Unfair dismissal changes in the new year
From 1 January 2027, the qualifying period for protection against unfair dismissal will be cut from two years to six months. At the same time, the cap on compensatory awards for unfair dismissal will be removed.
Currently, the dismissal of an employee might be considered unfair if the employee has been employed for at least two years and there is no fair reason for the dismissal, or the reason is not sufficient to justify dismissing the employee.
A fair reason for dismissal includes:
Gross misconduct: For example, if an employee has defrauded the business, physically assaulted another employee, or refused to accept reasonable orders from a supervisor.
Capability: When the employee is unable to do the work that they were employed for, or they do not have the right qualifications. Capability also covers long-term illness, but employers need to be very careful here, with dismissal only as a last resort.
A legal reason: For example, a lorry driver who has been banned from driving.
The changes
From 1 January 2027, employers will only be protected from claims for unfair dismissal for the first six months of employment. However, as is currently the case, employees will still have day-one protection against automatically unfair dismissal (for example, dismissal for making a flexible working request or being pregnant) and wrongful dismissal (for example, the employer does not give the correct notice period).
The changes will apply across England, Scotland and Wales, but not Northern Ireland where unfair dismissal legislation is devolved.
Compensatory awards
Unfair dismissal compensation is made up of two parts:
- The basic award is not going to change; this is based on an employee’s age, length of service and weekly pay.
- A compensatory award which reflects the employee’s actual financial loss. This is currently capped at the lower of 52 weeks’ gross pay or £123,543. Although the majority of awards are not affected by these limits, the ceiling will be removed from 1 January 2027.
In future, employers will need to be particularly careful if dismissing a highly paid employee.
Acas guidance on dismissals can be found here.
