Dismissing employees is getting much more risky for business owners in the UK.
Recent changes in the law mean that you can’t just let someone go and assume that everything will be okay.
It’s easier (and therefore more likely) that an employee will claim that they were let go unfairly and the amount they can claim will be uncapped from January 2027.
Let’s look at what’s changing, how it affects you and what you need to do to keep your business safe.
What’s changing
Right now there’s a limit on what a tribunal can award in most unfair dismissal cases.
But, from January, there will be no compensation cap.
The qualifying period for unfair dismissal is also dropping to six months. If you hired someone on or after 1 July 2026, they’ll be able to claim for unfair dismissal once the rules change in January.
This rule change directly affects how you hire, how you run probation and how you handle any performance or conduct issues in the first 6 months of employment.
On top of that, The Fair Work Agency launched in April this year. This give employees another avenue to make a complaint and seek protection. The agency can also audit your records and processes without waiting for a worker complaint.
How the changes affect you
For small business owners, these changes mean that dismissal can no longer be a quick operational decision.
Before, the two-year qualifying period gave businesses a long runway for hiring and firing and made it easier to let someone go informally.
But with employees now gaining unfair dismissal protection after six months, even relatively new employees may be able to challenge how and why they were dismissed.
This directly impacts how you hire and onboard, how you handle probation and, of course, how you fire people and it matters now, since the 6-month qualifying period takes effect from 1 July 2026.
Because compensation will no longer be capped, the financial risk also becomes much higher.
That doesn’t mean you can never dismiss someone.
But you will need to show that you acted reasonably and followed a fair process.
Tribunals do not just look at what decision you made. They look closely at how you made it.
Common mistakes that create risk include:
- No clear probation process
- Poor or inconsistent performance documentation
- Vague feedback instead of direct conversations
- Dismissing someone suddenly after issues were never formally raised
- Different employees being treated differently for similar behaviour
- Managers making emotional or rushed decisions
- No written records of meetings or warnings
The real cost if you dismiss someone unfairly
You might only think about the legal payout when you think of costs involved, but a poorly handled dismissal can also lead to:
- Legal fees and HR consultancy costs
- Large amounts of management time spent gathering evidence and attending hearings
- Stress and disruption for managers and teams
- Lower morale among remaining employees
- Damage to your reputation as an employer
- Difficulty hiring and retaining good staff
In some cases, employers end up settling claims simply because they don’t have the documentation needed to defend themselves properly, even when they believe the dismissal was reasonable.
What you need to do now
The businesses most exposed to these changes are usually the ones with informal processes that have grown quickly.
Now is the time to tighten up the basics.
At minimum, you should review:
- Employment contracts and probation clauses
- Your disciplinary and grievance procedures
- How managers document performance concerns
- Whether probation reviews are actually happening
- How warnings and feedback are recorded
- Whether managers understand what a fair dismissal process looks like
You should also think carefully about how you handle the first six months of employment. That period matters far more now with anyone you hire from 1 July 2026.
Final thought
A good HR consultant reviews your dismissal process before you need it, not after. That means looking at your documentation, your investigation steps and your decision-making to identify where things would fail under scrutiny.
If you’re already in a situation, they help you to handle it without making it worse.
If you’ve dismissed someone recently, or are planning to, get in touch. We’ll tell you quickly whether your process is defensible and what to do if it isn’t.