Unfair Dismissal Law Changes 2027: What Employers Need to Know

From 1 January 2027, the qualifying period for an employee to bring an unfair dismissal claim will fall from two years to just six months. On the same day, the cap on compensation for successful claims disappears entirely. Together, these are the two biggest changes to unfair dismissal law in a generation, and many employers are not yet aware of either one.

This matters because so much current employment practice, from probation length to how quickly a dismissal decision gets made, is built around the old two-year window. That window is closing. Employers who don’t update their contracts, probation policies and internal processes before 1 January 2027 risk finding out the hard way that the rules have changed.

What is changing with unfair dismissal claims from January 2027?

Two things change on the same day.

First, the qualifying period for unfair dismissal protection reduces from two years to six months. Employees will be able to bring a claim far earlier in their employment than most employers currently expect, and, as set out below, this applies to staff already on your books, not just people you hire after the change takes effect.

Second, the cap on compensation for successful claims is abolished. Awards will move to reflect an employee’s actual financial loss, in line with how discrimination claims are already assessed, rather than being capped at a fixed ceiling.

Where does this change actually come from?

This isn’t a rumour or an early proposal. The reforms are set out in the Employment Rights Act 2025, and the government’s own guidance confirms both headline changes in plain terms: from 1 January 2027, “employees will have the right to claim unfair dismissal after 6 months of being in a job, instead of 2 years”, and “the limit on compensation for unfair dismissal will be removed”, according to Acas and the government’s own employer guidance on the changes.

Employees who already have six months’ service when the change takes effect gain protection immediately, rather than having to wait for it, and there’s no separate transitional period that only applies to new hires.

We’ve read through the underlying legislation and official guidance so you don’t have to. 

Why could the new 6-month rule catch employers out?

Most employers currently work on the assumption that dismissing someone within their first two years carries minimal risk of an unfair dismissal claim. That assumption is built into everyday practice: probation periods are commonly set at six months, or a three-month probation is extended to six, on the understanding that there is still plenty of runway before any real risk arises.

From 2027, that runway disappears. An employee who has been with you for six months and one day will have full unfair dismissal protection, in exactly the same way a two-year employee does today. Employers who don’t update this thinking risk two specific mistakes: dismissing someone after the six-month mark while still believing they’re in a low-risk window, or missing the practical deadline to serve notice and complete a dismissal before that window closes.

If your current probation and performance-management process wasn’t designed with a six-month cut-off in mind, it’s worth having someone check it before the rules change. 

Does this apply to employees I already have, or only new starters from 2027?

It applies to your existing team too, not just people you hire from 1 January 2027 onwards. Employees who already have six months’ service on the day the law changes gain unfair dismissal protection immediately. There’s no separate transitional period that only affects new hires.

In practice, this means every employee currently approaching, at, or past the six-month mark in their employment will be covered from 1 January 2027, regardless of when they started. If your workforce includes people who joined in the second half of 2026, they are the group most likely to be affected first.

How could the unfair dismissal time limit cost you money?

If employers don’t update their knowledge and practices, they may dismiss employees after six months while wrongly believing they are still protected from claims. That misunderstanding alone could lead to unexpected and expensive unfair dismissal claims.

Combined with the removal of the compensation cap, the financial exposure changes considerably. Under the current rules, an unfair dismissal award is capped at 52 weeks’ gross pay, up to a maximum of £123,543, however high the employee’s actual loss. From 2027, that ceiling is gone.

Consider a senior employee in their late 50s earning £150,000 a year. With no cap in place, if that employee can show losses of around two years’ pay (for example, because finding comparable work at their age and salary level has proved difficult), an employer could be facing a bill in the region of £300,000 for a single claim. Deductions for contributory fault can still reduce an award, but the starting point for calculating loss is no longer capped.

Two changes, landing on the same day: a shorter qualifying period and no ceiling on what a claim can cost. For a smaller business, either one is a serious risk. Together, they could be enough to threaten the business itself.

For businesses with several long-serving or senior employees, it’s worth understanding your specific exposure rather than working from a general estimate.

Is there a deadline before 1 January 2027 that employers should know about?

Yes, and it’s easy to miss. Because statutory notice periods can push a termination date beyond the date it was actually decided, a dismissal started in late December 2026 could have an effective termination date that falls after 1 January 2027, once notice is worked through. That creates genuine uncertainty about which rules, and which compensation cap, would apply to that dismissal.

This is a known drafting quirk in the transition, and the safest course is to complete any dismissals you’re already planning by mid-to-late December 2026, to avoid the ambiguity altogether. If you have a dismissal in progress or under consideration for the second half of 2026, this is worth checking now rather than in December.

What should employers do now?

Relying on outdated probation periods or contract terms leaves a business exposed to legal, financial and reputational risk. To avoid being caught out, employers should:

• Review and update contracts of employment and offer letters to reflect the new rules. [We can review your standard contracts and offer letters for you](#TODO: link to contract review service page).
• Reconsider the length and terms of probation periods across the business, given that six months is no longer a safe assumption.
• Map any dismissals currently planned for late 2026 against the mid-to-late December cut-off described above.
• Seek legal advice before dismissing anyone, even within the first six months, given how quickly the risk profile is about to change.

Frequently asked questions:

When does the unfair dismissal qualifying period change to six months?

The change takes effect on 1 January 2027, under the Employment Rights Act 2025. From that date, employees will only need six months’ service to bring an unfair dismissal claim, down from the current two years.

Is the compensation cap on unfair dismissal claims being removed too?

Yes. The cap on unfair dismissal compensation, currently 52 weeks’ gross pay up to a maximum of £123,543, is abolished on the same day the qualifying period changes. Awards will instead reflect an employee’s actual financial loss, in line with how discrimination claims are already assessed.

Does the new rule apply to employees I’ve already got, or only people I hire after 2027?

It applies to your existing employees too. Anyone with six months’ service on 1 January 2027 gains unfair dismissal protection immediately, whenever they actually started working for you.

How much could an uncapped unfair dismissal claim cost my business?

It depends entirely on the employee’s pay and their losses. As an illustration, a senior employee earning £150,000 a year who struggles to find comparable work could potentially claim around two years’ pay, putting a business’s exposure in the region of £300,000 for a single claim.

Should I change my staff probation periods before January 2027?

It’s worth reviewing them now rather than waiting. Many employers set probation at six months on the assumption they have plenty of time before any real risk arises. From 2027, that assumption no longer holds, so the length and terms of your probation periods are worth revisiting with proper advice.

Do I need to update my employment contracts before the new unfair dismissal rules apply?

Yes, we’d recommend it. Contracts of employment and offer letters that were drafted around the old two-year qualifying period may no longer reflect the risk employers are actually carrying from 1 January 2027.

Is there a deadline in 2026 I need to hit before the new law starts?

If you have a dismissal already planned, aim to complete it by mid-to-late December 2026. Statutory notice can push the effective termination date into January 2027, which creates uncertainty over which rules apply.

What should I do if I need to dismiss someone within their first six months?

Seek legal advice before acting, even though the employee falls within what used to be considered a low-risk period. Once the new rules are in force, six months’ service will be enough to bring a claim. Get advice before you act.

How PB Law can help employers

To protect your business, call us or email to speak to our experienced employment law solicitors. We’ll help you identify areas of risk and make sure your employment practices are ready before 1 January 2027.

This article is provided for general information only and does not constitute legal advice. Employers should seek advice specific to their circumstances before making changes to contracts or dismissal processes.