11th June 2026 ❘

Unfair Dismissal Compensation Changes 2027: The Liability Risk Employers Need to Address

Professional reviewing employment law documents relating to unfair dismissal changes i

By Anna Lovett, Head of Employment.

From 1 January 2027, two significant changes to unfair dismissal law are expected to take effect at the same time:

  • The qualifying period for bringing an unfair dismissal claim will reduce from two years to six months.
  • The current statutory cap on compensation for unfair dismissal claims will be removed.

At present, even where an employer is unsuccessful in defending an unfair dismissal claim, compensation is subject to a statutory limit. From January 2027, that limit is expected to fall away, potentially increasing employers’ financial exposure significantly.

Why the 2027 Unfair Dismissal Changes Matter

For example, if a senior employee recruited this year is dismissed in early 2027 following a poorly managed performance process and subsequently struggles to secure a comparable role, a tribunal could award compensation reflecting a substantial period of lost earnings. For higher earners, this could result in awards well into six figures.

Many employers continue to manage dismissals and performance concerns in much the same way they always have, often relying on informal processes, limited documentation and the protection offered by the current two-year qualifying period.

That protection is expected to reduce considerably in just six months’ time.

What Employers Should Be Doing Now

The practical steps required are relatively straightforward. Employers should review whether they have disciplinary, capability and probationary procedures that are effective for employees with shorter service, ensure performance management processes create a clear contemporaneous record from an early stage of employment, and provide managers with training so they understand the changes and their implications.

Preparing for January 2027

With the anticipated implementation date drawing closer, now is a sensible time for employers to review their current procedures and identify any areas that may require updating.

Our Employment team can help employers prepare for these changes and review existing policies and processes. We even offer an Employment Rights Act Legal Support Package. If you would like further advice, please get in touch.