Section A: What Is Unfair Dismissal?
Most employees have the statutory right not to be unfairly dismissed. Allegations of unfairness can be directed against employers for a number of reasons, with the grounds for dismissal, the way the decision was reached and the procedure used to bring the contract to an end all being scrutinised in tribunal proceedings.
This means employers should approach employment terminations with caution, ensuring that the dismissal process is fair and lawful so as to avert the risk of unfair dismissal claims.
1. Legal definition under the Employment Rights Act 1996
Unfair dismissal refers to a scenario in which an employee is dismissed for an unfair reason, or because the decision or decision-making process was in some way unfair.
To dismiss an employee fairly, an employer needs to establish a fair reason for the dismissal. There are five potentially fair reasons under the Employment Rights Act 1996, including capability, conduct, redundancy, illegality or some other substantial reason (SOSR).
However, even if the employer can establish a fair reason for dismissal, they also need to show they acted reasonably in treating that reason as sufficient to dismiss on all the facts. If the employer cannot show a potentially fair reason, or cannot show it acted reasonably in treating that reason as sufficient, the dismissal will be unfair.
2. What counts as a dismissal?
For unfair dismissal purposes, the tribunal will look at whether there was a dismissal in law, not only how the situation is described internally. In most cases this will be a direct termination of the employment contract by the employer. It can also include summary dismissal, where employment ends without notice, and the non-renewal of a fixed-term contract, where the employment ends on expiry.
Unfair dismissal can also arise where the employee resigns because of the employer’s conduct. This is commonly referred to as constructive dismissal, and it is treated as a dismissal where the resignation was in response to a fundamental breach of contract by the employer.
3. The five potentially fair reasons for dismissal
The five potentially fair reasons under the Employment Rights Act 1996 are capability, conduct, redundancy, illegality and SOSR.
Illegality is where continued employment would result in a breach of a statutory restriction, such as a haulage driver being dismissed for losing their driving licence. SOSR is a catch-all provision that enables an employer to fairly dismiss an employee where no other potentially fair reason applies. This could be where there has been a breakdown in the mutual trust and confidence between the employer and employee, or where an employee has been arrested for a serious offence and there is a reputational risk to the business.
4. The reasonableness test and procedural fairness
Even where the employer can point to a potentially fair reason, the tribunal will still scrutinise how the decision was reached and whether the employer acted reasonably in treating that reason as sufficient to dismiss on the facts. In practical terms, this means the employer needs to show that it followed a fair procedure and that the decision to dismiss fell within a range of reasonable responses.
Procedural fairness will often be central to the outcome. A dismissal can be unfair where an employer skips key steps, reaches a decision without proper investigation, or applies its own procedures inconsistently. This is why unfair dismissal risk is rarely limited to the headline reason for dismissal. The process, the evidence and the decision-making trail are usually what tribunal proceedings focus on in the end.
DavidsonMorris Strategic Insight
Many employers focus on the “reason” for dismissal and underestimate the importance of the actual process in the Tribunal’s eyes.
Employers have to look beyond whether the dismissal felt justified internally. Unfair dismissal is a highly specific legal test and should only be approached from the perspective of what the law requires in terms of process and grounds for dismissal.
Section B: Who Can Claim Unfair Dismissal?
Under the current rules, most employees can claim ordinary unfair dismissal only after two years’ continuous service, subject to important statutory exceptions. This is known as the qualifying service requirement. Employees with less than two years service are not usually be eligible to claim ordinary unfair dismissal.
Length of service, however, is not the full picture. There are important statutory exceptions and separate discrimination protections that significantly expand potential exposure for employers.
1. The two-year qualifying service rule
The two-year rule applies to most ordinary unfair dismissal claims under the Employment Rights Act 1996. Continuous employment is calculated in accordance with statutory rules and can include periods of absence such as sickness or family leave.
Where an employee does not have two years’ continuous service, an employer will generally not face a claim for ordinary unfair dismissal. That position has historically shaped probation practices and early-stage dismissal decision-making.
However, the qualifying service requirement does not apply in every case.
2. Automatically unfair dismissal
There are some important exceptions to the two-year rule. The law affords special protection to employees who are dismissed for certain statutory reasons classed as automatically unfair, and for which there is no qualifying service period.
In broad terms, an automatic unfair dismissal will occur when the decision to dismiss violates one or more of an employee’s statutory rights. This could include asserting rights under the National Minimum Wage or Working Time Regulations. It can also include acting as an employee or trade union representative, highlighting or reporting health and safety matters at work, or making any other protected disclosure, known as whistleblowing.
Where an employee can establish that the principal reason for dismissal was one of these protected grounds, the tribunal will not move on to assess reasonableness in the same way as an ordinary unfair dismissal case.
3. Dismissal linked to discrimination
It will be both automatically unfair and unlawful discrimination to dismiss an employee because of a protected characteristic, regardless of their length of service. The Equality Act 2010 protects individuals against discrimination relating to age, disability, gender reassignment, marriage or civil partnership, pregnancy or maternity, sex, sexual orientation, race and religion or belief.
In discrimination cases there is no qualifying service requirement and compensation is not subject to the statutory unfair dismissal cap. For employers, this creates a higher risk category where dismissal decisions intersect with protected characteristics or statutory rights.
4. Constructive unfair dismissal
An employee may also claim unfair dismissal where they resign in response to the employer’s conduct. Constructive dismissal arises where there has been a fundamental breach of contract, such as a serious breakdown in mutual trust and confidence, and the employee resigns because of that breach.
In these cases, the employee will still need to satisfy the qualifying service requirement for an ordinary unfair dismissal claim unless the underlying reason falls within an automatic category or discrimination protection.
DavidsonMorris Strategic Insight
The two-year rule has effectively acted as a filter against claims from those with short service. HR processes have largely been developed and settled under that two-year minimum service requirement, and probation procedures, capability and disciplinary frameworks are well established on this basis.
The ERA reforms and the reduction of the qualifying period to six months to claim unfair dismissal will upend this well established position and the underlying processes, and employers simply have to be prepared.
Section C: How Do You Prove Unfair Dismissal?
In a claim for unfair dismissal, the burden of proving that the dismissal was fair lies with the employer. This means that to successfully resist a claim, it is the employer that will have to show that the reason for the dismissal was fair and they acted reasonably in the way the dismissal was carried out.
As such, the employer may need to invest a significant amount of time and cost in defending tribunal proceedings, even where the allegations are disputed. Tribunal scrutiny rarely focuses only on the headline reason for dismissal. The evidence, the process and the consistency of decision-making will usually determine the outcome.
1. Establishing a fair reason
The first step in defending a claim is establishing that the reason for dismissal falls within one of the potentially fair categories under the Employment Rights Act 1996. The employer will need to identify the principal reason for dismissal and provide evidence to support it.
If the employer cannot establish a fair reason, the dismissal will be unfair without the tribunal needing to consider whether the procedure was reasonable.
In cases of automatic unfair dismissal, the position is more restrictive. If an employee can prove they were dismissed for a reason prohibited by law, there will be no need to consider the reasonableness of the decision or the procedural fairness of the employer’s actions.
2. Demonstrating reasonableness and procedural fairness
Even where a potentially fair reason is established, the employer must also show that they acted reasonably in all the circumstances. This includes being able to demonstrate that they followed a fair dismissal procedure and that, at the conclusion of that procedure, their decision to dismiss fell within a range of reasonable responses.
What constitutes a fair procedure will depend on the reason for dismissal. In conduct and capability cases, employers should follow the Acas Code of Practice on disciplinary and grievance procedures. That Code sets out the basic requirements of fairness applicable in dismissal scenarios, including proper investigation, written notification of allegations, a hearing and a right of appeal.
In redundancy scenarios, the tribunal will examine whether there was genuine redundancy, whether fair selection criteria were applied and whether consultation was meaningful.
3. The role of evidence and documentation
A tribunal will look closely at the documentary record. Written warnings, performance improvement plans, consultation notes and internal communications can all become central evidence.
Carefully documenting the dismissal process, including the reasoning behind the employer’s decision-making, forms a key part of any defence. Retaining a clear written record allows the employer to explain the basis on which the decision was reached and to demonstrate consistency with previous decisions in similar circumstances.
4. Why automatic unfair dismissal is harder to defend
An employer faced with a claim for automatic unfair dismissal will usually find the position more difficult. Once it has been established that an employee was dismissed for an automatically unfair reason, the employer loses the ability to justify the dismissal by arguing that it acted reasonably.
In those cases, liability will follow from the prohibited reason itself, rather than from any assessment of process or proportionality. For employers, identifying potential automatic grounds at an early stage of decision-making is therefore central to risk control.
DavidsonMorris Strategic Insight
Consistency and record-keeping serve employers well. If you can prove the reason for dismissal was fair and falls within a statutory permitted ground, and was the basis of the decision, your position is stronger. Tribunals give more weight to contemporaneous records and reasoning over oral evidence.
Section D: Unfair Dismissal Compensation & Financial Exposure
There are various adverse consequences that can arise as a result of a claim for unfair dismissal, even one which does not result in reinstatement. The time and cost involved in defending a tribunal claim can be significant. Allegations of unfairness at work, particularly those that proceed to litigation, can also affect workforce morale and management time.
Where a finding of unfair dismissal is made, the tribunal will usually order the employer to pay compensation. An award is made up of a basic award and a compensatory award. In some cases, reinstatement or re-engagement may also be ordered, although compensation remains the more common remedy.
1. The basic award
The basic award is calculated using a statutory formula based on the employee’s age, length of service and gross weekly pay. Weekly pay is subject to a statutory cap and the maximum length of service taken into account is 20 years.
The formula is:
- 0.5 week’s pay for each complete year of employment when under the age of 22.
- 1 week’s pay for each complete year of employment when aged between 22 and 40.
- 1.5 week’s pay for each complete year of employment when aged 41 or over.
This calculation mirrors the statutory redundancy formula and provides a fixed element of compensation regardless of actual financial loss.
2. The compensatory award
The compensatory award is intended to compensate the employee for financial losses arising out of the dismissal. This commonly includes loss of earnings, but may also cover loss of statutory rights and other financial consequences directly flowing from the termination.
Loss of statutory rights reflects the fact that it will take two years in a new role for an employee to regain full unfair dismissal protection. The tribunal will also consider whether the employee has mitigated their loss by seeking alternative employment.
Until 1 January 2027, the compensatory award is subject to a statutory cap, set at the lower of 52 weeks’ pay or the relevant statutory maximum. In certain cases of automatic unfair dismissal, the compensatory award is not subject to the usual statutory cap even under the current regime.
3. The statutory cap and “average payout” figures
Although the compensatory award is capped until 1 January 2027, the overall financial exposure in unfair dismissal claims varies significantly depending on salary, length of unemployment and the circumstances of the case.
Published figures referring to an “average payout” can be misleading. Tribunal awards are fact specific and depend on evidence of loss, mitigation efforts and any contributory fault by the employee. For employers, the more reliable focus is on potential exposure in the particular case, not on headline averages.
4. Polkey reductions and contributory fault
A finding of unfair dismissal does not always mean full compensation. Tribunals can reduce the compensatory award where the dismissal would have happened in any event, even if a fair procedure had been followed. This is commonly referred to as a Polkey reduction and it is fact sensitive, turning on the tribunal’s assessment of what would probably have occurred had the employer acted fairly.
Compensation can also be reduced for contributory fault where the employee’s conduct contributed to the dismissal. In these cases, the tribunal can apply a percentage reduction to reflect the employee’s blameworthiness and the extent to which their actions caused the dismissal. For employers, these reductions do not cure procedural defects, but they can materially affect financial exposure where the evidence supports them.
5. Reinstatement and additional awards
In addition to compensation, a tribunal can order reinstatement or re-engagement, although these remedies are less common in practice.
Where an employer has failed to follow the Acas Code of Practice on disciplinary and grievance procedures, the tribunal may increase compensation by way of an uplift. This can add further financial risk where procedural defects are identified.
DavidsonMorris Strategic Insight
Remember that compensatory awards in ordinary unfair dismissal claims are currently capped, while discrimination awards are not. The statutory cap on compensatory awards is due to be removed from 1 January 2027 under the Employment Rights Act 2025 reforms.
Beyond this financial risk, unfair dismissal payouts are only one of the outlays associated with tribunal claims. Legal costs and management time will also present a drain on business resources, alongside the risk of reputational impact.
Section E: Time Limits, Tribunal Procedure & Settlement Strategy
An employee who wishes to pursue a claim for unfair dismissal cannot proceed directly to a final hearing. There is a defined statutory process, strict time limits and a requirement to engage in early conciliation before a tribunal will accept a claim.
For employers, understanding the procedural stages is as important as understanding the substantive law. Tribunal risk is shaped not only by the reason for dismissal but also by how the claim is handled once proceedings begin.
1. Time limits for bringing a claim
An unfair dismissal claim must normally be presented to the Employment Tribunal within three months less one day from the effective date of termination. This is a strict limitation period.
Before submitting a claim form, the employee is required to notify Acas and commence Early Conciliation. The limitation period is paused while conciliation is ongoing and extended by the statutory mechanism once conciliation ends.
Late claims are only accepted in limited circumstances where it was not reasonably practicable to present the claim in time.
2. The tribunal process
If Early Conciliation does not result in settlement, the employee may submit a claim form (ET1). The employer must then respond using an ET3, setting out the grounds of resistance.
The tribunal may hold preliminary hearings to determine case management issues, followed by directions for disclosure of documents, witness statements and preparation of a bundle. A final hearing will then determine liability and, if necessary, remedy.
Throughout this process, documentary evidence and the clarity of the employer’s stated reason for dismissal will be central.
3. Settlement options
Many unfair dismissal claims settle before a final hearing. Settlement can take place during Acas Early Conciliation, during the tribunal process or through a separate negotiated agreement.
A settlement agreement can bring claims to an end on agreed terms, often in return for a compensatory payment and confidentiality provisions. For employers, early evaluation of litigation risk and cost exposure often informs the decision whether to defend or resolve a claim.
4. Employer risk management
The best defence to an unfair dismissal claim begins before any dismissal decision is taken. Clear policies, consistent application of procedures, manager training and proper documentation form the foundation of defensible decision-making.
Where dismissal is being considered, employers should review the reason relied upon, identify any potential automatic unfair or discrimination risk and ensure that procedural safeguards are followed. Once proceedings begin, a measured and evidence-based response is central to containing legal and reputational exposure.
DavidsonMorris Strategic Insight
Procedural flaws are one of the most common reasons employers fail in tribunal defence. Regardless of the employee’s conduct, or whether the grounds for dismissal were substantively lawful, a failure in process can result in a finding of unfair dismissal. Compensation may still be reduced where the tribunal concludes the dismissal would have occurred in any event, but liability can arise purely from procedural unfairness.
Section F: Employment Rights Act 2025 Reforms & the Future of Unfair Dismissal
The UK’s current unfair dismissal legal framework is set to undergo significant reform, as the Employment Rights Act 2025 introduces changes taking effect from 1 January 2027. These reforms alter the long-standing balance between qualifying service and employer flexibility. Employers therefore need to assess unfair dismissal risk not only under the current regime but also under the revised statutory model.
1. Reduction of the qualifying period to six months
From 1 January 2027, the qualifying period for ordinary unfair dismissal claims will be reduced from two years to six months’ continuous service. This does not introduce day-one protection. However, it significantly expands eligibility for claims and increases exposure in the early stages of employment. Dismissals taking place after six months of service will fall within tribunal scrutiny under the ordinary unfair dismissal framework.
Employers who have historically relied on the two-year threshold as a practical litigation filter will need to recalibrate their approach to early-stage dismissals.
2. Removal of the statutory compensation cap
The Employment Rights Act 2025 also removes the statutory cap on compensatory awards in ordinary unfair dismissal claims from 1 January 2027.
Under the current regime, compensatory awards are limited to the lower of 52 weeks’ pay or the statutory maximum. From 2027, tribunals will assess compensation by reference to actual financial loss, without an upper statutory ceiling.
Awards will remain subject to established principles of mitigation, causation, contributory fault and potential reductions under the Polkey doctrine. The removal of the cap does not create automatic entitlement to unlimited compensation, but it materially increases potential financial exposure.
3. Practical implications for employers
The reduction of the qualifying period and removal of the compensatory cap together represent a significant shift in dismissal risk.
Employers should review probation processes, early-stage performance management and disciplinary frameworks to ensure that decisions are supported by documented evidence and compliant procedures from an earlier stage in employment.
Informal or lightly documented early dismissals that may previously have fallen outside tribunal jurisdiction after two years’ service are now more likely to be scrutinised once the six-month threshold is met.
In practical terms, unfair dismissal risk will no longer be primarily a two-year issue. From January 2027, it will become a six-month compliance consideration combined with potentially uncapped financial exposure.
DavidsonMorris Strategic Insight
Earlier protection will expand unfair dismissal claim eligibility, and employers will need to take action to protect themselves and adapt their processes to mitigate this increased risk exposure.
Employers should review probation, early-stage performance management and disciplinary procedures, as well as manager discretion, since informal discussions and discretionary decisions can now lead to legal issues if not aligned with formal requirements.
Employees will understand their stronger position, so employers should be ready in case matters do not proceed as intended.
Section G: Summary
Unfair dismissal law in the UK combines statutory definition, procedural scrutiny and financial consequence. Employers need to identify a legally recognised reason for dismissal and demonstrate that their decision fell within a range of reasonable responses, supported by a fair and well documented process. Under the current framework, ordinary unfair dismissal protection generally arises after two years of continuous service.
From 1 January 2027, the qualifying period for ordinary unfair dismissal claims is due to reduce from two years to six months and the statutory cap on compensatory awards is due to be removed. In this environment, probation management, early-stage performance systems and dismissal documentation will require closer discipline, with increased exposure once employees reach six months’ service and potentially uncapped compensatory awards apply.
Section H: Need Assistance?
If you need advice about unfair dismissal, we can help. Whether you are managing a live dismissal, responding to an Employment Tribunal claim or reviewing your procedures in light of the Employment Rights Act 2025 reforms, our employment law specialists can provide tailored guidance on your specific circumstances. Contact us to book a fixed-fee telephone consultation with one of our advisers.
Section I: Unfair Dismissal FAQs
What is unfair dismissal?
Unfair dismissal occurs where an employer terminates an employee’s contract without a legally recognised fair reason, or fails to follow a fair procedure. Under the Employment Rights Act 1996, the employer needs to show both a potentially fair reason and that it acted reasonably in treating that reason as sufficient for dismissal.
What are the fair reasons for dismissal?
The five potentially fair reasons are conduct, capability or qualifications, redundancy, statutory restriction and some other substantial reason. Even where one of these applies, the employer still needs to demonstrate procedural fairness and reasonableness.
Can you claim unfair dismissal with less than two years’ service?
Ordinarily, employees need two years of continuous service to bring an ordinary unfair dismissal claim. However, no qualifying period applies where the dismissal is automatically unfair, such as for whistleblowing, pregnancy related reasons or asserting statutory rights.
What is automatically unfair dismissal?
An automatically unfair dismissal arises where the principal reason for dismissal is prohibited by statute. Examples include dismissal for trade union activity, protected disclosures, health and safety concerns or discrimination linked to a protected characteristic. In these cases, the employer cannot justify the decision by arguing it acted reasonably.
How much compensation can be awarded for unfair dismissal?
Compensation usually consists of a basic award calculated using a statutory formula and a compensatory award for financial loss. The compensatory award is currently capped at the lower of 52 weeks’ pay or the statutory maximum, although certain automatic unfair dismissal claims are not subject to the usual cap. From 1 January 2027, the statutory cap is due to be removed for ordinary unfair dismissal claims.
What is the time limit for bringing an unfair dismissal claim?
A claim must normally be presented to the Employment Tribunal within three months less one day from the effective date of termination. Before submitting a claim, the employee is required to notify Acas and commence Early Conciliation.
How will the Employment Rights Act 2025 reforms affect unfair dismissal?
The reforms propose removing the two year qualifying period so that protection applies after six months of service from January 2027. The compensation cap for unfair dismissal is also set to be removed from January 2027.
Can an employee be dismissed during probation?
Yes, but employers should still ensure there is a fair reason and that a reasonable process has been followed. Under the reforms due to take effect from 1 January 2027, ordinary unfair dismissal protection will apply after six months’ service, so dismissals after that point are more likely to attract tribunal scrutiny.
What is constructive dismissal?
Constructive dismissal occurs where an employee resigns in response to a fundamental breach of contract by the employer. If established, the resignation is treated as a dismissal for the purposes of an unfair dismissal claim.
Section J: Glossary
| Term | Definition |
|---|---|
| Unfair Dismissal | Termination of employment where the employer cannot show a legally recognised fair reason and that it acted reasonably in all the circumstances, as required under the Employment Rights Act 1996. |
| Employment Rights Act 1996 | The primary UK legislation governing unfair dismissal, including the right not to be unfairly dismissed and the statutory framework for assessing fairness. |
| Automatically Unfair Dismissal | A dismissal for a reason prohibited by statute, such as whistleblowing or trade union activity, where no qualifying service is required and the employer cannot justify the decision by reference to reasonableness. |
| Qualifying Service | The minimum period of continuous employment normally required to bring an ordinary unfair dismissal claim, currently two years under the existing regime. From 1 January 2027 this will reduce to six months. |
| Constructive Dismissal | A situation where an employee resigns in response to a fundamental breach of contract by the employer and the resignation is treated as a dismissal in law. |
| Potentially Fair Reasons | The five statutory categories under the Employment Rights Act 1996: conduct, capability or qualifications, redundancy, statutory restriction and some other substantial reason. |
| Some Other Substantial Reason (SOSR) | A broad statutory category allowing dismissal for a substantial business reason not falling within conduct, capability, redundancy or statutory restriction. |
| Basic Award | A statutory element of unfair dismissal compensation calculated according to age, length of service and weekly pay, subject to a cap. |
| Compensatory Award | The element of compensation intended to reflect financial losses arising from dismissal, capped at the lower of 52 weeks’ pay or the statutory maximum in most cases. |
| Range of Reasonable Responses | The legal test applied by tribunals to determine whether an employer’s decision to dismiss fell within the band of reasonable decisions open to a reasonable employer. |
| ACAS Code of Practice | The statutory Code of Practice on disciplinary and grievance procedures, which tribunals consider when assessing procedural fairness and may use to adjust compensation. |
| Employment Tribunal | The judicial body that hears and determines employment law claims, including unfair dismissal cases. |
| Effective Date of Termination | The date on which employment legally ends for the purpose of calculating limitation periods and compensation. |
| Early Conciliation | The mandatory pre-claim process conducted through Acas before an Employment Tribunal claim can be lodged. |
| Probationary Period | An initial period of employment during which an employer assesses suitability for the role, subject to evolving statutory protection under the Employment Rights Act 2025 reforms. |
Section K: Useful Links
| Resource | Description |
|---|---|
| Employment Rights Act 1996 | Full statutory text setting out the right not to be unfairly dismissed and the legal framework for assessing fairness. |
| UK Legislation | Official database of UK Acts of Parliament and secondary legislation, including amendments affecting unfair dismissal law. |
| ACAS Code of Practice on Disciplinary and Grievance Procedures | Statutory guidance considered by tribunals when assessing procedural fairness in dismissal cases. |
| ACAS Early Conciliation | Mandatory pre-claim conciliation process required before issuing an Employment Tribunal claim. |
| Employment Tribunal Claims | Official GOV.UK guidance on bringing or responding to a claim in the Employment Tribunal. |
| Equality Act 2010 | Legislation governing discrimination claims, which may overlap with unfair dismissal where protected characteristics are involved. |
| Statutory Redundancy Pay Calculator | Government tool reflecting the statutory formula that also underpins the basic award calculation in unfair dismissal cases. |
| Employment Rights Act 2025 Reforms | Overview of the current reforms affecting qualifying service, probation and dismissal protections. |
