Unfair Dismissal From Six Months: How to Prepare Before January 2027

What changes in 2027 and why SMEs need to act early

The headline change is straightforward: the unfair dismissal two years to six months rule means employees may qualify much sooner than they do now. For small businesses, that shortens the window for making mistakes with performance, conduct, capability and redundancy decisions.

The planned changes also remove the compensation cap in unfair dismissal claims, which can make the financial exposure much higher. Read the wider context in our guide to the Employment Rights Act 2025 changes for small businesses, then start reviewing where your current processes would need to be tighter.

The move from unfair dismissal two years to six months

At present, most employees need two years’ service before they can bring a standard unfair dismissal claim. From January 2027, that is expected to fall to six months for many cases. For employers, that is a major shift in how quickly risk builds up after a hire.

This does not mean you cannot dismiss someone within six months. It means the decision, process and evidence behind it need to be much more robust. The earlier you spot a performance or conduct issue, the easier it is to handle it fairly and consistently.

• Review how quickly managers escalate concerns.
• Make sure performance meetings are recorded.
• Use clear evidence rather than informal assumptions.

What the compensation cap change means for employers

Alongside the qualifying period change, the planned removal of the compensation cap means awards could be higher than under the current rules. That does not mean every claim will be expensive, but it does mean the downside of poor process becomes more serious.

For SMEs, this is another reason to tighten the basics now: clear contracts, fair warning stages, well-documented meetings and consistent decision-making. If you are already thinking about wider people-risk planning, it may be sensible to explore outsourced HR support for growing businesses before the deadline arrives.

Which employees are affected and why existing staff matter

One of the easiest mistakes is assuming the new rule only applies to people hired after January 2027. In practice, some employees already on your payroll may be covered as soon as the law changes, depending on when they were hired and how the transitional rules are written.

That is why businesses need to review current headcount now. If someone was hired before July 2026, they may be in scope on day one, which means your assumptions about who is ‘safe’ under the old two-year rule may no longer hold.

Why probation period unfair dismissal rules are not a safe shortcut

Probation is useful, but it is not a legal shield. A long probation period does not remove the need for a fair process, and a short probation period does not remove tribunal risk if you act carelessly. The phrase probation period unfair dismissal can be misleading if managers think probation automatically solves the problem.

Instead, probation should be backed by a proper process: expectations set in writing, review points scheduled, concerns raised promptly, and extension or exit decisions recorded carefully. If you also want to sense-check whether your business is set up with enough HR structure, this practical guide on whether small businesses need HR is a useful place to start.

• Set review dates before the employee starts.
• Use consistent probation forms across teams.
• Do not wait until the last day to raise concerns.

How to review probation letters, offer letters and contracts

Now is the right time to check whether your templates still match the way you actually manage people. Offer letters, probation letters and contracts should all align on notice periods, review points, extension rights and the process for ending employment.

If those documents are vague or outdated, managers end up improvising. That creates inconsistency, which is exactly where claims become harder to defend. A clean set of documents helps everyone understand the steps before a problem starts, not after it has escalated.

• Check probation length and extension wording.
• Make sure notice terms are clear and consistent.
• Remove any old references that no longer reflect practice.

Where performance management and documentation matter most

The new regime will make evidence much more important. That means your notes from 1:1s, review meetings, attendance discussions and disciplinary steps need to be factual, dated and easy to follow. If a manager would struggle to explain the decision six months later, the file probably needs work now.

Small businesses often lose confidence when decisions are left to memory or chat messages. To reduce that, create a simple process for recording concerns, agreeing actions and checking follow-up dates. For many SMEs, the easiest way to build that consistency is with practical HR services that fit a growing team rather than trying to build everything from scratch.

Common mistakes small businesses may make before the law changes

The most common mistake is relying on the old two-year rule and assuming there is still plenty of time. That mindset can leave contracts, probation and manager training unchanged until it is too late.

Another common error is treating probation as if it overrides employment law. It does not. If the new rules apply to staff already in post, dismissals that once felt low-risk may need a much more careful approach. A useful next read is our overview of the ‘all reasonable steps’ harassment duty, because it shows how quickly documentation and manager behaviour can affect risk.

• Leaving template updates until late 2026.
• Letting managers handle exits differently in each team.
• Failing to train line managers on fair process.

A practical preparation checklist for January 2027

The best preparation is a simple, structured review. Start by auditing current employees, checking hire dates and identifying anyone who may be affected by the new six-month threshold. Then review every template and process that touches hiring, probation, performance, conduct and dismissal.

After that, make sure managers know what has changed and what evidence they need to keep. Even a short training session can reduce risk if it focuses on real scenarios. If you are unsure where to begin, an outsourced HR review can help you prioritise the biggest exposure first.

• Audit current employees and start dates.
• Update offer letters, probation letters and contracts.
• Train managers on early intervention and record keeping.
• Tighten capability, conduct and absence procedures.
• Plan a January 2027 policy refresh now, not later.

When to get help from an outsourced HR specialist

If you do not have an in-house HR team, or your people processes have grown patchy as the business has expanded, this is a sensible point to get support. The unfair dismissal changes 2027 will affect policies, day-to-day management and tribunal risk, so a quick document update is usually not enough.

Flora HR can help you review your contracts, probation process, manager guidance and dismissal paperwork so your business is better prepared before January 2027. If you want support that is practical, plain-English and tailored to SMEs, contact Flora HR to talk through the next steps.