Unfair dismissal changes – what employers need to know before January 2027

It's important for employers to be aware of the changes and to make sure that their policies and procedures are easy to put in practice.

Unfair dismissal rules are changing from January 2027, so it is a good time for employers to look at how they manage dismissal decisions and the conversations that lead up to them.

Dismissal will not be impossible, and if there is a genuine reason, you will still be able to take action. But the process and communication behind that decision will matter more than ever.

The changes are likely to have the biggest impact in the earlier stages of employment, particularly around probation and early performance concerns. But fair decision-making matters at every stage, so you should use this time to check that your approach is consistent, compliant and easy for managers to follow.

Here, we explain what is changing and the practical steps you can take now.

What’s changing?

Currently, most employees need two years’ continuous service before they can bring an unfair dismissal claim. This is known as the qualifying period.

This is the length of time someone usually needs to have worked for an employer before they can make an unfair dismissal claim. A dismissal may be unfair if there is no fair reason for it, if the reason is not enough to justify dismissal, or if the employer has not followed a fair process. From January 1 2027, that qualifying period is due to reduce to six months.

This brings unfair dismissal protection much closer to the start of employment, often while you are still assessing whether someone is the right fit for the role and your business.

There is also a change to compensation. If an employee successfully brings an unfair dismissal claim, they may receive a compensatory award, intended to reflect the financial loss they have suffered, such as lost earnings.

Right now, this award is capped at the lower of 52 weeks’ gross pay or £123,543. From January 1 2027, that cap is due to be removed, with tribunals continuing to look at the employee’s actual financial loss.

As an employer, you will not lose the ability to dismiss someone where there is a genuine reason to do so. But the reason for the decision, the process followed and the records kept will all carry more weight.

What counts as a fair reason to dismiss?

The existing fair reasons for dismissal are not changing, so you will still be able to take action where it is appropriate, as long as it is handled fairly.

You can still dismiss someone for reasons such as conduct, capability, redundancy, a legal requirement that prevents them from doing their job, or another substantial business reason. Gross misconduct might include theft, fraud or physical assault, while capability could relate to someone being unable to do their job or not having the necessary skills or qualifications.

What matters is that the reason is genuine and that you act reasonably in the circumstances. Capability can be more complicated where an employee has a long-term illness or disability. In these situations, you should take time to understand what is happening, consider whether support or reasonable adjustments could help, and look at other options before considering dismissal.

It is also important to raise an issue early as it gives the employee the chance to understand what is expected, talk through anything that may be affecting their work and, where appropriate, improve. For managers, these conversations can feel difficult, especially if they are worried about saying the wrong thing. But an honest and supportive conversation early on is often far easier than trying to deal with a problem once it has grown. It also gives everyone a clearer picture of whether the situation is likely to improve or whether further action may eventually be needed.

What unfair dismissal protections still apply?

It’s worth remembering that some protections already apply from day one. Employees do not need two years’ service to bring a claim for automatically unfair dismissal in certain circumstances. This includes situations where the reason for dismissal relates to things such as pregnancy, whistleblowing, health and safety concerns or making a flexible working request.

Wrongful dismissal protection also applies from day one, which means you need to give employees the notice they are entitled to under their contract or by law, unless there is a legitimate reason for dismissal without notice, such as gross misconduct.

What does this mean for probationary periods?

If you are using a six-month probationary period, the end of probation will sit very close to the point at which unfair dismissal protection begins. That makes it crucial not to leave concerns until the final probation meeting.

Regular check-ins help a new employee understand what is expected, and raise anything they are finding difficult. They also give managers the chance to give feedback, agree next steps and deal with concerns before they become harder to manage.

This does not mean every probation meeting needs to become a formal performance review. Often, a straightforward and informal chat about how things are going is a good place to start.

Is the employee clear about what is expected? Are they getting the support they need? Is there anything that isn’t working as it should? If there are concerns, have they been discussed openly and does the employee understand what needs to improve?

Keeping a brief record of these conversations and any agreed actions can also be helpful. It creates a clear picture of what has been discussed and gives the employee an opportunity to respond and improve.

It also means there should be fewer surprises at the end of a probation period. If something isn’t working, the conversation should already have started.

What should employers be doing now?

There is still time to review how your business manages performance, probation, conduct and capability, and to make practical changes that help managers feel more confident and employees feel clearer about what is expected.

Probation is a sensible place to start, particularly because the shorter qualifying period is likely to affect how you manage new hires. Think about how often managers check in with new starters, whether those conversations are meaningful, and whether expectations are clear from the beginning. If concerns arise, they should be raised early enough for the employee to understand the issue and have a fair opportunity to improve.

You should also look at how performance concerns are managed once someone is established in their role. For example, are managers confident addressing conduct issues when they arise? Do your disciplinary processes give employees a fair opportunity to understand concerns and respond? Are managers keeping clear records of the conversations, support and decisions that have taken place?

Policies and procedures are important, but they need to be put into practice. A disciplinary or performance management process that is legally sound but too complicated for a busy manager to follow will not be as helpful when a difficult situation arises.

Managers also need to know when an issue should be addressed, how to have a constructive conversation and when to ask for HR support.

For your senior or higher-paid employees, the removal of the compensation cap is also worth considering as part of your wider approach to managing dismissal risk, as this means you may have to pay higher compensatory awards.

And while you’re reviewing these areas, it makes sense to look at your contracts, policies and employee handbooks alongside the other Employment Rights Act changes coming into effect.

Acas has helpful guidance on dismissals and unfair dismissal, including information on fair reasons and fair procedures here.

At Reality HR, we’re supporting Alliotts’ clients to put fair, supportive and practical people processes in place, so managers feel confident and employees know where they stand. We can help review your policies, strengthen your probation process, support managers with difficult conversations or understand what the wider Employment Rights Act changes mean for your business and advise you on next steps.

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