The Changing Face of Unfair Dismissal: What "Fair" Actually Means

If you manage a business, lead an HR team, or work in the UK, you have likely heard the whispers (or shouts) across the industry: unfair dismissal rights are changing from 1st January 2027.

Under the Employment Rights Act reforms, the traditional two-year qualifying period for ordinary unfair dismissal is dropping to just six months. On top of that, the statutory cap on unfair dismissal compensation is being removed.

What does this mean in practice? The days of relying on a multi-year cushion to sort out bad hires or poor fits are coming to an end. probation and performance tracking will matter from week one.

However, amidst all the noise about qualifying service, one core principle remains unchanged: an employer must always have a legally valid reason to end employment and follow a fair procedure.

Under UK employment law, there are five potentially fair reasons for dismissal. Here is what "fair" actually means when breaking them down.

1. Conduct (or Misconduct)

Dismissal for conduct occurs when an employee acts inappropriately or breaches company policies, values, or contractual rules.

Conduct generally falls into two buckets:

• Ordinary Misconduct: Minor or repeated infractions, such as persistent lateness, unexcused absence, or poor attitude. In these cases, dismissal should usually be the last resort after a series of formal warnings.

• Gross Misconduct: Severe offences that destroy the underlying trust and confidence in the employment relationship, such as theft, fraud, violence, gross negligence, or severe breach of health and safety. Gross misconduct can justify summary dismissal (dismissal without notice), but only after a prompt, thorough investigation and fair disciplinary hearing.

You cannot simply fire someone on the spot for misconduct without following the ACAS Code of Practice. Investigation, clear evidence, a formal hearing, and the right to appeal are non-negotiable.

2. Capability (or Performance)

Capability relates to whether an employee is physically, mentally, or technically able to do the job they were hired to perform.

This reason splits into two distinct categories:

• Skill & Performance: The employee cannot meet the required performance standards, lacks key skills, or struggles to produce work of acceptable quality.

• Health & Ill Health: Long-term illness or persistent short-term absences that prevent the employee from carrying out their role effectively.

For capability dismissals, a tribunal will ask: "Did you support them before letting them go?" For performance issues, you must show clear KPIs, formal training, and a structured Performance Improvement Plan (PIP). For health issues, you must explore occupational health reports, phased returns, and reasonable adjustments before considering termination.

3. Redundancy

A dismissal is due to redundancy when the employer’s requirement for employees to carry out work of a particular kind - or at a specific location - has ceased or diminished.

Redundancy typically happens when:

• A business or location closes down.

• Fewer employees are needed to complete the work (e.g., due to automation or restructuring).

• Roles are restructured or merged to save costs.

Redundancy is about the role, not the person filling it. To prove fairness, employers must establish a genuine redundancy situation, use objective selection criteria (like skills, attendance, or performance metrics), conduct transparent group and individual consultations, and explore suitable alternative employment within the company.

4. Statutory Restriction / Illegality

This occurs when continuing to employ someone would breach a legal duty or statute. In short: it has become illegal for the employee to keep doing their job.

Common examples include:

• Right to Work: An employee loses their immigration visa status or legal right to work in the UK.

• Loss of Driving Licence: A delivery or professional driver loses their licence and driving is a core contractual requirement.

• Professional Qualifications: A practitioner loses their professional registration (e.g., medical, legal, or financial accreditations) necessary to legally practice.

While statutory illegality seems black-and-white, employers must still act reasonably. Before dismissing, you must verify the legal position (e.g., checking with the Home Office) and explore whether the role can be temporarily adjusted or if non-regulated duties exist while the issue is resolved.

5. Some Other Substantial Reason (SOSR)

"Some Other Substantial Reason" (SOSR) acts as the legal category for genuine, business-critical dismissals that do not fit neatly into conduct, capability, redundancy, or statutory restriction.

Examples of SOSR include:

• Severe Conflicts of Interest: An employee has a close relationship with a main competitor that creates an unresolvable commercial risk.

• Irreparable Breakdown of Working Relationships: An ongoing clash between key team members or senior staff where mediation and restructuring have completely failed.

• Client Demands: A major client firmly refuses to work with a specific staff member, and the employee cannot be reassigned elsewhere.

• Refusal to Accept Necessary Reorganisations: Reasonable, essential contractual changes that an employee refuses to sign up to (though employers must navigate this route with extreme care due to strict rules on fire-and-rehire practices).

SOSR is not a "get out of jail free" card for vague management decisions. The reason must be substantial, backed by business evidence, and arrived at through consultation and clear rationale.

Having one of these five valid reasons only accounts for half of a fair dismissal. The second half is procedural fairness.

Whether dealing with conduct, capability, or SOSR, employment tribunals look at two main questions:

1. Did (you) the employer have a genuine, justifiable reason under one of the 5 categories?

2. Did (you) the employer act reasonably and follow a proper process to arrive at the decision?

With the 1st January 2027 threshold reduction approaching, the best time to audit your probation periods, review manager training, and update disciplinary policies is right now. Getting processes right early ensures a compliant, fair workplace long before the rules change.

Want to know more? We can offer UK Employment Law & Compliant HR Processes full day training session, enquiry at support@ig-hr.co.uk.