TRW & Co · Employment law
Unfair Dismissal: Qualifying Period, Fair Reasons and Compensation
An unfair dismissal occurs when an eligible employee is dismissed without one of five potentially fair reasons, or without the employer acting reasonably and following a fair procedure. The qualifying period is two years, falling to six months from 1 January 2027, when the compensation cap is also removed. Awards combine a formula-based basic award and a compensatory award for loss.
Key pointMost unfair dismissal claims are won or lost on procedure, not on the reason; and from 2027 a procedural failure with a well-paid employee can carry uncapped compensatory exposure.
At a glance
Five fair reasons
Section 98 of the Employment Rights Act 1996 allows dismissal for capability, conduct, redundancy, a statutory restriction or some other substantial reason, if handled reasonably.
Qualifying period changes
Employees currently need two years' service; for dismissals effective on or after 1 January 2027, the qualifying period falls to six months.
Compensation cap removed
The compensatory award is capped at the lower of 52 weeks' pay or £123,543 until the cap is removed from 1 January 2027.
Basic award formula
Up to one and a half weeks' pay per year of service, capped at 20 years and a week's pay of £751, giving a current maximum of £22,530.
Six-month time limit
For dismissals on or after 1 October 2026, claims generally must be brought within six months, after notifying Acas for early conciliation.
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The short answer: what makes a dismissal unfair
An unfair dismissal claim succeeds when an employee with the required length of service is dismissed without a potentially fair reason, or for a fair reason but without the employer acting reasonably, including following a fair procedure. In England, Wales and Scotland, the qualifying period is currently two years' continuous employment. From 1 January 2027, it falls to six months and the cap on the compensatory award is removed.
The employer must show the reason for dismissal and that it falls within one of five potentially fair categories: capability, conduct, redundancy, a statutory restriction, or some other substantial reason. The tribunal then decides whether dismissal was reasonable in all the circumstances. Compensation is made up of a basic award, calculated by formula, and a compensatory award for financial loss.
As of October 2026, employees dismissed on or after 1 October 2026 generally have six months, rather than three, to bring a claim, after first notifying Acas for early conciliation.
The legal framework for unfair dismissal
The right not to be unfairly dismissed is in Part 10 of the Employment Rights Act 1996. Only employees, not workers or the self-employed, have the right. The employee must have been dismissed, which includes the employer ending the contract, a fixed-term contract expiring without renewal and constructive dismissal, where the employee resigns in response to a fundamental breach of contract by the employer.
Section 98 of the Employment Rights Act 1996 sets out the test. First, the employer must show the reason, or principal reason, for dismissal and that it is a potentially fair one. Second, the tribunal decides whether the employer acted reasonably or unreasonably in treating that reason as sufficient to dismiss, having regard to the size and administrative resources of the employer, equity and the substantial merits of the case.
The Acas Code of Practice on disciplinary and grievance procedures sets the minimum standard for conduct and capability dismissals. Under section 207A of the Trade Union and Labour Relations (Consolidation) Act 1992, a tribunal can increase an award by up to 25% if the employer unreasonably failed to follow it, or reduce it by up to 25% where the employee unreasonably failed to comply.
Northern Ireland
Northern Ireland has separate legislation. According to GOV.UK, the qualifying period there is normally one year, and the Employment Rights Act 2025 reforms described below do not apply.
The five fair reasons for dismissal
The fairness of any unfair dismissal claim starts with the reason. Getting the label wrong, or relying on a reason that does not match the evidence, is one of the most common ways employers lose.
| Reason | Typical examples | What a fair process usually involves |
|---|---|---|
| Capability or qualifications | Poor performance; long-term ill health; loss of a required qualification | Clear standards, warnings and support for performance; medical evidence and consultation for ill health; considering adjustments and alternatives |
| Conduct | Misconduct, gross misconduct, breach of policy | Reasonable investigation, notice of allegations, a hearing, the right to be accompanied, a decision within the range of reasonable responses, an appeal |
| Redundancy | Closure of a business or workplace; reduced need for employees to do work of a particular kind | Warning and consultation, fair selection pool and criteria, considering suitable alternative employment |
| Statutory restriction | A driver who loses their licence; loss of right to work | Checking the restriction genuinely applies and considering alternatives |
| Some other substantial reason | Business reorganisation; third-party pressure; breakdown in working relationships | A genuine, substantial reason, consultation and a fair procedure appropriate to the circumstances |
Automatically unfair reasons
Some reasons make a dismissal automatically unfair, usually without any qualifying period. They include whistleblowing, pregnancy and maternity, asserting a statutory right, certain health and safety activities and trade union membership or activities. Discrimination claims under the Equality Act 2010 are separate and also need no qualifying service. Our guide to whistleblowing protection covers that regime.
What a fair procedure looks like
Most unfair dismissal claims are lost on procedure rather than on the reason. Tribunals do not substitute their own view; they ask whether the employer's decision and process fell within the range of reasonable responses open to a reasonable employer. In conduct cases, the long-established approach asks whether the employer genuinely believed the employee was guilty, on reasonable grounds, after a reasonable investigation.
- Investigate. Gather the facts promptly, separately from the decision-maker where possible, and record interviews and evidence.
- Notify in writing. Tell the employee the allegations or concerns, provide the evidence and explain the possible outcomes, including dismissal.
- Hold a hearing. Allow the employee to respond and be accompanied by a colleague or trade union representative.
- Consider alternatives. Weigh mitigation, length of service, consistency with past cases and options short of dismissal, such as a warning or redeployment.
- Decide and explain. Confirm the decision and reasons in writing, together with notice arrangements.
- Offer an appeal. Ideally heard by a more senior manager not previously involved.
Proportionality matters too. A small employer with limited management resources is not expected to run the same process as a large organisation with a dedicated HR function, but every employer is expected to be fair, consistent and open-minded. Notes of each meeting, the evidence considered and the reasons for the decision are the best protection if the decision is later challenged.
Our guide to disciplinary and grievance procedures sets out templates and timing, and our redundancy process guide covers consultation and selection.
The qualifying period and the 2027 reforms
Under section 108 of the Employment Rights Act 1996, an employee currently needs two years' continuous employment to claim ordinary unfair dismissal. The Employment Rights Act 2025 reduces this to six months. The commencement regulations bring the change into force on 1 January 2027, and it applies where the effective date of termination falls on or after that date, even if notice was given earlier.
The same regulations remove the statutory cap on the compensatory award from 1 January 2027 for dismissals with an effective date of termination on or after that date. Until then, the cap remains the lower of 52 weeks' gross pay and the statutory limit, which the Employment Rights (Increase of Limits) Order 2026 set at £123,543 from 6 April 2026.
An employee who started on or before 1 July 2026 is likely to have six months' service by early 2027. Employers dealing with performance or conduct concerns about recent hires should run a fair, documented process now rather than relying on the old two-year threshold.
How unfair dismissal compensation is calculated
If an unfair dismissal claim succeeds, the tribunal first considers reinstatement or re-engagement, although these are rarely ordered in practice. Most cases end in compensation, made up of two parts.
The basic award
Under section 119, the basic award is calculated like a statutory redundancy payment: one and a half weeks' pay for each year of employment at age 41 or over, one week's pay for each year aged 22 to 40, and half a week's pay for each year below 22, counting a maximum of 20 years. A week's pay is capped, and the cap has been £751 since 6 April 2026, so the maximum basic award is currently £22,530.
The compensatory award
Under section 123, the compensatory award is the amount the tribunal considers just and equitable to compensate for the loss caused by the dismissal. It typically covers lost earnings to the date of the hearing, future loss, lost pension and benefits, and loss of statutory rights. The employee must take reasonable steps to mitigate loss by seeking new work.
Adjustments
The award can be reduced where the employee's conduct contributed to the dismissal, where a fair procedure would or might have led to dismissal anyway (often called a Polkey reduction), or where the employee failed to mitigate. It can be increased or reduced by up to 25% for unreasonable failure to follow the Acas Code. Payments already made, such as pay in lieu of notice, may be offset.
| Element | Effective date of termination before 1 January 2027 | On or after 1 January 2027 |
|---|---|---|
| Qualifying period | Two years | Six months |
| Basic award | Formula with capped week's pay | Formula with capped week's pay |
| Compensatory award | Lower of 52 weeks' pay and the statutory cap | No statutory cap |
| Acas Code adjustment | Up to 25% up or down | Up to 25% up or down |
How a claim proceeds in the employment tribunal
Before presenting most claims, a prospective claimant must notify Acas, which offers early conciliation. Conciliation is voluntary, but the notification is compulsory, and the claimant needs the certificate number to present the claim. Time spent in conciliation generally extends the deadline. Many disputes settle at this stage on a COT3 agreement recorded by Acas.
If the dispute does not settle, the claimant presents a claim form and the employer has a limited period to file a response setting out its defence. The tribunal then gives case management orders covering disclosure of documents, witness statements, a schedule of loss and a hearing date. Most hearings are before an employment judge sitting alone, with evidence given by witnesses on both sides.
Costs orders are the exception rather than the rule in the tribunal, so each side usually bears its own legal costs even if it wins. That affects settlement strategy. An employer may rationally settle a weak claim to avoid irrecoverable defence costs, and an employee may accept less than the full value of a claim to avoid the cost and stress of a hearing.
Constructive dismissal claims
Where an employee resigns and claims constructive dismissal, the burden is on the employee to show a fundamental breach of contract, often a breach of the implied term of mutual trust and confidence, and that they resigned in response to it without delay. If that is established, the tribunal goes on to consider whether the dismissal was fair, and employers often find it difficult to show that a dismissal rooted in their own fundamental breach was fair. A grievance process that genuinely addresses the complaint can reduce this risk.
An illustrative scenario
This scenario is illustrative only; the parties are generic.
A regional sales manager with four years' service was dismissed for gross misconduct after a customer complaint. The employer interviewed the customer but not the two colleagues present at the meeting, did not give the manager the customer's written complaint before the hearing and refused an appeal.
The tribunal accepted that conduct was the genuine reason, but found the investigation fell outside the range of reasonable responses and the process breached the Acas Code. It found the dismissal unfair, applied an uplift for the Code breach and made a Polkey reduction because there was a real chance that a fair process would still have led to dismissal. Had the employer interviewed the witnesses, shared the evidence and offered an appeal, it would very likely have defended the claim.
Risks and common mistakes
Treating gross misconduct as a shortcut
Gross misconduct can justify dismissal without notice, but not without a fair process. The employer still needs a reasonable investigation, a hearing and an appeal. Summary dismissal without these steps is one of the most common sources of unfair dismissal awards and of Acas Code uplifts.
Using redundancy to remove an individual
If the real reason is performance or a personality clash, presenting the dismissal as redundancy is likely to fail. Tribunals look at the genuine reason, the selection pool and the scoring. Where the role continues under a different title, the redundancy label will not survive scrutiny.
Ignoring discrimination and whistleblowing risk
Even where an employee lacks qualifying service, they may claim discrimination or automatically unfair dismissal for whistleblowing, which carry no qualifying period and, in discrimination cases, uncapped compensation including injury to feelings. Review the history of complaints, disclosures and protected characteristics before any dismissal.
Missing the time limit as an employee
Employees must contact Acas for early conciliation and then present the claim within the statutory time limit, as extended by the conciliation period. GOV.UK confirms the time limit is generally six months for dismissals on or after 1 October 2026, and may be three months for earlier dismissals. Late claims are rarely accepted.
Cross-border employees
Unfair dismissal rights generally depend on where the employee works rather than the contract's governing law. An employee based in Great Britain is usually protected even if employed by an overseas company, and some employees working abroad can claim where their employment has a sufficiently strong connection with Great Britain. For international groups, including those with operations in Bangladesh, local dismissal processes need to be adapted to UK standards. Our employment tribunal team handles these jurisdictional questions.
What to do next: an unfair dismissal checklist
- Identify the real reason for dismissal and the evidence that supports it.
- Check length of service and the expected effective date of termination against the 1 January 2027 changes.
- Follow the Acas Code: investigate, notify, hear, decide and offer an appeal.
- Assess discrimination, whistleblowing and other day-one claim risks.
- Estimate the basic and compensatory awards, including uncapped exposure after 2027.
- Consider whether a negotiated exit under a settlement agreement is a better route.
TRW & Co's London office is authorised and regulated by the Solicitors Regulation Authority. Our employment law team advises employers and senior employees on dismissals, procedures and unfair dismissal claims, and we instruct specialist counsel where advocacy in the higher courts is required. To discuss a dismissal, contact us at info@trw.co.
Frequently asked questions
01How long do I need to work to claim unfair dismissal?
In England, Wales and Scotland, employees currently need two years' continuous employment to claim ordinary unfair dismissal. From 1 January 2027, the qualifying period falls to six months, for dismissals where the effective date of termination is on or after that date. No qualifying period applies to automatically unfair reasons such as whistleblowing or pregnancy, or to discrimination claims. In Northern Ireland the qualifying period is normally one year.
02What are the five fair reasons for dismissal?
Section 98 of the Employment Rights Act 1996 lists capability or qualifications, conduct, redundancy, a statutory restriction that prevents continued employment, and some other substantial reason of a kind that could justify dismissal. Establishing a fair reason is only the first step. The tribunal then decides whether the employer acted reasonably in treating that reason as sufficient for dismissal, including whether it followed a fair procedure.
03How much compensation can I get for unfair dismissal?
Compensation has two parts. The basic award follows a statutory formula based on age, length of service and a capped week's pay, currently £751, giving a maximum of £22,530. The compensatory award covers financial loss and is currently capped at the lower of 52 weeks' gross pay or £123,543. For dismissals effective on or after 1 January 2027, the cap on the compensatory award is removed. Awards can be adjusted for contributory conduct and Acas Code breaches.
04What is the time limit for an unfair dismissal claim?
You must first notify Acas for early conciliation. According to GOV.UK, the time limit is usually six months from dismissal for dismissals on or after 1 October 2026, and may be three months for earlier dismissals. The early conciliation period can extend the deadline. Tribunals rarely accept late unfair dismissal claims, so act promptly and take advice on the exact date.
05Can I be dismissed without a warning?
For gross misconduct, an employer can dismiss without prior warnings or notice, but it should still investigate, hold a hearing and offer an appeal in line with the Acas Code. For performance or less serious conduct issues, a fair process usually involves warnings and an opportunity to improve. Dismissal without a fair procedure is likely to be unfair if the employee has qualifying service.
06What is constructive dismissal?
Constructive dismissal happens when an employee resigns in response to a fundamental breach of contract by the employer, such as not paying wages, an unjustified demotion or serious bullying. The resignation is treated as a dismissal, and the employee can then claim unfair dismissal if they have qualifying service. The employee should act promptly, because delay can be treated as accepting the breach.
Sources and official materials
- Employment Rights Act 1996, section 98 — Fair reasons and the reasonableness test
- Employment Rights Act 1996, section 119 — Basic award formula
- Employment Rights (Increase of Limits) Order 2026 — Week's pay and compensatory award limits from April 2026
- Employment Rights Act 2025 (Commencement No. 4) Regulations 2026 — Six-month qualifying period and cap removal from 1 January 2027
- Acas Code of Practice on disciplinary and grievance procedures — Minimum standards for fair procedure
- Dismissal: your rights (GOV.UK) — Qualifying period and time limits
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.