Qualifying service
It has been impossible to miss the news that the qualifying service requirement to raise an unfair dismissal claim is set to change. What started out as a proposal to remove the qualifying service requirement altogether ("day one unfair dismissal rights") has now changed to a reduction from two years to six months. The impact for employers is still significant, with many more employees being able to raise an unfair dismissal claim than is currently the case.
It has been stated in the House of Commons that the new six-month qualifying period will apply from 1 January 2027. It was also announced, at the same time, that the reduced qualifying period will apply to existing employees, as well as new starters. This means that employers will have to demonstrate fairness and procedural rigour when dismissing anyone with six months or more service as of 1 January 2027.
In practical terms, employers will have a considerably shorter period during which to assess an employee's suitability for their role. Employers should ensure that their recruitment practices are fit for purpose and that probationary period reviews fit into the new, shortened timeline.
It should be noted that these changes do not impact the limited number of unfair dismissal claims that can already be made without any service requirement, such as whistleblowing or health and safety-related dismissals.
Cap on compensation to be removed
The cap on compensation for unfair dismissal has changed significantly over the past 30 years. In 1996 it stood at £11,300. This was increased to £50,000 via the Employment Relations Act 1999. Since 2013, the cap has been the lower of a monetary cap (currently £118,223) or 52 weeks' pay. The exceptions are unfair dismissal claims arising from whistleblowing or raising certain health and safety concerns. Claims of that nature are already uncapped, as are discrimination claims.
The announcement of the removal of the cap on the compensatory award in unfair dismissal cases came as something of a surprise. Indeed, reports suggest that even those involved in the roundtable negotiations with the UK Government thought all that had been agreed to was the lifting of the 52-week cap, with further discussions to be had around the monetary cap.
It is not yet clear when the lifting of the cap will take place. It may coincide with the reduction in qualifying service from 1 January 2027, or it may be later that year, possibly on 6 April 2027 (6 April being the usual date when the cap on the level of compensation increases). There is a slight glimmer of hope for employers in that the UK Government has indicated that a pre-commencement impact assessment will be carried out prior to the cap being removed. It is unclear, though, whether that will have any bearing on the intent to remove the cap.
Consequences
It goes without saying that if more people have the right to claim unfair dismissal, we will see more claims being made. In addition, the removal of the compensatory cap will result in more claims being raised and, in certain high-value cases, cases taking considerably longer to hear than is currently the case.
This is against the backdrop of an employment tribunal system that is already struggling with its workload, especially in certain parts of England. The most recent figures from the employment tribunals show that in Quarter 2 of 2025/26 there were 26,000 new cases versus 10,000 cases disposed of. Combined with the many other rights being brought into effect over the next couple of years via the Employment Rights Act 2025, there is a significant concern as to whether the tribunal system can cope.
The most recent figures for employment tribunal compensation show that the average award for unfair dismissal was £13,749, and the median award was £6,746. The majority of claimants will therefore not be impacted by the cap being removed. However, the removal of the compensation cap will materially change the risk profile for organisations with higher earners. While an increased number of these higher-value claims may end up in tribunal, employers are more likely to feel the impact when attempting to negotiate exits. This, combined with the shortened qualifying service, is likely to cause a significant change in the way senior executive (or higher-paid) positions are terminated, with more focus on fairness and procedure and fewer quiet "taps on the shoulder" or "without prejudice" discussions.
Now is the time for employers to review probation, disciplinary, and dismissal procedures, strengthen recruitment practices, and prepare for the increased risk of litigation that will accompany these two key changes to unfair dismissal law.
We will discuss these important changes in our upcoming webinar, Changes to unfair dismissal law – managing the risk, on 19 February. This webinar is applicable to the law of Scotland, England, and Wales. Follow the link to sign up or to have the recording sent to you if you are unable to attend on the day.
