to leave you exposed. Two years gave businesses a reasonable window to assess a new hire and, where needed, let someone go without the same legal risk. Six months is a very different conversation.
The removal of the compensation cap is particularly important for SMEs that recruit into senior or specialist roles. A single successful tribunal claim could carry a financial consequence that makes headline news for the wrong reasons.
The employment tribunal system is also expected to see a significant uptick in claims following these changes, with ACAS early conciliation referrals set to rise too. The time to sort your processes out is before that wave arrives, not after.
What you should be doing right now
The good news is that complying with these changes does not require a complete overhaul of how you manage people. It requires getting the fundamentals right and doing so consistently.
Tighten up your probation process. Consider a probationary period length of four months, with a clear extension provision of up to one month if needed. That gives you the breathing room to make a decision about an employee’s future before they gain unfair dismissal protection. Formal reviews at months one, three, and five are sensible for anyone starting on a six-month probation.
Set clear expectations from day one. Performance standards, conduct expectations, and any concerns raised during probation all need to be documented. If a manager raises a worry verbally but nothing gets written down, that conversation may as well not have happened when you are sitting in a tribunal.
Improve your dismissal letters. From January 2027, employees with six months’ service can request written reasons for their dismissal. Those letters need to be clear, factually accurate, and legally defensible. A template that has not been updated since 2015 will not cut it.
Review your approach to senior exits. Businesses that have historically handled underperforming executives with a quiet conversation and a settlement agreement will need to rethink that calculation. With uncapped awards, a senior employee who disputes their dismissal at tribunal represents a much bigger financial risk than before. That does not mean you cannot part ways with someone who is not working out, but the process matters far more now.
How Vero HR can help
Getting dismissal procedures right is something we help clients with every day. As part of our HR services, we work with SMEs across the UK to put in place the frameworks that keep them on the right side of employment law, without the cost or complexity of running an in-house HR team.
Our employment law specialists can help you:
- Review and update your probation policies and processes
- Audit your disciplinary and dismissal procedures
- Build defensible documentation habits across your management team
- Understand your specific risk exposure ahead of January 2027
The unfair dismissal changes coming in 2027 are not going to be reversed. But with the right support, they do not have to catch you off guard either.