Guide · Dated change
What changes on 1 January 2027
Three things at once, and together they are the largest shift in unfair dismissal law for decades. Protection at six months instead of two years. The compensatory cap abolished. Fire and rehire becoming automatically unfair in most cases. This guide explains what each one means for an individual employee rather than for an HR department.
At a glance
Before and after 1 January 2027
One correction to make first, because it is everywhere. Unfair dismissal is not becoming a day-one right. That was the original proposal in the Bill and it was dropped following resistance in the House of Lords. What replaced it is a six-month qualifying period, and the compensatory cap was removed in the same package. Anyone still telling you day one is working from the 2024 version.
The three changes take effect together on 1 January 2027, and the combination is what makes the date significant. A much larger group of employees can bring a claim, and in high-loss cases the amount they can recover no longer has a ceiling. For anyone facing a process now, the practical question is not whether the law improves in January. It is what your position is under the law that applies on the day you are dismissed.
Zhan Associates is a specialist workplace defence consultancy. We are not a firm of solicitors and we do not provide reserved legal activities or legal advice. We prepare and defend the case in front of you, under the law in force when it happens.
January 2027
Protection at six months
From 1 January 2027 the qualifying period for ordinary unfair dismissal falls from two years to six months. The government has confirmed a commencement approach rather than a phase-in, which means employees who already hold at least six months of continuous service on 1 January 2027 gain protection immediately on that date. In practical terms, anyone employed continuously from around the start of July 2026 is covered from day one of the new regime.
That is a substantial expansion of who can challenge a dismissal, and it lands on a group who currently have very little leverage: people eight, twelve or eighteen months into a job, managed out through a compressed process on the assumption that nothing follows. It also has a knock-on effect employers are already planning for, which is that probationary periods longer than six months stop achieving what they were designed to achieve.
An employee started on 1 September 2026. In December 2026 a conduct process begins. By mid-January 2027 they are dismissed.
The position. On 1 January 2027 they hold four months of service, so they do not yet qualify. By the dismissal date in mid-January they are close to but still short of six months. What matters is service at the effective date of termination, not at the date the process started, and the statutory minimum notice period can be added when calculating qualifying service, which sometimes carries someone over the line. This is precisely the kind of case where the calendar decides the outcome, and where getting the dates checked early is worth doing.
January 2027
The compensatory cap disappears
The compensatory award is the part of a tribunal award that reflects your actual financial loss: lost net earnings to the hearing, projected loss after it, lost employer pension contributions, and the value of benefits. It is currently capped at the lower of the statutory maximum, £123,543 as at 6 April 2026, or fifty two weeks of your actual gross pay. For most people the fifty two week figure bites first, which means the real ceiling has always been about a year’s salary rather than the headline number that gets reported.
From 1 January 2027 that ceiling goes entirely. What it does not do is change how the award is built. It remains actual loss, it must still be just and equitable, and every reduction that currently applies still applies: failure to mitigate, a Polkey reduction where you would probably have been dismissed anyway had a fair process been followed, contributory fault, and the ACAS adjustment. Removing a ceiling only matters if your loss was reaching it.
| Situation | Does the change matter? |
|---|---|
| Back in comparable work within a few months | Very little. Your loss was never close to fifty two weeks of pay, so the cap was not your constraint. |
| Higher earner, long search expected | Substantially. This is the group whose losses routinely exceeded a year’s pay and were then truncated. |
| Narrow specialism, few comparable employers | Substantially. Long re-employment timescales are exactly what the cap used to cut off. |
| Close to retirement | Often decisive, particularly where pension loss is significant and re-employment at the same level is unlikely. |
| Whistleblowing or discrimination claim | No change. Those awards were already uncapped. This is the single most valuable point on this page and it is regularly missed. |
| Basic award | No change at all. The formula and its own maximum are untouched. |
Statutory figures quoted are those current as at 6 April 2026 and are uprated annually. Our Schedule of Loss calculator applies the reductions in the order the legislation requires and shows every one of them.
January 2027
Fire and rehire becomes automatically unfair
Dismissal and re-engagement describes the practice of ending someone’s employment and offering it back on worse terms, typically where the employer has failed to obtain agreement to a change. From 1 January 2027 such a dismissal becomes automatically unfair in most cases where the principal reason is that you refused to accept a restricted variation of your contract, meaning a change to matters such as pay, hours, holiday or pension entitlement. An updated Code of Practice is expected to accompany it.
Two points of timing are worth knowing. This restriction was originally in the October 2026 wave and was moved to January 2027, which is why some published summaries still place it in the wrong quarter. And variations to contracts made before the restriction takes effect are treated differently from those made after, which has produced a visible amount of pre-emptive contract activity through 2026.
How Zhan Associates helps
Contract change disputes usually arrive as a consultation exercise rather than a disciplinary, and they are frequently mishandled because the employee does not realise the deadline they are working to. We assess the position before you sign or refuse, which is the point at which the decision is still yours.
- Assess before you respond. A Rapid Defence Review reads the proposal and the consultation documents and tells you where you stand.
- Negotiating position. A Negotiation Strategy builds a without-prejudice position from the leverage in the process.
- Where it ends in dismissal. ACAS Early Conciliation and ET1 drafting, with the time limits managed properly.
Sources: Employment Rights Act 2025. ACAS guidance on the Employment Rights Act 2025, last updated 19 August 2026. Government implementation timeline for the Plan to Make Work Pay. Statutory limits current as at 6 April 2026. Several measures remain subject to consultation on how they will operate in detail.
Common questions
January 2027 questions people ask
Three things at once. The qualifying period for ordinary unfair dismissal falls from two years to six months, the cap on the compensatory award is removed entirely, and dismissal and re-engagement on worse terms becomes automatically unfair in most cases.
On the government's stated commencement approach, employees who already have at least six months' service on 1 January 2027 gain unfair dismissal protection immediately on that date. In practical terms, anyone employed continuously from around the start of July 2026 is protected from 1 January 2027.
No. Day-one protection was the original proposal and it was dropped during the Bill's passage through Parliament. What replaced it is a six-month qualifying period. Some protections remain day-one rights regardless, including discrimination and automatically unfair dismissals such as those connected to whistleblowing or health and safety.
Currently the compensatory award is capped at the lower of a statutory maximum, £123,543, or fifty two weeks of your actual gross pay. For most people the fifty two week figure bites first, so the real ceiling is about a year's salary. From 1 January 2027 there is no ceiling on the compensatory award.
No. The basic award formula and its own maximum are unchanged, and the basic award continues to be calculated from the capped weekly pay figure. Only the compensatory element becomes uncapped.
No, and this is where expectations run ahead of reality. The compensatory award has always been actual financial loss, and it must still be just and equitable. Tribunals will still reduce for failure to mitigate, still apply Polkey where you would probably have been dismissed anyway, and still reduce for contributory fault. Removing a ceiling only matters where your loss was hitting it.
People whose losses exceed a year's pay. Typically that means higher earners, people in narrow specialisms with few comparable roles, and people close to retirement who are unlikely to be re-employed at the same level. If you are likely to find similar work within months, the cap was probably never your constraint.
From 1 January 2027 a dismissal is automatically unfair in most cases where the principal reason is that you refused to accept a restricted variation of your contract, meaning changes to matters such as pay, hours, holiday or pension. The restriction was originally timetabled for October 2026 and was pushed back to January 2027.
Almost never, and the arithmetic usually points the other way. Your claim is governed by the law in force when you are dismissed, not when you decide to act, and the strongest moment to influence an outcome is while the process is still running. Waiting to gain protection is only rational where you are close to the six-month mark and have a real choice about timing.
Not directly. The ACAS Code still sets the standard for investigation, notification, the hearing, accompaniment and appeal, and the twenty five per cent adjustment for unreasonable failure to follow it is unchanged. What changes is the consequence of getting it wrong, which is a larger pool of protected employees and, in high-loss cases, no ceiling on the bill.
Three months earlier, a change that affects far more people day to day: what changes in October 2026 →
Keep reading
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