Is your business ready for the change to unfair dismissal legislation?
The biggest change to unfair dismissal law in decades is fast approaching, and many small businesses are still unaware of what it could mean for them.
From January 2027, employees are expected to gain the right to claim ordinary unfair dismissal after just six months’ continuous service, rather than the current two-year qualifying period. Alongside this, the statutory cap on unfair dismissal compensation is also expected to be removed, significantly increasing the potential financial exposure for employers.
Although the changes are not yet in force, businesses should be preparing now. One of the biggest areas of impact will be probation periods. Many employers currently operate six-month probationary periods, relying on the existing two-year qualifying period to address performance or conduct issues after probation has ended. That approach is unlikely to provide the same level of protection once the new legislation takes effect.
Employers should now be reviewing whether their probation periods remain appropriate and, more importantly, whether managers are actively monitoring performance from day one. Waiting until the end of a probationary period to address concerns could leave businesses with far fewer options than they have today.
The changes also place greater emphasis on good people management. Managers should be holding regular probation review meetings, setting clear expectations, documenting concerns and addressing issues promptly rather than allowing them to drift.
Recruitment will also become increasingly important. Taking the time to recruit the right individual, carrying out robust interviews and ensuring suitable references are obtained may reduce the likelihood of performance issues arising later.
Whilst employers will still be able to dismiss employees where there is a fair reason, they will need to demonstrate that they have followed a fair and reasonable process. This means performance management, disciplinary procedures and probation reviews will become even more important than they are today.
For many SMEs, the greatest risk will not be the legislation itself, but relying on outdated contracts, inconsistent procedures or managers who lack the confidence to deal with issues early.
The message is clear. Don’t wait until January 2027 to review your contracts, probation arrangements and management practices. Preparing now will place your business in a much stronger position when the new rules come into effect.
If you have any concerns about this subject contact us at enquiries@121hrsolutions.co.uk and we can discuss.
0800 9995 121 
enquiries@121hrsolutions.co.uk
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