CHANGES TO UNFAIR DISMISSAL RULES IN GREAT BRITAIN

The most significant changes all employers should be planning for are the changes to the unfair dismissal rules, which will dramatically alter the landscape for tribunal claims.

In simple terms, “Employers need to understand the current rules, what is changing and plan how best to protect their businesses.”

The current rules

The basics are that:

• The time limit for bringing a claim is three months less one day from the effective date of dismissal.

  
  

• Employees need to have two years’ service to bring an ordinary unfair dismissal claim.

  
  

• The maximum award for financial loss (“Compensatory Award”) is capped at the lesser of 52 weeks’ pay or the maximum statutory limit, which is currently £123,543.

How will the unfair dismissal rules change?

Employers will need to prepare for following reforms:

• Time limits for bringing a claim will increase: Employees will have a further three months to bring a claim as the time limit will increase to six months. The implementation date for this change is 01 October 2026 (and 09 November 2026 for breach of contract claims in Scotland). This change will undoubtedly create uncertainty for businesses as claims may be made many months after an employee has departed. However, this longer timeframe may provide for more time to explore settlement and avoid the need for a claim.

  
  

• Length of service requirement to be reduced: Employees will only need six months’ service to bring an unfair dismissal claim; the current time limit is two years’ service. This change will apply to any dismissal where the termination date falls on or after 01 January 2027. Employers need to be aware that the clock in relation to securing six months’ service does not start ticking on 01 January 2027. Those whose employment started on 01 July 2026 will have unfair dismissal protection as of 01 January 2027. Millions more employees will have protection, which may to lead to more claims.

  
  

• Compensation awards will increase: Both the weekly and numerical cap on the Compensatory Award will be removed. The removal of the cap creates a myriad of issues, including more claims (particularly from higher earners and those with limited redeployment opportunities), protracted negotiations due to high value claims and complex remedies hearings.

How to create your response plan

The changes mean increased legal, financial and reputational risk. Without a response plan, the journey over the next few years is likely to be very bumpy and potentially costly.

The following are the key activities your business should be focusing on to protect against the changes:

• Review and update contracts, policies and procedures:  The focus should be on the probationary period as a six-month period may no longer be appropriate. Probationary period reviews and dismissals will need to be completed much earlier and in good time before the six month qualifying period lapses.

  
  

• Enhance probationary management: A robust probation process  should be introduced and made mandatory. The process should include regular review meetings, clear performance objectives, timely feedback, and proper record-keeping. Given the risk of high value claims, senior executives should be included in this process.

  
  

• Upskill managers: Managers should be trained on effective probation management and the importance of addressing performance issues early. This includes setting clear objectives, providing feedback, and documenting performance shortcomings.

  
  

• Plan for senior exits: Employers should evaluate how senior-level dismissals will be managed, including whether to negotiate exits or implement shorter performance management processes for senior employees. This may involve framing dismissals as "some other substantial reason" (“SOSR”) where appropriate.

• Mitigation strategies: In cases where high-value unfair dismissal claims are anticipated, employers should gather evidence of mitigation, such as job advertisements or recruitment consultant statements, to reduce potential compensation awards.

  
  

• Prepare for increased litigation: Employers should anticipate a rise in employment tribunal claims and ensure they have adequate resources and legal strategies in place to manage this increased risk.

Proactive management of these areas will allow a business to navigate the forthcoming changes and minimise potential liabilities under the new unfair dismissal rules.

FG Solicitors Employment Team can help you prepare for these changes and the Employment Rights Act 2025 in general. We can create more certainty and help you manage the legal risks with our business focused impact assessment, policy and contracts review, manager training and assistance with disputes.

Contact FG Solicitors today on 08081 729 322 or complete our quick contact form for a no obligation discussion!

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  This update is for general guidance only and advice should be taken in relation to a particular set of circumstances.