Getting ahead of the 2027 unfair dismissal changes

The changes to unfair dismissal law on 1 January 2027 are arguably the most seismic of the many reforms introduced by the Employment Rights Act 2025. Every employer will be affected, without exception. Not only will employees gain unfair dismissal rights after 6 months of service, but also compensation for successful cases will no longer be capped – a particular issue for employers with many high earning employees.  Employers may no longer be able to settle disputes quickly on commercial terms.

What can employers do to prepare?

Review job specifications:  Clear job specifications and competencies for the role can not only aid with recruitment but also provide a robust framework to identify areas of concern and apply appropriate performance management processes if needed.  Organisational requirements can change quite rapidly. If job specifications have not been checked recently, they should be reviewed in conjunction with line managers to ensure they remain aligned with current role requirements.

Review recruitment processes: Recruitment is a time-consuming and potentially expensive process, particularly if recruitment agent fees are involved. At the risk of stating the obvious, going forward employers will have much less latitude to make mistakes in hiring. Consider recent hiring history: what is the “success rate” in hiring decisions?  Is there anything else that can be done to increase the chances of hiring the right person for the right job?

Review probation arrangements:  If there is a probation clause in your organisation’s current standard terms of employment, check that it aligns with the upcoming changes.  Consider reducing six month probation periods to ensure final decisions on continuing a new starter’s employment are taken comfortably within the new six month timeframe for unfair dismissal rights. If there is no probation period, consider introducing one, with a clear timeframe for review at one or more mid points. Going forward, it is essential to ensure that there are proper reviews of performance during and at the end of probation.  Dates for review should be in the responsible manager’s diary as well as HR’s so that passing probation is always and conscious decision by the business, not a default.

Review the current workforce:  are there any performance concerns amongst employees who currently have less than two years’ service? Speak with line managers to identify any who are not currently meeting the required standards and draw up performance improvement plans with a view to either achieving the required standards or exiting before the end of the year. It is anticipated (but not yet confirmed) that the current provisions of the Employment Rights Act 1996 relating to the calculation of a dismissed employee’s qualifying period of service will apply to all employees affected by the transition on 1 January 2027. Where an employee is terminated with no notice or less than statutory minimum notice (one week for those with less than two years’ service) the effective date of termination for the purposes of assessing whether they have the necessary service to bring a claim of unfair dismissal is met will be calculated by “adding on” any unworked statutory notice.

To illustrate:

An employee who commenced work on 1 June 2026 fails probation and his employment is terminated with immediate effect, with payment in lieu of notice on 29 December 2026.  The employment is ended on 29 December 2026, however under section 97 of the Employment Rights Act the effective date of termination will be 7 days later, 5 January 2026 and they will have the right to claim unfair dismissal.

Training for line managers:  HR practitioners will be well used to the scenario of managers coming for help with dismissing an employee very shortly before (or shortly after) they have gained sufficient service to claim unfair dismissal. Often the manager will state that there have been problems and concerns with the individual almost from the time they started employment but can point to very little in the way of evidence that these concerns have been raised with the employee. Currently these scenarios often end with an off the record conversation and a settlement agreement.

Fairness to staff has always meant they should be told as soon as issues with their performance or conduct are identified and early intervention increases the chances of them turning things around. Removal of the cap on unfair dismissal means that failing to address issues promptly, with an appropriate evidence trail will make it much harder agree severance for a commercially acceptable figure. As well as understanding the changes to the law, all line managers need to be trained and supported to have the “difficult conversations” promptly and keep appropriate records. Linking good practice behaviours to managers’ individual performance and discretionary pay may be a useful tool to embed best practice.

How can Greenwoods help?

Our experienced employment law team would be pleased to provide further advice and support, including reviewing and updating standard contract terms, and delivering practical training for managers to help them understand and respond confidently to the changes.