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Unfair dismissal claims can be stressful for small businesses and damaging to team morale if you handle them badly. Thankfully, you can avoid most claims by following a clear, lawful process that treats your people fairly.
This guide covers what unfair dismissal means at work. We’ll share real-life examples of cases that show where employers go wrong, and practical steps to protect yourself and the business from unfair dismissal claims.
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What is unfair dismissal?
Unfair dismissal is covered by the Employment Rights Act 1996. It occurs when an employer ends someone's employment without a valid reason, without following a fair process, or both.
Unfair dismissal is different from:
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Wrongful dismissal, which is a breach of contract claim.
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Constructive dismissal, where an employee feels forced to resign due to their employer's conduct.
Unfair dismissal focuses on whether you had a fair reason for ending the employment and whether you followed the right steps.
When can employees claim unfair dismissal?
Historically, employees have been able to bring an unfair dismissal claim once they've been in a job for two years. But from 1 January 2027, this two-year threshold will change as part of the Employment Rights Act 2025, creating a shift in how unfair dismissal claims work. Employees will only need six months' service before they can raise an unfair dismissal claim.
Anyone already in post on that date with six months' service will be protected immediately. Currently, unfair dismissal compensation is capped, so employees can claim up to £118,223 or 52 weeks' gross pay, whichever is the lower figure. From 2027, the cap will be removed entirely, and tribunals will assess compensation based on actual financial loss, with no upper earning limit. And from October 2026, the time limit for employees to bring a claim increases from three to six months.
The main takeaway here is that line managers and business owners should have clear systems in place from day one, so they can follow a fair process if a dismissal is ever on the cards.
What are potentially fair reasons for dismissal?
The Employment Rights Act 1996 sets out five potentially fair reasons for dismissal.
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Conduct: Behaviour or misconduct that breaches company policies or professional standards.
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Capability or qualifications: A lack of skill, competence, health, or qualifications needed to do the job.
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Redundancy: The role is no longer required, often due to business changes or restructuring.
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Illegality (statutory restriction): Continuing employment would break the law, for example, if someone no longer has the right to work in the UK.
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Some other substantial reason (SOSR): A catch-all category suitable for other reasons that don’t fit into any of the other categories. It’s often used when an employer needs to change the terms and conditions of an employment contract and the employee doesn't agree.
3 real-life unfair dismissal claims: what to learn from them
The following cases come from real Employment Tribunal and Employment Appeal Tribunal decisions. They're useful reminders of how easy it is to get things wrong, even with good intentions.
Case 1. Omar v Epping Forest District Citizens Advice: An example of “heat-of-the-moment resignations”
In the case of Omar v Epping Forest District Citizen Advice, the Employment Appeal Tribunal (EAT) overturned a tribunal's decision that had previously stopped an employee from bringing an unfair dismissal claim. Rashid Omar resigned from his role at the Epping Forest District Citizens Advice in February 2020, during a heated exchange with his manager. He later tried to reverse his decision, arguing that his resignation had been given in the “heat of the moment.”
The employer refused to let Mr. Omar change his mind, and officially ended his employment. Mr Omar then filed an unfair dismissal claim, and the employment tribunal initially rejected the claim, confirming that his resignation was valid.
Tribunal decision
Disagreeing with the tribunal's rationale, the EAT ordered a fresh tribunal hearing and provided guidance on 'heat of the moment' resignations relevant also to dismissals.
What the EAT said
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Employers shouldn’t take words of resignation at face value. They need to be assessed in full, looking at the full context.
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A resignation made in the heat of the moment isn't always meant.
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What the employee was privately thinking doesn't come into it. What matters is what the employer understood, and what any reasonable person in their position would have understood.
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What happens after the resignation can be useful evidence, but the longer the gap, the more likely it points to a change of mind rather than the employee never intending to resign.
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There's no separate rule for heat of the moment situations. The same principles apply in every case. The question is always the same: was the resignation meant?
What this means for you
If someone says "I quit" in the middle of a tense conversation, pause before acting. Give them a cooling-off period (typically 24 hours) and check whether they meant to resign. If you act too quickly, you could end up facing an unfair dismissal claim.
Case 2. Joseph de Bank Haycocks v ADP RPO UK Limited: Redundancy consultations
In Joseph de Bank Haycocks v ADP RPO UK Limited, the EAT ruled that the employer not consulting with employees before the redundancy selection process made the subsequent dismissal unfair. Mr Haycocks, an employee, was placed at risk of redundancy without being consulted. He wasn't shown the selection criteria or how the employers had scored him during the selection process until his appeal, by which point it was too late to make a difference.
The employer argued that sharing this information at the appeal stage was enough to correct the earlier oversight. The EAT disagreed.
Tribunal decision
The EAT ruled the dismissal unfair. Trying to fix a lack of early consultation at the appeal stage doesn't undo the damage.
What the EAT said
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Consultation needs to happen early, during the planning process, not after you’ve made any final decisions.
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Employees must have enough information and time to respond properly.
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An appeal can address some shortcomings in the process, but it can't fix a fundamental failure to consult at the formative stage.
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The redundancy process should be looked at as a whole. The consultation is important because it gives employees a chance to influence the outcome and keep their job.
What this means for you
Don't wait until scoring is done and decisions are made before involving the people affected. Bring employees into the conversation early, explain what's happening and why, and give them a real chance to respond. Getting this right from the start is easier than trying to fix it later.
Case 3. Borg-Neal v Lloyds Banking Group PLC: The importance of context
In Borg-Neal v Lloyds Banking Group PLC, a manager at Lloyds Banking Group named Mr Borg-Neal attended a race awareness training session run by an external provider. As part of the training, he asked what a line manager should do if they heard a particular offensive racial term. He used the word in full to illustrate his question.
Following an internal investigation, Mr Borg-Neal was dismissed for gross misconduct. He brought claims against the bank including unfair dismissal and discrimination.
Tribunal decision
The tribunal found the dismissal unfair and the bank’s investigation poor. Mr Borg-Neal had used the word once, in an educational context, and apologised immediately. His question was well-intentioned; he was seeking guidance, not causing harm.
What the tribunal said
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Context is everything. The same word can mean very different things depending on who said it, why, and in what setting.
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Mr Borg-Neal wasn't causing harm but asking how to address it.
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The investigation was inadequate. The dismissing manager conflated two separate questions: whether the word should have been used, and whether dismissal was proportionate.
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The employee’s swift and sincere apology, combined with a clear willingness to learn, should have been taken into account.
What this means for you
When handling potential misconduct around language, don't rush to the most serious sanction. Ask yourself what the employee’s intent was, how the person responded, and whether dismissal is proportionate to the situation. A thorough investigation that separates what happened from what the right consequence is will always be the right choice.
How to reduce your risk of an unfair dismissal claim
After identifying a potentially fair reason for dismissal, the next step is to work through the steps below to make sure you’ve checked all the necessary boxes to protect your business.
Follow a fair process from the start
Set clear expectations around performance and conduct from day one. Before taking any disciplinary or capability action, investigate thoroughly and impartially, and give the employee a chance to respond before jumping to a decision.
You should also follow your company's disciplinary procedures and, where relevant, the ACAS Code of Practice on disciplinary and grievance procedures. This Code applies to conduct and capability dismissals, but not to redundancy, illegality, or SOSR.
Apply procedures consistently
If you treat similar situations differently across your team, you risk an unfair dismissal claim and also potential discrimination claims. Get around this by making a simple but important check: would you handle this the same way for anyone else in the team?
Example: If one employee receives a formal written warning for persistent lateness but another in the same team is only given an informal chat for the same behaviour, this inconsistency could cause a problem. If the first employee then brings a claim, the difference in treatment will be hard to explain.
Document everything
If a claim is ever made, your documentation tells the story of your process, so keep a clear written record at every stage. Without this information, it becomes your word against theirs. Keep hold of:
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Notes from meetings and conversations
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Evidence you used as part of the process
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Any warnings or improvement plans
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Written confirmation of outcomes, including any right of appeal
Handle redundancy with care
In redundancy situations, consult with affected employees early, before you’ve made any definite selection decisions, and explain the business reasons clearly. You'll also need to show:
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how you considered who was at risk
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how individuals were scored against fair criteria
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whether you explored alternatives to dismissal.
Where 20 or more employees are affected, additional collective consultation obligations apply.
Extra tips for line managers
Line managers play a critical role in protecting the business from dismissal claims. Here are a few things to keep at the front of your mind.
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You're often the one who sets the tone. Setting clear expectations and having honest conversations early on makes it far less likely that you'll ever reach a dismissal situation in the first place.
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You're not HR, and that's okay. Your job isn't to know every detail of employment law. Your job is to follow the process you've been given, document what you do, and know when to ask for help.
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When things get serious, don't rush. One of the most common mistakes in dismissal situations is moving too quickly. A thorough, well-documented process protects both you and the business, even if it takes more time upfront.
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You should never deliver a dismissal decision alone. In most businesses, final dismissal decisions should be made with HR or senior leadership involved. Know your company's process and follow it.
Protecting your small business against unfair dismissal
Most unfair dismissal claims are avoidable. They tend to happen when a process is rushed, skipped, or poorly documented, not because an employer set out to do the wrong thing.
The cases in this guide are a useful reminder that even well-meaning decisions can unravel without the right process behind them. Following the steps outlined here, keeping clear records, and making sure your managers know when to ask for help will put you in a much stronger position, both legally and as an employer.
With the changes coming in 2027, there's no better time to review where you stand.
Want to build your confidence in this area? The free Employment Law Essentials for Line Managers course on the Breathe Growth Academy covers everything you need to know.
This article was written with input from Thomas Fuller, Associate Lawyer at Omny Law and Tessa Robinson, Senior Associate Lawyer at Outset, employment law experts from Breathe’s Partner Programme.
FAQs about unfair dismissal claims
What is automatic unfair dismissal?
Some dismissals are automatically unfair, regardless of how long someone has worked for you. This means you don't need two years' service (or six months' from 2027) to bring a claim. Dismissing someone for automatically unfair reasons is one of the most serious mistakes an employer can make, and compensation is uncapped.
A dismissal is automatically unfair if the reason is connected to things like pregnancy or maternity leave, whistleblowing, trade union membership or activity, or raising a health and safety issue. Dismissing someone for asserting a statutory right, such as requesting flexible working or a rest break, also falls into this category.
The Equality Act 2010 adds another layer of protection here too: if the real reason for a dismissal is connected to a protected characteristic such as age, disability, or race, you could be facing both an unfair dismissal claim and a discrimination claim at the same time.
What is constructive unfair dismissal?
Constructive unfair dismissal happens when an employee feels they have no choice but to resign because of their employer's conduct.
A serious breach of the employment contract, such as cutting someone's pay without agreement, bullying, or failing to address a grievance, can entitle an employee to treat themselves as dismissed and bring a claim.
It's worth knowing that constructive dismissal claims can be harder to defend precisely because the employer often doesn't realise they've done anything wrong.
What is the statutory minimum dismissal procedure?
The statutory minimum dismissal procedure sets out the basic steps an employer must follow before dismissing someone. At a minimum, this means putting the concerns in writing, holding a meeting to discuss them, and giving the employee the right to appeal. Failing to follow even these basic steps can make an otherwise fair dismissal unfair, and may result in any compensation awarded being increased by up to 25%.
Does legal expenses insurance cover unfair dismissal claims?
Some business insurance policies include legal expenses insurance that can cover the cost of defending an employment tribunal claim, including unfair dismissal. It's worth checking your policy before a situation escalates, as the cost of defending a claim can be significant, even if it’s successful. From 2027, with compensation becoming uncapped, having appropriate cover in place is more important than ever.
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