Unfair dismissal 

From 1 January 2027 the length of service an employee needs to bring a claim for ordinary unfair dismissal will be cut from 2 years to 6 months. This change is being introduced with immediate effect from that date, meaning that it will affect employees who started their employment before the change came into force. For example, if your employee started work on 1 July 2026 and you dismissed them on 1 January 2027, they would be entitled to bring a claim for unfair dismissal as they would have achieved the 6 months’ service milestone on 31 December 2026. 

You may currently operate a probationary period of 6 months and this is useful as it allows you to assess whether someone can achieve and maintain the required level of performance and behaviour over a lengthy period. However, the change to service eligibility means that a 6-month probationary period will now carry much higher risks as it will coincide with the deadline for acquiring unfair dismissal rights. For example, if you invite your employee to a probationary review meeting as they near the end of the 6 month period and they go off sick, you could  easily pass the 6 month period and even if you extend their probation period until you’ve had the hearing, once the 6 month period has passed they will have enough service to bring a claim.  

From 1 January 2027 the cap on compensation for ordinary unfair dismissal claims will be also abolished. Awards for unfair dismissal are made up of 2 elements – the basic award and the compensatory award. The basic award is calculated on a statutory formula which is similar to the calculation of a redundancy payment. The compensatory award is calculated to reflect the financial loss suffered by the employee and is currently limited to £118,223 or one year’s gross pay, whichever is the lower. 

In reality, this change will not make any difference to the way in which tribunals assess compensation awards, most of which are well within the current cap. However, it will introduce an element of uncertainty for employers, who previously knew their exposure on ordinary unfair dismissal claims was capped and it is likely to increase some employees’ expectations in settlement negotiations as the ceiling to the potential value of  their claim has been removed. 

It is important to note that the current restrictions only apply to ordinary unfair dismissal claims. There are already many situations in which employees can claim unfair dismissal from day one of their employment and where the potential compensation is uncapped. For example, where the employee alleges their dismissal was due to discrimination against them, because they exercised a statutory right or raised a whistleblowing disclosure or because they raised health and safety concerns. These rights are unchanged by the ERA. 

What do I need to do to get ready for these changes?  

Firstly, you should therefore consider reducing your probationary period to avoid these risks if you are currently using a 6 month (or longer) probationary period.  

The probationary period is there to help you assess whether the employee is suitable for the role, so you want to make sure whichever period you set gives you time to do this. It is fine to have different probation periods for different roles but be aware of the fact that the closer to  6 months, the greater the risk that a probationary dismissal will take the employee past the 6 months’ service mark and they will have ordinary unfair dismissal rights. 

A reduced probationary period will carry fewer risks but there are 2 things important things to bear in mind: 

• Does it genuinely give you enough time to assess them in the role? 

• You will need to review your probation processes to ensure that there is effective and well documented monitoring of performance during this period. 

It would also be helpful to review your recruitment, induction and onboarding processes to make sure you are finding the right people for your business and giving them the best possible support in the early months of their employment to help them succeed.