The government has recently published commencement regulations to reduce the ordinary unfair dismissal qualifying period to six months and to remove the cap on the unfair dismissal compensatory award. These changes will apply where the effective date of termination falls on or after 1 January 2027.
Whilst most businesses were only too aware that these changes are on the way, the publication of the commencement regulations puts the spotlight on unfair dismissal and the need for businesses to start getting ready for the changes now. To help your business, here are three things to be aware of:
- What is ordinary unfair dismissal?
- What are the changes to the qualifying period and the cap on the compensatory award?
- What are some of the steps my business should be thinking about?
What is ordinary unfair dismissal?
In brief, ordinary unfair dismissal can occur when an employer dismisses an employee without a potentially fair reason, or where it is not reasonable in the circumstances to do so or if the correct steps have not been followed. For ordinary unfair dismissal employees usually need a qualifying period of service.
For example, dismissing a long-serving employee in the following circumstances will usually be unfair:
- Dismissal for poor performance without setting reasonable targets, giving an appropriate timescale for improvement or following a fair formal process first, including appropriate warnings
- Dismissal for a minor conduct issue where it is ‘a first offence’ (even if a disciplinary process is followed before dismissal)
- Dismissal for redundancy where there is not a genuine redundancy situation, e.g. the real reason is poor performance but redundancy is used as it is considered quicker or ‘kinder’ by the business
Bear in mind that dismissals for prohibited reasons, such as because of pregnancy, family leave or whistleblowing, are automatically unfair. Unlike ordinary unfair dismissals, automatic unfair dismissals do not usually require any length of service and tribunals do not consider whether the dismissal is reasonable.
It is also possible for an employee to be unfairly dismissed because of the way they have been treated – this is known as constructive unfair dismissal.
If you would like to know more about automatic unfair dismissal or constructive unfair dismissal, please get in touch.
What are the changes to the qualifying period and the cap on the compensatory award?
The law regarding the qualifying period for ordinary unfair dismissal is changing. It will be reduced from two years’ continuity of service to six months from 1 January 2027. This means that any employee whose dismissal takes effect on or after that date, and who has at least six months’ continuous service, will be able to bring a claim for ordinary unfair dismissal.
For some businesses, unfair dismissals may also prove more costly as the cap on the compensatory award is being abolished for dismissals that take effect on or after 1 January 2027. Currently the law regarding the compensatory award for unfair dismissal means that, subject to a few exceptions, a maximum limit is in place – the lower of £123,543 or one year’s salary.
What are some of the steps my business should be thinking about?
To start preparing for the shorter ordinary unfair dismissal qualifying period, here are three steps to consider:
- Check that probation periods, including any extensions, are the right length to assess suitability and take any necessary action before ordinary unfair dismissal rights apply. Some businesses may need shorter probation periods than currently, so you should contact Kingfisher Professional Services Ltd for specific advice.
- Review whether your recruitment process is robust enough to identify the right candidate as once they are hired there will be less time to assess suitability and act before ordinary unfair dismissal rights arise.
- Support managers so they understand the upcoming changes and can identify and handle conduct and poor performance issues for employees with and without ordinary unfair dismissal protection.