Unfair Dismissal Qualifying Period Reduces To Six Months

What Owners of SMEs Need To Know

Dismissing an employee during their first two years of employment has traditionally carried lower legal risk to owners of SMEs. From 1 January 2027, the unfair dismissal qualifying period reduces to six months from two years. At the same time, the cap on Unfair Dismissal Compensatory Awards will be removed completely. These changes will significantly increase risk and costs for owners of SMEs when dealing with poor performance, conduct issues or short-service dismissals.

Many SME owners rely on probation periods to assess whether a new employee can do the job and is the right fit. However, when the unfair dismissal qualifying period reduces to six months, probation periods of six months or longer will no longer provide the protection many employers assume they do.

In practical terms, this means small businesses will need to:

Without the right processes in place, dismissing an employee after they have accrued six months service could result in an unfair dismissal claim, even where the employer believes the decision was reasonable.

This guide explains what the six month unfair dismissal rule means for small business owners, how it affects probation periods, and the practical steps you should take now to reduce risk and protect your business.

What Is Changing?

Unfair Dismissal Qualifying Period Reduces to Six Months

Currently, employees must have two years’ continuous service before they can bring an unfair dismissal claim. From 1 January 2027, that qualifying period would be reduced to six months.

This means employees could challenge a dismissal much earlier in their employment, increasing exposure to employment tribunal claims for small businesses that rely on informal processes or “common sense” decisions.

Compensation Cap For Unfair Dismissal Compensation Is Removed

From 1 January 2027, the compensation cap for unfair dismissal claims will be lifted entirely.

The Government believes that the cap on compensatory awards for unfair dismissal has created a systemic incentive for claimants to construct complex cases which allege both unfair dismissal and discrimination to access uncapped compensation. These types of claims are more complex and take longer for the tribunal to handle. By lifting the compensation cap for ordinary unfair dismissal claims, this incentive will be lessened, making it easier for tribunals to reach a judgment more quickly and decreasing burdens on the system.

Initial Period of Employment
The Employment Rights Bill originally referred to a day-one right to claim unfair dismissal with an Initial Period of Employment when a short service dismissal process would apply. Now the day-one right has been amended to a six month qualifying period the Initial Period of Employment short service dimissal process has been dropped. Employers will therefore continue to rely on contractual probation frameworks during the six month qualifying period. Six months is a relatively short window and probationary periods will need to be managed more rigorously than within a two year window. Clear expectations will be required from day one, with regular documented reviews and early intervention on performance and conduct issues.

Why This Matters More for Small Businesses

Large organisations usually have HR teams, documented procedures, and managers trained in employment law. Most SMEs do not and often:

When the unfair dismissal qualifying period reduces to six months, these common practices carry much higher legal risk.

For many SMEs, a single tribunal claim can mean:

Even if the business believes the dismissal was reasonable.

Informal Probation Periods Are No Longer a Safety Net

A probation period does not override an employee’s right to claim unfair dismissal. When the unfair dismissal qualifying period reduces to six months probationary periods will need to be actively managed:

New employees will require clear performance expectations from day one with:

Common SME Mistakes That Increase Risk

At Kea HR we regularly see owners of SMEs fall into the same traps:

Under the new regime, these mistakes are far more likely to result in a successful unfair dismissal claim.

Can an Employee Claim Unfair Dismissal After Six Months?

Yes. When the unfair dismissal qualifying period reduces to six months, employees will be able to bring an unfair dismissal claim after just six months’ service.

What Does This Mean in Practice for SME Owners?

If you employ staff, you should assume that every dismissal could be scrutinised, even early on.

You will need to:

This does not mean you cannot dismiss staff, but it does mean how you do it matters much more.

If you employ staff and don’t have clear probation or dismissal procedures in place, this change could expose your business to unnecessary risk. KEA HR supports small businesses with practical, compliant people management, before problems escalate.

How Small Businesses Can Reduce Unfair Dismissal Risk

Practical steps SME owners should take now include:

Length Of Probation Periods

Six month probationary periods are going to be highly risky and could disappear. Missing the end of the six month period by a day could mean your employee claims unfair dismissal. Due to the fact that employees are entitled to one week (7 days) minimum notice the entitlement to unfair dismissal may actually arise at “6 months less 1 calendar week” and not 6 months. Therefore, four month probationary periods are likely to become the norm, thus allowing for a short extension of up to six weeks to allow for any dismissal to occur before the six month deadline.

Managing Probation Periods

Under the new regime, diarising when probationary periods expire and documenting performance discussions and their outcome will have significantly increased importance. The Breathe HR Software can help automate the management of probationary periods.

Now is an excellent time to review your probation and performance review processes and iron out any issues so by the time the legislation is implemented on 1 January 2027 they are running seamlessly and you and your managers are confident in the new rules.

Future Changes

The Employment Rights Act will remove the power to vary the qualifying period further without primary legislation, meaning it will be harder for future governments to reduce or increase the six month qualifying period for unfair dismissal.

The Government restates that “protection against unfair dismissal applies only to employees and that will continue to be the case, although the Government intends to continue to explore the expansion of this right to others”, adding that they continue to “assess options for improving the employment status framework”.

Do You Need to Act Now?

Yes. Even before any legal change takes effect, employment tribunals increasingly expect employers, including SMEs, to act reasonably and fairly from the outset of employment. Waiting until there is a problem is usually too late.

Proactively managing and having evidence of poor performance will become crucial as we transition in to the new regime.

How Kea HR Supports Owners of SMEs

KEA HR works with SME owners who want practical, proportionate HR support, without corporate complexity.

We help small businesses:

Our advice is clear, commercial, and tailored to how small businesses actually operate.

Worried About Your Current Processes?

If you employ staff and are unsure whether your probation or dismissal practices would stand up to scrutiny, now is the time to act. Speak directly with our CIPD-qualified HR expert with 30+ years’ experience for practical advice that protects your business, before issues escalate.

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