Redundancy & the 2027 Employment Law Changes
What the January 2027 Employment Law Changes Mean When You Make Someone Redundant
Most business owners quietly assume that a newer employee “can't really claim” if a redundancy goes wrong. It's the kind of common-sense rule of thumb that's held true for years. From January 2027 the law around redundancy will change, and the change reaches people already on your payroll today.
Here's the short version: a fair, well-documented redundancy process matters more from 2027 than it ever has, because far more employees will be able to challenge one, and from 2027 there's no cap on what a successful claim can cost you. If you're planning any redundancy, even a single role, it pays to understand what's changing before you act.
The headline change: unfair dismissal from six months, not two years
From 1 January 2027, the qualifying period for ordinary unfair dismissal drops from two years to six months. In plain terms: an employee needs only six months' service to bring an unfair dismissal claim, rather than the two years most employers are used to. If you make someone redundant and the process is flawed, far more of your workforce will now be able to challenge it.
One thing to be clear on: this is not a “day-one” right. There was talk of unfair dismissal applying from the first day of employment, but that was dropped. The settled position is six months. Plenty of older content (and some competitor articles) still says day-one, so ignore it.
The catch most employers miss: it reaches people you've already hired
This isn't a problem you can park until 2027. Because continuous service counts right up to the switch-over date, anyone employed on or before roughly the start of July 2026 will already have six months' service on 1 January 2027, so they're protected from the very first day the new rules apply.
In other words, the clock is already running on your current team. Redundancy decisions you're weighing up now are affected, not just ones you'll make next year.
The cap is gone
Alongside the shorter qualifying period, the cap on the compensatory award for unfair dismissal is set to be removed from 1 January 2027. Today there's a ceiling on what a tribunal can award for that part of a claim. From 2027 that ceiling is due to go. A successful claim from a botched redundancy can reflect the employee's full financial loss, which can run well beyond the current limit. The cost of getting a redundancy wrong is going up.
The two “2-year rules” people mix up, and the one that catches employers out
Here's the confusion that trips people up, and it's worth getting straight, because getting it wrong is exactly how employers under-prepare. There are two different “two-year” ideas, and only one of them is changing:
The two different “2-year” ideas | What's happening |
Qualifying period to claim unfair dismissal | Dropping from 2 years to 6 months on 1 January 2027 |
Qualifying service for statutory redundancy pay | Staying at 2 years, unchanged, and still capped |
So an employee with, say, nine months' service may be owed no statutory redundancy pay at all, but from 2027 can still bring an unfair dismissal claim if you handle the process badly. “They haven't got two years, so we're fine” stops being true. The pay rule and the claim rule are two separate things.
“Can I just let them go before January?” Why that plan backfires
It's the obvious reaction: if the new rules bite from 1 January 2027, why not dismiss a recent hire in December and stay under the old two-year rule? Because the law closes that door. When you dismiss someone, their statutory minimum notice, a week, is added to their leaving date for the purposes of working out length of service for an unfair dismissal claim.
So someone you dismiss right at the end of December 2026 can have their termination date pushed into January, which puts them under the new six-month rule, not the old one. Trying to time a dismissal to beat the deadline is exactly the kind of move that lands you in a tribunal you thought you'd avoided. The safer approach is to get the process right, whatever the date.
A wider claim window, and an enforcer with a long memory
Two further changes raise the stakes. From 1 October 2026, the time limit for bringing most tribunal claims is six months rather than three, so employees have far longer to decide to challenge a redundancy. And with the Fair Work Agency now enforcing employment rights, and new rules requiring key employment records to be kept for at least six years, anything you decide now needs to be documented and defensible for a long time.
The collective side, briefly
If you're making 20 or more redundancies, note that the maximum penalty for failing to carry out proper collective consultation doubled to 180 days' pay in April 2026, with a further organisation-wide trigger expected in 2027. That's a bigger exercise than this post covers. For those, see our larger-scale redundancy support.
What to do before you make a redundancy now
Assume any employee could challenge it. Run a full, fair process regardless of how long someone's been with you. Short service is no longer the safety net it was.
Document everything: the business case, the selection pool, the consultation, the alternatives you considered. With new six-year record-keeping rules and the Fair Work Agency now enforcing them, records aren't optional.
Don't try to beat the deadline. Timing a dismissal to dodge the new rules doesn't work, and it looks bad if it's tested. Instead, tighten your probation and early-performance reviews now, while you still can, so genuine fit issues are dealt with properly rather than left for a quiet exit later.
Take advice on any borderline case before you act. The cost of getting it wrong has just gone up, and a modest saving can turn into an uncapped claim.
How Precision HR helps
We make sure your redundancy stands up under the new rules, covering the business case, the paperwork and the timing, so a cost-saving decision doesn't turn into an uncapped claim. Whether it's a single role or a full restructure, we'll guide you through it properly.
Book a free, no-obligation consultation to talk it through. For ongoing support, take a look at HR Flex Support or the HR Partnership Plan.
FAQs
What is the redundancy “2-year rule”?
It usually refers to needing two years' continuous service to qualify for statutory redundancy pay, and that stays the same. Don't confuse it with unfair dismissal, where the qualifying period drops from two years to six months on 1 January 2027. An employee can lack redundancy pay but still bring an unfair dismissal claim.
Can you make someone redundant with under two years' service?
Yes, you can, and they may not be owed statutory redundancy pay. But from January 2027 they can still claim unfair dismissal if the process wasn't fair, so short service is no longer the safety net it used to be.
When do the 2027 redundancy changes take effect?
The main changes, a six-month unfair dismissal qualifying period and removal of the compensation cap, take effect on 1 January 2027. Because service counts up to that date, employees hired around mid-2026 are already in scope, so it affects decisions you make now.
Is the cap on unfair dismissal compensation really being removed?
Yes. From 1 January 2027 the cap on the compensatory award is due to be removed, meaning a successful claim can reflect the employee's full financial loss. For employers, that raises the cost of an unfair redundancy significantly.
What is the 4-week / 12-week rule in redundancy?
The 4-week rule is the statutory trial period: if you offer someone a suitable alternative role, they can try it for four weeks (extendable in writing if they need training) without losing their redundancy pay if it doesn't work out. The 12 weeks usually refers to the reference period used to work out an average week's pay where someone's hours or pay vary, which then feeds the redundancy pay calculation. Neither is changing in 2027, but both matter when you plan a redundancy properly, and our guide on making an employee redundant walks through them.
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