Unfair Dismissal: Shorter Qualifying Period and Unlimited Compensation

From 1 January 2027, the qualifying period for unfair dismissal claims will reduce from two years to six months, and the statutory cap on compensatory awards will be completely removed. This represents a major shift that will significantly expand employee protections and increase potential employer liability.

The six-month qualifying period will apply to any case where the effective date of termination falls on or after 1 January 2027. The removal of the cap means there will no longer be any limit on compensation (currently capped at the lower of £123,543 or 52 weeks' pay), which particularly benefits high-earning employees.

Employers should urgently review their probation policies, as a standard six-month probation period will no longer provide protection from unfair dismissal claims. A three or four-month probation period is recommended to allow sufficient time for assessment and, if necessary, dismissal before unfair dismissal rights accrue.  Employers must also remember that the statutory minimum one-week notice period extends the effective date of termination for qualifying service purposes.

The government estimates these changes will protect a further 6.3 million employees and generate approximately 3,000 additional tribunal claims annually. Employers should ensure managers are trained on effective probation management, maintain detailed performance records, and consider whether to accelerate any planned dismissals before the January 2027 implementation date.