UNFAIR DISMISSAL: RISING TRIBUNAL AWARDS, AN INCREASE IN CLAIMS AND THE MAJOR REFORMS COMING IN 2027

Unfair dismissal law in the UK is undergoing some of the most significant changes in decades. Employers are facing higher financial exposure from April 2026 and greater litigation risk, coupled with a complete overhaul of qualifying periods and compensation caps from January 2027. These changes sit within the context that tribunal claims are on a steady increase.

The Current Unfair Dismissal Framework and Major Reforms

The following is a summary of the current position and the changes:

1. Employment Tribunal Time Limits

A claim for unfair dismissal has to be brought within three months (less one day) from the date of dismissal.

• Major Reform: Longer Time Limit to Bring a Claim

  
  

The time limit for making a claim to the employment tribunal will increase to 6 months for all claims. This will create more uncertainty for employers and also require records to be retained for longer to ensure that evidence is available if a claim is brought.

• Effective From: October 2026

2.   Qualifying Periods

Employees currently need two years of continuous service to qualify for ordinary unfair dismissal protection.

• Major Reform: Qualifying Period Cut to Six Months

  
  

The qualifying period for ordinary unfair dismissal will reduce from two years to six months:

• Employees with six months’ service on 1 January 2027 gain immediate protection.

  
  

• Those with less than six months’ service will gain protection as soon as they reach six months.

  
  

This change will significantly increase the number of employees eligible to bring claims.

• Effective From:  January 2027

3.   Compensatory Award

In successful cases, compensation is awarded in two parts: 

• A basic award which compensates for loss of employment (the value is linked to age, service and a capped weekly pay limit); and

• A compensatory award that compensates for financial loss, which is subject to a statutory maximum limit (from April 2026 this limit increases to £123,543 from £118,223).

• Major Reform:  Removal of the Compensatory Award Cap

  
  

  The statutory cap on compensatory awards for unfair dismissal is to be abolished. Compensation will no longer be limited to 52 weeks' pay or the statutory maximum limit. Unfair dismissal awards will align with discrimination and automatic unfair dismissal cases in having no upper financial limit. The removal of the cap will mean higher settlement values, increased exposure to the employment tribunals and greater emphasis on robust HR processes.

• Effective From: January 2027

What Employers Should Do Now?

These changes substantially elevate both legal and financial risks. Employers will need to review contracts of employment, probation and early-performance procedures and document retention practices. Managers will need to be ready for the change with performance management being integral to their duties. The key to minimising the risks created by this employee-protective framework will be strict adherence to legally compliant policies and procedures, supported by managers trained in performance management and unfair dismissal rights.

At FG Solicitors we are experts in helping our clients to prepare their businesses for legal and financial changes to ensure they have better control over both their employees and finances, including reviewing probation and performance management procedures, auditing contracts of employment, providing training on unfair dismissal, managing poor performance and document retention practices.

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.