Unfair Dismissal at Six Months - What Every Employer Must Fix Before January
From 1 January 2027, employees can claim unfair dismissal after six months instead of two years. At the same time, the cap on compensation disappears entirely. If you hired anyone from July this year, they're already on the clock.
What's changing, precisely
The Employment Rights Act 2025 received Royal Assent in December and is being phased in. Two changes land together on 1 January 2027, and they're the ones that matter most to any business with staff.
The qualifying period for ordinary unfair dismissal drops from two years to six months. The original proposal was day-one rights - That was defeated in the Lords and replaced with six months.
The second change got far less coverage and deserves more. The statutory cap on unfair dismissal compensation is being removed entirely. That cap currently sits at the lower of 52 weeks' gross pay or £118,223. From January, there is no ceiling - Awards are calculated on actual and projected losses.
The bit people are getting wrong
This is not a clean start on 1 January. Anyone who already has six months' service on that date gains protection immediately.
Work backwards and the implication is uncomfortable. Anyone hired from around the start of July 2026 will hit six months by January and be protected the moment the rules commence. Every existing employee is covered on day one.
So the window for assessing a new hire under the old two-year rule has effectively closed already. Anyone you take on now is a January-protected employee.
What it costs if you get it wrong
In practice most awards have never approached the cap - The median unfair dismissal award has historically sat under £7,000. Removing the ceiling doesn't change the typical case.
It changes the expensive ones. A senior, well-paid employee who struggles to find equivalent work now has an uncapped claim based on real losses. That's a different order of exposure, and it's worth a conversation with your insurer about whether your cover still fits.
Five things to sort before January
Fix your probation period. If your contracts run a six or twelve month probation, it now expires at or after the point protection begins. Shorter, with a genuine review, is the sensible shape.
Make recruitment work harder. Six months is a short runway to assess a hire. The cheapest fix for dismissal risk is not hiring the wrong person.
Write things down. Informal chats about performance are worthless in a tribunal. Documented concerns, dated, with support offered, are the difference between defensible and indefensible.
Train whoever manages people. Most claims come from a manager handling a situation badly, not from a policy being wrong on paper.
Review your contracts and handbook. Probation clauses, performance procedures and notice provisions all need to work under the new rules.
This isn't the only change coming
Fire and rehire protections were pushed back and now also commence in January 2027, alongside the unfair dismissal changes. Zero-hours and guaranteed-hours provisions follow across 2027, with detail still subject to consultation.
The direction is consistent: hiring casually and dismissing quickly gets harder and more expensive. Businesses that plan staffing properly will be fine. Businesses that hire in a panic and correct later will find that model has got costly.
Where we come in
We're accountants, not employment lawyers, and for contract drafting you want a specialist. But payroll, contracts and staffing costs sit together, and we'll flag what's coming and what it means for your wage bill before it becomes a problem. That's part of Delve's fixed monthly fee.
This article is general information, not legal or employment advice, and reflects the implementation timetable as it stood at publication - Commencement dates have moved before and may move again. Speak to us on 01793 677 644, and to an employment specialist for contract and dismissal decisions.
