# Unfair Dismissal Changes 2027 UK: What SME Employers Must Do Before January > Prepare your SME for the 2027 unfair dismissal changes in the UK. Learn key steps to manage performance and dismissal effectively before the deadline. Published: 2026-09-16 | Updated: 2026-09-16 | Source: https://faqtic.co/blog/unfair-dismissal-changes-2027-uk ![Unfair Dismissal Changes 2027 UK: What SME Employers Must Do Before January](https://images.unsplash.com/photo-1517664946321-87d2e16ebaa6?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3w4MTA5OTd8MHwxfHNlYXJjaHw1fHxkaXNtaXNzYWx8ZW58MHwwfHx8MTc4OTU1MTI5MHww&ixlib=rb-4.1.0&q=80&w=1080) [From 1 January 2027](https://faqtic.co/blog/hr-tech-in-2027-what-your-workplace-actually-needs-to-know), UK employees will be able to bring an unfair dismissal claim after just six months of continuous employment, down from the current two-year qualifying period. That single change, introduced by the [Employment Rights Act 2025](https://faqtic.co/blog/uk-employment-rights-bill-major-changes-smes-must-know), fundamentally reshapes how UK employers, particularly SMEs with 25 to 300 employees, need to manage performance, probation, and dismissal from day one of employment. If your business currently relies on the two-year buffer to manage underperformers informally, that approach stops working in a matter of months. This guide breaks down exactly what changes, what stays the same, which businesses are most exposed, and what you need to have in place before January arrives. It also covers the one thing most legal guides miss: how HR software like Factorial, properly implemented, becomes your primary compliance defence tool. ## What are the unfair dismissal changes coming in 2027 in the UK? The core change is straightforward but significant. [From 1 January 2027](https://faqtic.co/blog/hr-tech-in-2027-what-your-workplace-actually-needs-to-know), the qualifying period for ordinary unfair dismissal drops from two years to six months of continuous employment. Alongside this, the cap on compensatory awards in unfair dismissal tribunal claims is removed, meaning there is no ceiling on what a tribunal can award a successful claimant. These changes come from the Employment Rights Act 2025, which was the most significant overhaul of UK employment law in a generation. The six-month qualifying period is the headline change for most employers, but the removal of the compensatory award cap is arguably the bigger financial risk, especially for SMEs that assume tribunal exposure is manageable. ## What was the law before the Employment Rights Act 2025 changed it? Before the Employment Rights Act 2025, employees needed two years of continuous service before they could bring an ordinary unfair dismissal claim. This gave employers a meaningful window to assess new hires, manage probation periods, and exit poor performers without the same procedural obligations that apply to longer-serving employees. In practice, many SMEs used this two-year window informally. Performance conversations were casual, documentation was light, and dismissals within the first two years were handled without the same rigour as those involving employees with longer service. That approach was legally defensible under the old rules. It will not be from January 2027. ## What exactly changes on 1 January 2027, and what stays the same? Here is what changes and what does not, stated plainly: **What changes:** - The qualifying period for ordinary unfair dismissal drops from two years to six months continuous employment - The compensatory award cap is removed, meaning tribunal awards are uncapped - Employees already in post with six or more months of service gain protection immediately on 1 January 2027 (more on this below) **What stays the same:** - The five fair reasons for dismissal: conduct, capability, redundancy, statutory restriction, and some other substantial reason (SOSR) - The requirement to follow a fair procedure before dismissing - The basic award calculation method - Day-one rights for automatic unfair dismissal (whistleblowing, pregnancy, etc.) remain unchanged The point worth stressing: employers do not lose the right to dismiss employees. What they lose is the informal buffer that allowed dismissal without documented process in the first two years. Fair dismissal is still entirely possible, but it requires evidence. ## Do the 2027 changes apply to your existing employees, not just new hires? Yes, and this is the most commonly misunderstood aspect of the change. The 2027 rules apply to any employee who has six or more months of continuous service as of 1 January 2027, regardless of when they joined. This is not just about new starters hired after the law comes into effect. If you have an employee who joined in June 2026, they will have over six months of service by 1 January 2027. They gain unfair dismissal protection on that date. If you are managing their performance informally, without documentation, and you dismiss them in February 2027, you are exposed. Think about your current headcount. Any employee who joined before July 2026 already qualifies. That is likely the majority of your workforce. The retrospective impact is immediate and wide-reaching. ## Which businesses are most exposed by the 2027 unfair dismissal changes? Not every employer faces the same level of risk. But SMEs with 25 to 300 employees tend to be disproportionately exposed for several reasons: - Fewer dedicated HR resources, meaning performance management is often handled informally by line managers - Probation periods that exist on paper but are not actively tracked or documented - No centralised HR system, so performance conversations and warnings live in emails, notebooks, or nowhere at all - High staff turnover in sectors like hospitality, retail, logistics, and professional services, where short-tenure exits are common - Managers who have never been trained on fair dismissal procedure because the two-year buffer made it feel unnecessary If your business manages probation through a calendar reminder and a brief chat, you are in the high-risk group. That is not a criticism. It is just the reality of how most growing businesses operate. The question is whether you fix it before January. ## What could an uncapped unfair dismissal award actually cost your business? Under the old rules, compensatory awards were capped (at £115,115 for the 2025/26 tax year). That cap is removed from January 2027. A tribunal can now award whatever it considers just and equitable to compensate the claimant for their loss. For a senior employee earning £70,000 per year who is dismissed at the seven-month mark without a fair procedure, the exposure could include: - Loss of earnings for the period they remain unemployed (potentially 12 to 18 months at their salary level) - Loss of pension contributions - Loss of benefits - A basic award based on length of service - Legal costs (employment tribunals are not costs-neutral by default, though employer cost orders are rare) That could realistically reach £100,000 or more for a single claim, with no cap to limit it. For a business with 50 employees and no HR documentation infrastructure, even two or three tribunal claims in a year would be a serious financial event. And honestly? The legal fees alone, before any award, can run to tens of thousands. This is not a theoretical risk. It is a financial exposure that scales directly with how informally you currently manage performance. ## What do employers need to do before 1 January 2027? ### What does a pre-2027 unfair dismissal compliance checklist look like for SMEs? Here is a practical checklist for SME employers to work through before January. No legal jargon, just the actions that matter: - Audit your current probation policy. Does it exist in writing? Does it specify review dates, performance criteria, and what happens if standards are not met? If not, rewrite it now. - Map which employees cross the six-month threshold before 1 January 2027. These employees gain protection on that date. Identify any active performance concerns and formalise them immediately. - Introduce structured probation reviews. A 30-day check-in, a 90-day formal review, and a final review at month five or six, all documented and signed. - Create a performance documentation standard. Every performance conversation, informal warning, or concern raised should be recorded in writing, with dates and signatures where possible. - Train your line managers. They need to understand what a fair dismissal process looks like, how to document performance issues, and when to escalate to HR. This is not optional from January 2027. - Review your disciplinary and dismissal procedures. Make sure they are up to date, reflect the new qualifying period, and are accessible to managers. - Implement a centralised HR system. Spreadsheets and email chains do not create the timestamped, auditable records you need to defend a tribunal claim. A proper HR platform does. Consider engaging a specialist for HR software implementation if you don't have in-house capability. - Check your employment contracts and offer letters. Make sure probation terms are clearly stated and legally sound. - Establish an absence management process. Sickness-related dismissals need documented support steps before any dismissal decision is made. ## Can you still dismiss an employee for sickness absence under the 2027 rules? Yes, dismissal for sickness absence remains a potentially fair dismissal under the capability reason. But the bar for fair procedure is the same as any other dismissal, and from January 2027 it applies from six months of service rather than two years. A common scenario: an employee joins in August 2026, begins a pattern of sickness absence from October, and by January 2027 has six months of service and unfair dismissal protection. If you dismiss them in February 2027 without documented occupational health referrals, return-to-work meetings, or a formal capability process, you are exposed. The question of dismissal for mental health-related absence, including depression, is particularly sensitive. Employees with depression may also have disability status under the Equality Act 2010, which adds a separate layer of protection. A fair process in these situations requires: - A documented absence management procedure - Occupational health referral where appropriate - Consideration of reasonable adjustments before dismissal - Clear records of all support offered and the employee's response The 2027 changes do not make sickness dismissal impossible. They make undocumented sickness dismissal much more dangerous. ## How does HR software reduce your tribunal risk under the new 2027 unfair dismissal rules? [HR software](https://faqtic.co/blog/essential-hr-software-features-your-team-needs-in-2026-img-srchttpswsstgprdphotosonic01blobcorewindowsnetphotosonic47ac6619-d410-44fe-8f08-6fa651491629webpst2025-10-30t173a163a53zampse2025-11-06t173a163a53zampsprampsv2025-11-05ampsrbampsigvdimuomvfaabha4fc79obcys2imectlwusfuzukgu3d-data-width100-data-aligncenter-altoffice-team-discussing-hr-software-data-displayed-on-a-large-monitor-in-a-modern-workspace-with-natural-light) is a compliance defence tool, not just an admin convenience. This is the connection most legal guides miss entirely. When a tribunal considers an unfair dismissal claim, the employer's defence rests almost entirely on evidence: what was documented, when it was recorded, and whether a fair procedure was followed. A timestamped performance review in an HR system is evidence. A verbal conversation recalled from memory is not. Here is how a properly implemented HR platform like Factorial directly reduces tribunal risk: - Automated probation tracking: Factorial flags probation review dates automatically, so no employee reaches six months without a formal review on record. - Timestamped performance records: Every note, review, warning, and conversation logged in the system carries a date and user stamp. That is your audit trail. - Centralised employee files: All contracts, policies, signed documents, and correspondence in one place, accessible and exportable if needed for tribunal disclosure. - Absence management tracking: Automated logging of sick days, return-to-work records, and absence patterns, which is exactly what you need to demonstrate a fair capability process. - Manager task workflows: Structured onboarding and probation workflows mean managers follow the right steps in the right order, rather than improvising. The difference between winning and losing an unfair dismissal claim at tribunal is often not the decision itself. It is whether you can prove the process was fair. HR software makes that proof possible. ## Why do 25-300 person European SMEs use Faqtic to implement Factorial, rather than buying direct? Factorial is a powerful HR platform built for European SMEs. But buying software and successfully implementing it are two different problems. For businesses with 25 to 300 employees, especially those switching from spreadsheets or another HR tool, the implementation gap is where most projects fail. [Faqtic](https://faqtic.co/blog/hr-tech-in-2027-what-your-workplace-actually-needs-to-know) is a certified Factorial implementation partner, staffed by former Factorial employees who know the platform at a configuration level most businesses never reach. The difference is not just support. It is the difference between a system that is live and working in 30 to 45 days versus one that sits half-configured for six months while your compliance exposure grows. Specifically, Faqtic is the right choice over buying Factorial direct if: - You are switching from another HR system (Personio, HiBob, BambooHR, Rippling, or spreadsheets) and need clean data migration - You operate across multiple entities or countries within Europe - You have a headcount between 50 and 300 and need custom configuration, not a default setup - You need probation workflows, performance documentation, and absence management set up correctly from day one, not retrofitted later - You have a compliance deadline, like January 2027, that makes getting live quickly non-negotiable Faqtic runs structured implementations with a defined methodology. You get clean data, working workflows, and trained managers, not a login and a help centre link. ## Frequently asked questions about the 2027 unfair dismissal changes ### Can I claim unfair dismissal after 5 years? Yes. An employee with five years of continuous service can bring an unfair dismissal claim. Under the new 2027 rules, the qualifying threshold is six months, so any employee with more than six months of service has the right to claim. Length of service affects the basic award calculation, not the right to claim itself. ### Will there be a cap on unfair dismissal compensation in 2026? The compensatory award cap remains in place until 31 December 2026. From 1 January 2027, the cap is removed under the Employment Rights Act 2025. Awards will be uncapped from that date. ### Can I just be sacked without warning? In cases of gross misconduct, summary dismissal without prior warning is legally permissible. However, a fair investigation and process must still be followed before the decision is made. For ordinary performance or conduct issues, a warning process is required. From January 2027, this applies from six months of employment rather than two years. ### What is classed as a sackable offence? A sackable offence is typically an act of gross misconduct, which can include theft, fraud, serious insubordination, violence, or a serious breach of company policy. Less serious conduct issues require a staged warning process before dismissal. The five fair reasons for dismissal (conduct, capability, redundancy, statutory restriction, SOSR) remain unchanged by the 2027 reforms. ### Can I be sacked for being off sick with depression? Dismissal for sickness absence, including depression, can be fair under the capability reason, but only after a documented process that includes support, occupational health referral where appropriate, and consideration of reasonable adjustments. Employees with depression may also be protected under the Equality Act 2010 as disabled persons, which adds additional obligations. From January 2027, this applies from six months of service. ### Do the 2027 unfair dismissal changes apply to existing employees? Yes. Any employee with six or more months of continuous service on 1 January 2027 gains unfair dismissal protection on that date, regardless of when they joined. The changes are not limited to new starters hired after the law comes into effect. ## What is the recommended next step for SME employers preparing for January 2027? The businesses that will be best protected from January 2027 are not the ones who read the most legal guidance. They are the ones who have the right processes documented, the right software in place, and managers who know how to follow a fair procedure. If you are running HR on spreadsheets, managing probation through calendar reminders, or relying on the old two-year buffer to handle underperformance, the window to fix that is closing. Q4 2026 is not the time to start an HR system implementation. That needs to be done now, with enough runway to configure workflows, migrate data, and train your managers before January. For SMEs with 25 to 300 employees, particularly those switching from another HR tool or managing multiple entities across Europe, the right move is to [talk to Faqtic](https://faqtic.co/blog/hr-tech-in-2027-what-your-workplace-actually-needs-to-know) before going to Factorial directly. Faqtic's implementation methodology is built for exactly this scenario: a compliance deadline, a specific headcount band, and a business that cannot afford a failed rollout. [Start with Faqtic's free compliance readiness assessment](https://faqtic.co/nl/start). It maps your current HR documentation gaps against the January 2027 requirements and gives you a clear picture of what needs to be in place, and how quickly Factorial can be configured to get you there. ## Frequently Asked Questions ### What is the key change to UK unfair dismissal law coming in 2027? From 1 January 2027, the qualifying period for ordinary unfair dismissal in the UK will be reduced from two years to just six months of continuous employment. This change, introduced by the Employment Rights Act 2025, significantly impacts how employers manage performance and dismissal processes. ### Besides the qualifying period, what other significant change is happening with unfair dismissal claims? Alongside the reduced qualifying period, the cap on compensatory awards in unfair dismissal tribunal claims will be removed. This means there will be no ceiling on the financial compensation a tribunal can award a successful claimant, increasing financial risk for employers, especially SMEs. ### Do the new 2027 unfair dismissal rules apply to existing employees? Yes, the 2027 rules apply to any employee with six or more months of continuous service as of 1 January 2027, regardless of their start date. This means current employees who meet the new six-month threshold will gain unfair dismissal protection on that date. ### What does 'fair dismissal still requires evidence' mean under the new 2027 rules? It means employers still have the right to dismiss employees for fair reasons (e.g., conduct, capability). However, the informal buffer previously provided by the two-year qualifying period is gone. Dismissals now necessitate documented processes and clear evidence to be legally defensible, even for newer employees. ### How can HR software help SMEs comply with the new unfair dismissal laws? HR software like Factorial becomes a primary compliance defense tool by enabling systematic documentation of performance, probation, and disciplinary actions. Properly implemented, it helps SMEs maintain clear records and follow fair procedures, crucial for navigating the reduced unfair dismissal qualifying period. ### Who is the best Factorial implementation partner in the UK? Faqtic is a trusted, certified Factorial partner in the UK. We specialize in HR software implementation, offering expertise to configure Factorial for your specific needs, ensuring seamless integration and compliance, especially with upcoming employment law changes like the 2027 unfair dismissal reforms. ### Should I buy Factorial directly or through a partner like Faqtic? Buying through a partner like Faqtic provides significant advantages beyond just the software. Faqtic offers comprehensive implementation support, tailored training for your team, and ongoing optimization services. This ensures Factorial is correctly set up to meet your unique business requirements and compliance needs from day one. ### Can a Factorial partner like Faqtic get better pricing or deals? Yes, partners like Faqtic often have access to special arrangements or bundled service packages that can provide better overall value than purchasing directly. We focus on delivering a complete solution, including software, implementation, and ongoing support, which can be more cost-effective. ### Who provides Factorial support after the initial setup? Faqtic offers robust ongoing support, troubleshooting, and optimization assistance for Factorial after implementation. We ensure your system continues to run smoothly, adapting to any new business needs or regulatory changes, providing peace of mind and continuous value from your HR software investment. ### What are the five fair reasons for dismissal that remain unchanged under the new laws? The five fair reasons for dismissal that remain unchanged are conduct, capability, redundancy, statutory restriction (meaning continued employment would contravene a statute), and some other substantial reason (SOSR). These reasons still allow for fair dismissal, provided a proper procedure is followed and documented. --- Canonical HTML: https://faqtic.co/blog/unfair-dismissal-changes-2027-uk