January 2027 is closer than you think: Preparing your business for the biggest changes to unfair dismissal in a generation
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January 2027 is closer than you think: Preparing your business for the biggest changes to unfair dismissal in a generation

  • Writer: Christopher Eddison-Cogan
    Christopher Eddison-Cogan
  • 1 day ago
  • 13 min read

Most employment procedures evolve gradually rather than being consciously designed. As significant reforms to unfair dismissal law approach in January 2027, many employers may discover that the greatest challenge is not learning new legal rules, but recognising how changes to the legal landscape alter the commercial assumptions upon which familiar management decisions have long been based.


Most employers have not deliberately chosen their dismissal procedures. They have evolved over time.

Every business develops its own way of managing people. Some procedures are carefully documented, while others grow more organically through years of experience and an understanding of what has worked in the past. In many organisations, particularly those that have grown steadily rather than rapidly, employment practices have matured alongside the business itself, shaped by commercial reality as much as by legal advice. That is neither unusual nor, in itself, a cause for concern.


Employment law in the UK has remained sufficiently stable in the last decade that employers have been able to refine their approach gradually, making adjustments where necessary without fundamentally reconsidering the way they recruit, manage performance or, when the circumstances demand it, bring employment to an end. The result is that many businesses now operate with procedures that feel familiar and entirely appropriate to the legal framework within which they have been developed. The difficulty is that legal frameworks do not remain static indefinitely.


From January 2027, significant reforms to the law governing ordinary unfair dismissal are expected to come into force. Although the fundamental principles that determine whether a dismissal is fair will remain largely unchanged, the legal environment in which employers make those decisions will alter in ways that deserve careful consideration.

Neither of these changes prevents employers from dismissing employees where there is a fair reason for doing so. Together, however, they change the level of legal and commercial risk associated with getting those decisions wrong. ACAS has also published practical guidance to help employers prepare for the forthcoming reforms.


It is tempting to view reforms of this nature simply as another change in employment legislation; something to be noted, filed away and dealt with when the commencement date finally arrives. That would, I suggest, be a mistake. Good employment practices are rarely created overnight. They are built through consistent management, clear communication and well-understood procedures, all of which take time to develop. By the time January 2027 arrives, the businesses that will be best placed to navigate the new landscape are likely to be those that have already asked themselves a straightforward question: if our employment procedures were designed around yesterday's legal assumptions, are they still the right procedures for tomorrow's?


That question lies at the heart of these reforms. The changes are not simply about increasing compensation or expanding employment rights. They invite employers to reconsider how they assess risk, how they document important decisions and how confident they can be that, if one of those decisions were later examined by an Employment Tribunal, the business could demonstrate not only that it reached the right conclusion, but that it reached it fairly.


The danger of familiarity

One of the less obvious consequences of a legal framework remaining relatively stable for a long period is that people gradually stop thinking about the assumptions on which their decisions are based. This is not unique to employment law. It happens in every profession. Processes that once required careful thought eventually become routine, not because they are careless, but because experience teaches us what usually works.


Most employers do not consciously think, "The qualifying period for unfair dismissal is two years," each time they recruit a new employee. Equally, they are unlikely to consider the statutory cap on compensatory awards whenever they begin managing a performance issue. Instead, those legal principles become part of the wider commercial environment in which decisions are made, influencing expectations almost invisibly over many years.


It is perhaps for that reason that legislative reforms of this kind can be deceptively significant. The legal rules themselves may change on a particular date, but the habits and assumptions that have developed around those rules often persist for much longer. An organisation that has successfully managed employment issues for the past decade may therefore discover that it is not the law it has failed to keep pace with, but its own understanding of the risks associated with familiar management practices.


This is not a criticism of employers. Indeed, it reflects something rather more positive. Most businesses are focused on serving customers, developing products, managing staff and growing sustainably. They are not expected to revisit every aspect of employment law each time Parliament introduces new legislation. Yet there are moments when a change in the legal landscape is sufficiently significant that standing still is no longer the safest course.

The reforms expected to take effect in January 2027 represent one of those moments.


Understanding what is changing

Much of the commentary surrounding the Employment Rights Act 2025 has understandably focused on the headlines: the reduction in the qualifying period for ordinary unfair dismissal from two years to six months, and the removal of the statutory cap on compensatory awards. Both are important changes, but viewed in isolation they risk obscuring the broader picture.

It is worth beginning with what is not changing. The Government has confirmed that, although the statutory cap is expected to be removed, there will be no change to the basis on which Employment Tribunals calculate compensatory awards. Claims will continue to be assessed by reference to the claimant's actual and projected financial losses, supported by the evidence in the particular case.


Employers will still be entitled to dismiss employees where there is a fair reason recognised by law. Capability, conduct, redundancy, statutory restriction and other substantial reasons remain the established foundations upon which fair dismissals are assessed. Nor is the obligation to follow a fair procedure a new concept. Employment Tribunals will continue to ask many of the same questions they ask today. Was there a genuine reason for dismissal? Was the matter investigated appropriately? Was the employee given an opportunity to understand the concerns and respond to them? Did the employer act within the range of reasonable responses open to a reasonable employer? These principles have formed the backbone of unfair dismissal law for decades and will continue to do so after January 2027.


What changes therefore is not the destination, but the journey towards it. The reduction in the qualifying period means that many employees will acquire ordinary unfair dismissal rights considerably earlier in their employment than employers have become accustomed to. At the same time, the removal of the statutory cap on compensatory awards means that, in cases where an unfair dismissal causes substantial financial loss, the previous ceiling on compensation will no longer apply. It is important to recognise, however, that this does not mean tribunals will begin awarding compensation indiscriminately. The Government has expressly confirmed that the principles by which compensatory awards are assessed remain unchanged. Tribunals will continue to examine actual financial loss, the employee's efforts to mitigate that loss, the likelihood of obtaining alternative employment and the many other factors that have always informed compensation awards.


A dismissal that would have looked very different in 2026

The implications of these reforms are perhaps best understood not through dramatic headlines about unlimited compensation, but by considering how an entirely ordinary employment situation might be viewed under the new legal landscape.


Consider a family-owned marketing agency employing fifteen people. The business has grown steadily over the last decade and enjoys a loyal client base. Like many successful SMEs, HR processes are relatively informal. The directors know every member of staff personally, decisions are made collaboratively and employment issues are usually resolved through straightforward conversations rather than lengthy procedures.


Sarah joined the business as an Account Manager. She was experienced, enthusiastic and quickly became a valued member of the team. After eight months, however, concerns began to emerge. Deadlines were being missed, communication with several clients had become inconsistent and colleagues increasingly found themselves stepping in to resolve issues before they reached customers.


Her managing director raised these concerns informally over several weeks. Additional support was offered, workloads were adjusted and further discussions took place. The intention throughout was to help Sarah succeed rather than to build a case for dismissal.

Unfortunately, the improvements the business hoped to see did not materialise. Faced with increasing commercial pressure and anxious to protect important client relationships, the directors reluctantly decided that they could no longer continue the employment. Sarah was dismissed.


From the directors' perspective, the decision felt both reasonable and necessary. They had acted honestly, treated Sarah respectfully and genuinely believed they had given her every opportunity to improve.


Several months later, however, the matter comes before an Employment Tribunal.

The tribunal is not asked to decide whether the directors acted in good faith. Nor is it concerned with whether they sincerely believed that Sarah's performance had fallen below the standard the business required. Those matters may be accepted without difficulty.

Instead, the tribunal asks whether the employer can demonstrate that it followed a fair process before reaching the decision to dismiss.


Were the concerns clearly documented? Were measurable objectives agreed? Was Sarah given a realistic timescale within which to improve? Was she warned that her employment was genuinely at risk? Was there a formal opportunity to respond to the concerns before the final decision was taken? Was there a meaningful right of appeal?


In this example, the answers are less clear than the directors had appreciated. The conversations that took place were genuine but largely undocumented. Expectations were discussed, but never recorded. Support was offered, but no structured improvement plan existed. Looking back many months later, the tribunal is left with two competing accounts of what happened and relatively little contemporaneous evidence to resolve the differences.


Following her dismissal, Sarah actively sought alternative employment. She registered with recruitment agencies, attended interviews and accepted temporary consultancy work where it was available. Despite these efforts, a combination of local market conditions and the specialised nature of her previous role meant that she did not secure comparable permanent employment for fifteen months.


If the tribunal concludes that the dismissal was unfair, those fifteen months become highly relevant. Compensation is not awarded because the tribunal wishes to punish the employer. Rather, it reflects the financial loss that the tribunal concludes was caused by an unfair dismissal, taking into account Sarah's efforts to mitigate that loss, together with any pension or contractual benefits that may also have been affected.


Under the previous statutory regime, the compensatory award would have been subject to a statutory ceiling. From January 2027, if the reforms take effect as expected, that ceiling will no longer apply. The tribunal will still calculate compensation using the same legal principles as before, but where the proven financial loss exceeds the former cap, it will no longer be constrained by it.


The lesson is not that the directors behaved unreasonably or that every informal management process is destined to fail. Quite the opposite. Many employers will recognise elements of this scenario because it reflects the way smaller businesses have successfully managed people for years. The point is simply that, in a changing legal landscape, decisions that once appeared to carry relatively modest legal risk may now justify a more structured approach to documentation and procedure.


How Employment Tribunals actually assess compensation

Much of the commentary surrounding the removal of the statutory cap has focused on eye-catching figures. While those headlines inevitably attract attention, they do not accurately reflect how Employment Tribunals approach compensation.


Tribunals do not seek to punish employers for making difficult decisions. Their role is to compensate employees for financial loss that has been caused by an unfair dismissal.

The Government has confirmed that, although the statutory cap is due to be removed, the principles used to calculate compensation remain unchanged. That distinction is fundamental.


In practical terms, a tribunal may consider a wide range of factors, including:

  • the employee's loss of earnings;

  • pension contributions and contractual benefits;

  • the steps the employee has taken to secure alternative employment;

  • the realistic prospects of obtaining comparable work;

  • whether some or all of the loss would have occurred in any event;

  • whether the employee's own conduct contributed to the dismissal; and

  • whether procedural shortcomings actually affected the ultimate outcome, commonly referred to as a Polkey deduction (following the House of Lords' decision in Polkey v A E Dayton Services Ltd.)


Every case turns upon its own facts.

An experienced engineer living in an area with numerous comparable employers may obtain another role within weeks. A senior executive with specialist expertise, by contrast, may require many months to secure an equivalent position. Neither outcome is assumed. Both require evidence.


It is equally important to recognise that most successful unfair dismissal claims have historically resulted in awards well below the previous statutory cap. The removal of that ceiling does not mean every claim suddenly becomes high value. Rather, it allows tribunals to compensate proven financial loss where that loss genuinely exceeds what the previous legislation permitted.


For employers, the significance lies not in the prospect of extraordinary awards becoming commonplace, but in the fact that the financial exposure associated with a poorly handled dismissal may now require a different assessment than it did previously.


Why documentation has become a strategic business issue

Many employers understandably view documentation as an administrative exercise. Meetings are held, conversations take place and sensible decisions are reached. Recording every stage can feel unnecessary, particularly within smaller organisations where managers know their employees personally. Yet

documentation performs a very different function when viewed through the eyes of an Employment Tribunal.

A tribunal was not present during the conversations that took place. It cannot assess what was said over coffee or recall the tone of a meeting held many months earlier. It can only evaluate the evidence available. For that reason, well-kept records are not created for the benefit of the employee. They are created for the benefit of the employer. Clear performance objectives, written summaries of review meetings, records of support offered, reasonable timescales for improvement and documented appeal decisions together create a coherent narrative explaining not only what decision was reached, but why it was reached. Without that narrative, even conscientious employers may find themselves struggling to demonstrate the fairness of decisions that seemed entirely reasonable at the time.


Preparing for January 2027

The businesses that navigate these reforms most successfully are unlikely to be those that introduce lengthy new policies or create unnecessary bureaucracy. More often, they will be the organisations that take the opportunity to review existing procedures with fresh eyes and ask whether they continue to reflect the legal environment in which they now operate.

For some employers, that review may be relatively modest. Others may identify areas where manager training, documentation or internal procedures could be strengthened.


Questions worth considering include:

  • Do managers understand when informal conversations should become formal capability procedures?

  • Are probationary reviews sufficiently structured now that unfair dismissal protection is expected to arise much earlier?

  • Is there a consistent approach to documenting performance concerns, support offered and review meetings?

  • Do disciplinary and capability policies accurately reflect current legislation and best practice?

  • Are dismissal decisions subject to appropriate review before they are implemented?


These are not simply compliance questions. They are questions of good governance and sound commercial management.


Looking beyond January 2027

Employment law will continue to evolve, as it always has. Businesses that thrive are rarely those that react to every legislative development with sweeping procedural changes. Equally, they are seldom those that assume familiar practices will always remain appropriate simply because they have worked well in the past. The reforms due to take effect in January 2027 invite employers to adopt a more thoughtful approach.


The principles of fair dismissal remain reassuringly familiar. Employers are still entitled to manage performance, address misconduct, restructure their organisations and, where necessary, bring employment to an end. What has changed is the importance of ensuring that those decisions are supported by procedures capable of withstanding closer legal scrutiny and by evidence capable of explaining the reasoning behind them.


Ultimately, this is not a story about compensation. Nor is it a story about making dismissal more difficult. It is a story about recognising that the legal environment in which businesses make employment decisions has changed, and ensuring that the practices developed over many years continue to provide the protection they were always intended to achieve.


Discussing your situation

Every business is different. Procedures that are entirely appropriate for one organisation may be less suitable for another, depending on its size, management structure and workforce.

Whether you are reviewing existing employment policies, considering a difficult dismissal or simply wish to understand how the January 2027 reforms may affect your business, obtaining legal advice at an early stage can often prevent significantly more costly disputes later.


At Eddison Cogan Lawyers, we advise employers of all sizes on employment law issues ranging from day-to-day management advice to complex Employment Tribunal litigation. Our focus is not simply on resolving disputes after they arise, but on helping businesses make informed decisions that reduce risk before problems develop.



About the Author


Christopher Eddison-Cogan is the Managing Partner of Eddison Cogan Lawyers and is qualified as a solicitor in both England & Wales and Australia. He advises businesses and individuals on a broad range of employment, commercial and dispute resolution matters, with a particular focus on helping clients manage legal risk before it develops into costly disputes.


Christopher believes that effective legal advice extends beyond explaining what the law says. It involves understanding the commercial realities businesses face, anticipating how legal developments affect decision-making, and helping clients navigate change with confidence. His writing reflects that philosophy, combining legal analysis with practical insight to help employers make informed decisions in an evolving legal landscape.


Based in Malmesbury, Wiltshire, Christopher works with clients throughout the UK and internationally, providing clear, strategic advice that is both commercially focused and grounded in the practical realities of running a business.



Frequently Asked Questions


Will every unfair dismissal claim now result in higher compensation?

No. The Government has confirmed that the principles used to calculate compensation remain unchanged. Tribunals will continue to assess the employee's actual financial loss, together with factors such as mitigation, pension loss and future employment prospects. The principal change is that the statutory cap on compensatory awards is expected to be removed.


Does every employee gain unfair dismissal rights after six months?

The reforms are expected to reduce the qualifying period for ordinary unfair dismissal from two years to six months. Some claims, including automatically unfair dismissals and discrimination claims, have different qualifying rules.


Does this mean employers cannot dismiss employees after January 2027?

Not at all. Employers will continue to be entitled to dismiss employees where there is a fair reason and a fair procedure is followed. The reforms do not remove that right; they increase the importance of ensuring that decisions are properly documented and procedurally fair.


Should employers review their employment policies before January 2027?

Yes. The Government itself has encouraged organisations to consider reviewing their employment policies before the reforms take effect. For many businesses, this will also be an appropriate opportunity to review manager training, probation procedures and documentation practices.



This article is intended to provide general information about developments in the law of England and Wales as at the date of publication. It is not legal advice and should not be relied upon as a substitute for obtaining advice on your particular circumstances.

Employment law frequently depends on the specific facts of each case, and the application of the law may change over time. If you are considering dismissing an employee, reviewing your employment procedures or are involved in an employment dispute, you should seek legal advice tailored to your individual situation.

If you would like to discuss any of the issues raised in this article, please contact Eddison Cogan Lawyers. We will be pleased to advise you.



Further information

Readers wishing to explore the forthcoming reforms in more detail may find the following resources helpful:


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