Think you can dismiss before two years? Not anymore!

If you run a business this one needs to be firmly on your radar 👀

From 1 January 2027, the qualifying service for ordinary unfair dismissal drops from two years to just six months, so essentially, for most of our clients, the usual probationary period.

And it applies immediately from that date. So if someone joined you before the law changes, they’re still covered once they hit that six month milestone.

Let me give you an example:

If someone starts on 1 July 2026 and you dismiss them on 1 January 2027, they can bring an unfair dismissal claim. Why? Because they’ve completed six months’ service on 31 December 2026.

That’s a massive shift for SMEs and not what we're used to!

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🚨 Your six month probation just got riskier

Many clients operate a six month probation period which is very sensible as it gives managers time to assess performance and behaviour properly. But from 2027, that six month probation will land exactly when unfair dismissal rights kick in. If you schedule a probation review at five and a half months and then the employee goes off sick you'd likely delay the meeting. However, by the time you finally conclude the process, they’ve crossed the six month threshold and now they’ve got ordinary unfair dismissal rights.

For smaller employers without in-house HR teams, that’s not just inconvenient. It’s exposure. And distraction. And cost.

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💷 The compensation cap is also going

From 1 January 2027, the cap on compensation for ordinary unfair dismissal will also be abolished. Currently, the compensatory award is capped at £118,223 or one year’s gross pay, whichever is lower and that cap is being removed.

In reality, most tribunal awards sit well below the current limit, so this won’t suddenly mean astronomical payouts in every case. But what it does do is remove certainty given that previously, you knew your maximum exposure. From 2027, that ceiling disappears. That may well influence expectations during settlement conversations. And for a business with 40, 80 or 150 employees, financial unpredictability is the last thing you need.

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⚖️ Important context

There are already many situations where employees can claim unfair dismissal from day one, and where compensation is uncapped. For example:

• discrimination
• whistleblowing
• exercising a statutory right
• raising health and safety concerns

Those rights aren’t changing as they’re already there. What is changing is that ordinary unfair dismissal becomes much easier to access.

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🫵🏼🫵🏼So what should you be doing now?

If you’re an SME, this is about tightening up your foundations, not panicking and this is our advice on where to focus.

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1️⃣ Rethink probation length

If you currently use a six month probation period, consider whether it still works in a post 2027 world as the closer your probation is to six months, the higher the risk that any delay tips someone into unfair dismissal territory.

A shorter probation reduces that risk. But don’t shorten it blindly.

Ask yourself honestly:

• Does this timeframe genuinely allow us to assess capability and behaviour properly?
• Are managers equipped to make confident decisions earlier?

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2️⃣ Strengthen probation processes

Probation isn’t just a date in a contract. It should be an active management process.

That means:

• Clear objectives from day one
• Regular documented check ins
• Honest conversations about gaps
• Proper notes

If you can’t evidence performance concerns, you’re exposed.

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3️⃣ Fix the front end of employment

If we’re honest, many SME headaches start before day one.

Review:

• Recruitment methods
• Interview quality
• Role clarity
• Induction and onboarding

Are you hiring the right people? Are you setting them up to succeed?

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This change isn’t about making employers’ lives harder, it's simply about raising the bar on management practice and actually, that’s no bad thing. With better recruitment, stronger onboarding, more confident managers and clearer documentation you'll protect your profit, culture and reputation.