Unfair dismissal changes 2027: what businesses need to understand now

There have always been consequences for deploying Alan Sugar’s infamous catchphrase: “You’re fired!”

However, with unfair dismissal rules due to change in 2027, the phrase will carry even more risk for businesses.

Is your business prepared? Now is the time to start planning to avoid getting caught out further down the line.

To better understand the impact of the upcoming unfair dismissal changes, we’ve surveyed 500 SME HR leaders and 500 SME employees to gauge the general consensus.

Additionally,Dan Grace, Director of International HR Consulting at IRIS Software Group, joined HR Magazine in a recent lunchtime debate.

In this blog, we’ve analysed the key findings from our research and compiled Dan’s advice, providing you with the tools to safeguard your business.

How is unfair dismissal changing in 2027?

Under the Employment Rights Act 2025, from January 2027, the qualifying period for unfair dismissal claims will drop from two years to six months.

At the same time, the compensation cap will be removed entirely, increasing the potential financial risk for employers. 

Research overview: are businesses prepared for the 2027 unfair dismissal changes?  

Our research found that risk is rising, common practice is now under scrutiny and employer behaviour is being reshaped.

Below, we’ve pulled out the headline findings from our research, offering some commentary on the real-world implications.

Lack of awareness

We found that one in three HR leaders didn’t know the unfair dismissal qualifying period will reduce to six months.

Additionally, almost half (41.8%) were also unaware that the compensation cap will be removed entirely.

What does this mean for businesses? Well, many of the people responsible for dismissal decisions and risk management don’t fully understand the legislative changes coming their way.

Furthermore, the risk is not theoretical, with many dismissals already happening in the danger zone.

Almost three-quarters (72.4%) of businesses dismissed at least one employee between months 6–24 in the last three years, with an average of 2.32 dismissals in that window.

From 2027, these dismissals will all fall under the new rules, resulting in many businesses becoming legally vulnerable overnight once the changes come into force.

Further emphasising the potential danger, we found that 72.8% of employees believe their dismissal was unfair or unjustified, indicating a substantial risk for employers.  

Financial anxiety and dangerous complacency

Almost a quarter (23.8%) of HR leaders are extremely concerned that a single unfair dismissal claim could threaten business viability, while 15% say they are not concerned at all.

The split reveals uneven risk perception across businesses.

While some organisations clearly understand the exposure, others are potentially underestimating it.

The alarming nature of this underestimation becomes clear when you consider the employee perspective, with our research finding that:

• 70.7% of those who felt unfairly dismissed considered bringing a claim
• 16.7% wanted to claim but were blocked by the two‑year qualifying period
• 92.1% of those who considered but did not pursue a claim would be more likely to do so under the new six‑month rule

Misaligned probation periods

Our research revealed that the average probation length is 4.87 months.

Under the new rules, many employers will have weeks, not months, between probation ending and unfair dismissal rights kicking in. 

The threat here further intensifies as only 48% formally document performance concerns in the first six months, and 34.2% raise issues informally but never write them down.

Employment tribunals rely on evidence, not recollection, meaning many businesses are risking exposure.

The unforeseen impact

While the new law aims to improve fairness, there is a risk that it will incentivise defensive employer behaviour, with our survey finding that:

• 78.6% will be more cautious when hiring candidates with a patchy employment history

• 70.8% plan to make dismissal decisions earlier (before six months)
• 63% expect to use more fixed‑term contracts

How businesses can prepare for the 2027 unfair dismissal changes

During the HR magazine webinar, Dan covered the above research and advised what businesses should be doing now to reduce risk, repeatedly warning that many employers are significantly underestimating the impact of these changes.

The biggest risk is a lack of awareness

A consistent theme throughout the discussion was not confusion about the legislation itself, but a worrying gap in awareness and preparation among employers.

Dan explained that many organisations are still not fully grasping the scale of the reforms, stating: “We surveyed about 500 HR leaders, and about one in three of them are still saying they’re not really up to speed on what’s going on with UK employment law – this big, massive change is a once‑in‑a‑generation legislation change.

“It’ll be the leaders out there that aren’t getting in tune with this, aren’t coming to these types of webinars and aren’t reading up on it, that we’re really going to see these cases from.”

What the unfair dismissal changes actually mean in practice

Dan was clear that this fundamentally changes how employers must think about dismissals, stating: “As of January 2027, that two years is going down to six months for unfair dismissal protection, so people are getting those statutory rights much earlier.

“They’re now also going to get six months to bring employment tribunal claims, not three months – by doubling that time window, you’re doubling the risk exposure.

“The uncapped claim payout is also a huge change as we don’t know what it could be.”

These reforms mean unfair dismissal is no longer a contained or predictable risk, with it becoming a potentially open‑ended financial liability.

Worrying trends

Dan flagged a troubling behavioural trend: “We’re seeing some employers thinking about their workforce right now and wondering whether they need to make some more snap decisions. I can see why employers think that way, but I am worried about it.”

The message from Dan was clear: reacting defensively without fair processes may actually increase, not reduce, exposure under the unfair dismissal changes.

Fair processes are a non‑negotiable

Across the session, one principle underpinned Dan’s advice: following a fair and transparent process is the only sustainable approach.

However, during the webinar, attendees were asked about their current processes, with nearly half (44%) stating they’re not fully confident that their dismissals are fair.

Dan advised: “Following a fair process should absolutely be the standard.

“That means proper documentation, proper policies and proper manager training.

“We’re still seeing a lot of cases where managers are having verbal conversations to dismiss employees.

“This doesn’t stand up.”

Under the unfair dismissal 2027 changes, employers will need to evidence decisions clearly and consistently, regardless of length of service.

Train your managers

While policies and legal frameworks matter, Dan repeatedly returned to manager capability, saying: “Most of the claims we see are because managers have done something wrong.

“Train your people managers. That’s my number one tip. Give them the tools to properly document what’s going on as you need that audit trail.”

Without proper manager training, even well-intentioned businesses may struggle to defend unfair dismissal claims.

Strong recruitment processes matter more than ever

Under the unfair dismissal changes, employers have less time to assess suitability once someone joins.

As such, poor recruitment decisions quickly translate into legal, financial and reputational risks.

The pressure is on recruitment to ensure the right people are entering the business to avoid issues further down the line.

How skill‑based hiring can help

Skill‑based hiring is an extremely useful way to strengthen your recruitment processes.

The main difference when compared to traditional recruitment processes is that skill‑based hiring focuses on whether candidates can demonstrably perform the core tasks required for the role.

Practical examples of skill-based hiring include:

• Work‑based tasks or simulations
• Structured competency interviews
• Scenario‑based assessments
• Technical or functional testing aligned to the role

By assessing real capability from the very beginning, employers are less likely to find themselves managing performance issues weeks or months into employment.

Moving from reactive dismissals to proactive people management

For many employers, unfair dismissal has historically been treated as a downstream issue, addressed once problems escalated.

However, the upcoming unfair dismissal changes mean those snap decisions carry much higher consequences.

What this demands is a shift away from reactive dismissal decisions and towards proactive people management, where issues are:

1. Identified early
2. Managed consistently
3. Addressed through fair processes

Dan was clear that this is a cultural as much as an operational change, stressing: “Shift your culture from reactive dismissals to proactive management, and get ahead of these problems rather than just reacting once something’s gone wrong.”

Moving forward, performance management and solid documentation should no longer be ‘just another’ administrative process, but rather a core part of your risk reduction strategy.

Crucially, this shift must begin now.

Dan put it bluntly: “Start doing something now and get ahead of problems instead of reacting once something has gone wrong.”

Businesses that invest now in training managers, updating recruitment processes and developing fair, documented processes will be far better placed to navigate the 2027 changes.

The new rules of work: how April 2026 changes the way you hire, manage and retain your people

Unfair dismissal isn’t the only thing changing.

The Employment Rights Act 2025 is the biggest overhaul of UK employment law in a generation, and the first major wave of changes landed on 6 April 2026.

While everyone else is talking about the compliance checklist, we wanted to go further.

In our free, practical session, we explored what these changes actually mean for how you:

• Attract candidates
• Structure your rewards
• Support your employees
• Manage risk