Unfair dismissal: What Private Client employers need to know before 1 January 2027

From 1 January 2027, the rules on unfair dismissal are changing significantly. Whether you employ a household manager, a family office team or private estate staff, these reforms will affect how you recruit, manage and dismiss employees.

What is changing?

The Employment Rights Act 2025 introduces two major reforms to the unfair dismissal regime, both taking effect on 1 January 2027:

• A shorter qualifying period. The continuous service required before an employee can claim ordinary unfair dismissal is being reduced from two years to six months. Anyone with six months' service on 1 January 2027 will be covered immediately.
• Removal of the compensation cap. Currently, the compensatory award is capped at the lower of one year's gross pay or £123,543. From January 2027, this cap is being abolished entirely, with tribunals able to award compensation based on the employee's full financial loss. 

What does this mean in practice?

For private clients, family offices and private household employers, the practical implications are significant:

• Hiring decisions carry greater weight. With protection arising after just six months, there is a much shorter window to assess new employees. Thorough interviewing, referencing and skills assessments are more important than ever.
• Probationary periods need to be tighter. Best practice is shifting towards shorter, more structured probationary periods of three to five months with clear objectives from day one and regular check-ins, so issues are addressed well before the six-month mark.
• Dismissals become higher-stakes. The removal of the compensation cap is particularly significant for employers of senior or highly paid staff. Where an unfairly dismissed employee can demonstrate substantial financial loss, the potential award could far exceed the previous cap. This brings ordinary unfair dismissal claims closer in value to discrimination or whistleblowing claims, which have always been uncapped.  
• Process matters more than ever. Tribunals will continue to assess whether the employer followed a fair procedure, including the ACAS Code of Practice. An unreasonable failure to follow the Code can result in a compensation uplift of up to 25%, and with compensation now uncapped, that uplift could be substantial. 

Some commentators have expressed concern that these reforms may discourage recruitment. In practice, however, businesses have always needed to hire and will continue to do so.  The key is to adapt by taking a more structured and organised approach to workforce management.

What should employers do now?

Employers can take a number of practical steps before January 2027:

Review employment contract

Check that contracts contain well-drafted probationary period clauses aligned with the new six-month threshold, clear notice provisions (including pay in lieu of notice clauses) and appropriate post-termination restrictions.

Update disciplinary and capability procedure

Ensure your procedures are consistent with the ACAS Code of Practice and set out clear steps for investigation, a formal hearing and a right of appeal. Strengthen onboarding.  
Put in place structured induction programmes with documented objectives, regular performance reviews during the probationary period and a formal sign-off process before confirming employment.

Train managers

Anyone responsible for managing staff should understand the new legal landscape, including how to conduct fair performance conversations, document concerns and escalate issues in good time.

Address underperformance early.

Do not hope that problems will go away or will just resolve themselves. If a new employee is not meeting expectations, raise concerns during the probationary period and, if necessary, take action before the six-month qualifying period is reached.

How we can help

These reforms represent a significant shift in the employment law landscape, and preparation is key. Small employers are not exempt. These reforms apply regardless of the size of the employer. Private households and family offices, which often lack dedicated HR support, may be particularly vulnerable if procedures are informal or undocumented.

If you would like to discuss how the changes may affect your household, family office or private business, or if you would like us to review your employment contracts and procedures, please do not hesitate to get in touch. Employers who prepare now and put robust processes in place will be well positioned to continue recruiting effectively under the new regime.