Unfair dismissal: the countdown to January 2027

From 1 January 2027, employees with six months’ service will gain unfair dismissal protection and the cap on compensatory awards for unfair dismissal will be removed, fundamentally changing the employment litigation landscape.

Although these changes are not due to take effect until the start of next year, employers should not underestimate the significance of the reforms or delay preparations. The reduction in the qualifying period from two years to six months means many employees who would not currently be able to bring an unfair dismissal claim will gain protection much earlier in their employment. At the same time, the removal of the cap on compensatory awards is expected to increase both the value of claims and the leverage employees have in exit negotiations.

The reforms have important implications for recruitment, probation, performance management and dismissal processes. Employers may also find that unfair dismissal becomes a more attractive claim, particularly for higher earners who have historically been constrained by the statutory cap on compensatory awards.

Key Action Points for Human Resources and In-house Counsel

While January 2027 may still seem some way off, preparation should already be underway. Employers should:

• review recruitment, onboarding and probation processes to ensure concerns are identified and addressed at an early stage
• ensure managers are equipped to manage performance, conduct and capability issues effectively, with appropriate documentation throughout
• review disciplinary, capability and dismissal procedures to ensure they are robust and consistently applied
• consider whether additional training is required for managers and HR teams ahead of the new regime.

With unfair dismissal protection being available earlier and compensatory awards becoming uncapped, employers that invest in strong people processes now are likely to be best placed to manage risk in the future.