Unfair Dismissal

Expected to be in force in 1 January 2027

Key changes relating to unfair dismissal are as follows:

• The qualifying period for unfair dismissal will be reduced from two years to six months. Claims of discrimination and automatic unfair dismissal will continue to have no qualifying period of service.  The previous proposal for employees to have ‘day 1 unfair dismissal rights’ has been scrapped.
• In addition, the compensation cap for unfair dismissal claims will be removed altogether. Government analysis has been published, including an impact assessment (available here) but there will not be a consultation (despite previous reports that there would be). The cap is currently the lower of 52 weeks pay or £123,543. Removal of the cap is likely to have significant impact on employers, particularly when dismissing high paid employees or those enrolled in generous pension schemes.

In addition, employees will have a right to request written reasons for dismissal when they have six months service and the qualifying period for protection against unfair dismissal for reason of spent convictions will be removed.

The government has produced a fact sheet which can be viewed here.

The proposals for a statutory probationary period have been scrapped. Employers can continue to use contractual probationary periods but importantly must be aware that from 1 January 2027, when an employee reaches 6 months service, they will have rights against unfair dismissal, regardless of whether or not they are still within their contractual probationary period. For this reason employers may prefer to have a shorter probationary period, such as 3 months with the option to extend the period by a further month, in order to ensure that if a decision is made to dismiss, the termination date falls before the date the employee reaches 6 months' service (remembering to add on the 1 week statutory notice period when calculating length of service, even if the employer will make a payment in lieu of notice).

The government has stated in its fact sheet that its intention is to adopt a commencement approach which would, from the date of commencement (expected to be 1 January 2027) extend protection against ordinary unfair dismissal immediately to all employees who already have six months’ service or more. Other employees will gain this protection once they reach six months service.