Unfair Dismissal Rules

Employees with 2 years continuous service can claim unfair dismissal. Employers must show a fair reason (capability, conduct, redundancy, statutory restriction, or SOSR) and follow a fair procedure. From 6 April 2026, the maximum compensatory award is £123,543 or 52 weeks pay, whichever is lower. Under the Employment Rights Act 2025, this is the final increase to the cap before it is abolished from January 2027, when the qualifying period also falls to 6 months.

Last updated: July 2026

2 years

Qualifying service

£123,543

Max compensatory award

£751

Week's pay cap (basic award)

What the Law Says

Part X of the Employment Rights Act 1996 protects employees from unfair dismissal. After 2 years service, dismissal must be for a fair reason under s.98 and the employer must act reasonably. Some dismissals are automatically unfair regardless of service length, including those related to pregnancy, whistleblowing, and trade union membership. The Employment Rights Act 2025 will reduce the qualifying period to 6 months and remove the compensatory award cap entirely from January 2027; as of July 2026 the 2-year qualifying period and the capped award still apply.

Your Obligations as an Employer

  • Only dismiss for one of the five fair reasons under s.98
  • Follow a fair and reasonable procedure before dismissing
  • Consider alternatives to dismissal such as warnings or redeployment
  • Provide written reasons for dismissal if requested (or automatically after 2 years)

What to Include in Contracts

Include clear disciplinary and capability procedures, specify performance review processes, reference the ACAS Code of Practice on Disciplinary and Grievance Procedures, and include appeal rights.

View related contract template

Common Mistakes

  • Dismissing without following the ACAS Code of Practice
  • Not documenting performance issues before capability dismissal
  • Assuming employees with less than 2 years service cannot claim (automatic unfair dismissal has no qualifying period)

FAQ

What are the five fair reasons for dismissal?

Capability or qualifications, conduct, redundancy, statutory restriction (e.g. losing a driving licence needed for the role), and some other substantial reason (SOSR) such as a business reorganisation or breakdown in trust.

What is automatically unfair dismissal?

Certain dismissals are unfair regardless of service length, including dismissal for pregnancy, exercising statutory rights, whistleblowing, trade union activities, asserting minimum wage rights, or refusing to work in unsafe conditions.

Related Topics

Constructive Dismissal

Disciplinary Procedure (ACAS Code)

Redundancy Process

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This is guidance for UK employers, not legal advice. For complex employment law matters, consult a qualified employment solicitor or ACAS.

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