Employees you are hiring now will be subject to the upcoming unfair dismissal reforms, which are due to come into force on 1 January 2027.
Unfair dismissal rights
Employees currently need two years’ continuous service before they can claim unfair dismissal.
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.
It also remains the case that an employee can bring an automatic unfair dismissal claim, regardless of their length of service, in certain situations eg: 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:
1. Basic award, calculated in a similar way to a statutory redundancy payment; and
2. 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.
What do I need to do now?
Given that new starters will gain unfair dismissal rights much earlier, you need to:
• check probationary periods are no longer than six months and are not permitted to drift on beyond that time
• ensure you have a robust probationary review process so that a new starter’s suitability is fully assessed (and fully documented) before they reach six months’ service
• ensure disciplinary and capability issues are handled properly as once an employee has six months’ service any dismissal decision and process followed must be fair and reasonable and fully documented.
Important to note:
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 as follows:
1. 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
2. if an employee is dismissed so that their termination date falls on the day before they would have reached the qualifying service threshold, a recent court case 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.
For advice or assistance email nicola.goodridge@goodhr.co.uk or call +44 7917 878384
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