Unfair dismissal reforms from 1 January 2027: what you need to do now
One of the government's flagship policies is to reduce the qualifying period employees must complete before they can bring an ordinary unfair dismissal claim. The government says this will strengthen employment rights and help reduce one-sided flexibility in the workplace.
The government has published an updated factsheet which confirms that it intends to commence the ‘package’ of unfair dismissal reforms on 1 January 2027. While that date may feel like some way off, the changes will affect employees you are hiring now.
In this article, we explore the reforms in more detail and highlight what you need to think about, and act on, now.
Unfair dismissal rights
Employees currently need two years' continuous service before they can claim ordinary unfair dismissal. Continuous service starts on the employee's first day of work and ends on the effective date of termination (EDT).
From 1 January 2027, the qualifying period will reduce to six months. The government is adopting a ‘commencement approach’, meaning that any employee who has at least six months' service on 1 January 2027 will have unfair dismissal protection from that date.
The first employees to benefit from the six-month qualifying period will be those who start work on 1 July 2026 and are still employed on 1 January 2027. Employees hired after 1 July 2026 will gain protection once they reach six months' service.
Employees who join before 1 July 2026 will also benefit, because they will not have to complete the full two years to gain protection from ordinary unfair dismissal. For example, an employee who starts on 1 March 2026 will have 10 months' service on 1 January 2027. From that date, they will meet the new six-month qualifying period and therefore gain protection a full 14 months earlier than under the current two-year qualifying period.
This does not, of course, mean their claim will succeed. It will still depend on whether the dismissal was for one of the statutory fair reasons, if the employer acted reasonably, and if it followed a fair procedure - which in some cases must be in line with the Acas Code of Practice.
It also remains the case that an employee can bring an automatic unfair dismissal claim, regardless of their length of service, in certain situations. Examples include dismissals connected to pregnancy, attempts to assert a statutory right, or making a protected disclosure (i.e. whistleblowing).
Compensation cap removal
If an employee succeeds in an ordinary unfair dismissal claim, they currently receive two types of award:
- Basic award, calculated in a similar way to a statutory redundancy payment; and
- Compensatory award based on what the tribunal considers “just and equitable” in the circumstances. This typically covering losses such as earnings, benefits, and pension.
At present, the compensatory award is capped at the lower of £118,223 (reviewed annually in April) or 52 weeks' pay. However, this cap will be removed entirely from 1 January 2027. This means there will be no upper limit on the compensatory award a tribunal can make. That said, any award must still be “just and equitable”, so very high awards will not automatically follow in every case. However, where losses are substantial, such as for high earners or employees close to retirement who are unlikely to get another job, tribunals will no longer be limited by the current caps. You can read more about this in our article ‘Employment Rights Bill finally passed: what does it mean for your organisation?’.
What do I need to do now?
Given that new starters will gain unfair dismissal rights much earlier, you need to look at your contracts. Do they include a probationary period? If so, how long is it? It needs to be shorter than six months. And you need to ensure that you have fully assessed a new starter's suitability before they reach six months' service. If decisions are left too late, there is a real risk that the employee will already have the necessary service or be close enough that they are deemed to have it to obtain unfair dismissal rights. This can happen in two ways:
- Where an employee is within one week of reaching the qualifying period and the employer fails to give at least the statutory minimum notice, the employee can add that notice period to their termination date to give them enough service to bring an ordinary unfair dismissal claim. The only exception to this is where the employer had the right to dismiss the employee without notice.
- If an employee is dismissed so that their EDT falls on the day before they would have reached the qualifying service threshold, the Inner House of the Court of Session in Pacitti Jones (A Firm) v O'Brien held that you must count both the first and last days of employment which means that they are still treated as having achieved that service for the purposes of ordinary unfair dismissal.
Managers must actively assess an employee's suitability throughout their probationary period. We recommend that you review your processes to ensure managers regularly meet with all new starters, give them feedback (and keep a record of this), provide support, and follow a clear structure to evaluate their suitability.
It's also important to audit how managers handle disciplinary and capability issues. Once an employee has the requisite service, any dismissal decision and process followed must be fair and reasonable. Identify any gaps in managers' training and take steps now to upskill them where needed. Our online Back-to-Basics training gives your line managers the tools they need to handle day-to-day challenges confidently. We have a number of modules - including how to handle investigations and disciplinary hearings. You can find out more about these in our brochure. Please speak to Gordon Rodham or Jenny Arrowsmith if you need more information.
You can learn more about this change, along with the wider package of employment law reforms introduced by the Employment Rights Act 2025, and what your business can do to prepare, in our webinar ‘2026 Annual employment update: everything you need to know to prepare your business for the year ahead’ on Thursday 26 February 2026 at 10am. Please register here.
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