As we sing Auld Lang Syne in the early hours of 1 January 2027, a radical change in employment law will have occurred. We are speaking, of course, of the changes to unfair dismissal law, which are likely to cause a seismic shift to the costs and strategy associated with senior exits. With approximately four months to go, there is still time to prepare. In this article we summarise the steps you may want to take now, followed by the longer-term considerations.
From 1 January 2027:
Employees will only need six months’ continuous service to be eligible to bring an “ordinary” unfair dismissal claim; down from the current two years.
The statutory cap on compensation for ordinary unfair dismissal will be entirely removed. The current cap is the lower of 52 weeks' gross pay or 123,543.
The removal of the cap does not mean that all unfairly dismissed employees will automatically receive hundreds of thousands of pounds in compensation. Compensation will still be assessed by reference to the financial losses that flow from the unfair dismissal and claimants will still be expected to make reasonable attempts to find a new job, to mitigate their losses. In addition, compensation can be further reduced for reasons we explain later in this article, such as where the claimant was in some ways to blame for their dismissal, even though it’s been found to be unfair. However, there will be no “backstop” cap to fall back on.
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