How to Dismiss an Employee Fairly: A UK Small Business Guide

To dismiss an employee fairly in the UK, you need two things: a potentially fair reason for the dismissal, and a fair process for carrying it out. Miss either one and the dismissal can be unfair, even if the employee genuinely deserved to go.

This guide covers both, written for small business owner-managers without an HR department.

Fair dismissal in 30 seconds:

• There are five potentially fair reasons: capability, conduct, redundancy, statutory restriction, and "some other substantial reason"
• A fair process means: investigate, tell the employee the case against them in writing, hold a meeting, let them bring a companion, decide, confirm in writing, offer an appeal
• Currently, ordinary unfair dismissal protection starts at two years' service. From 1 January 2027, that drops to six months under the Employment Rights Act 2025
• Ignoring the Acas Code can add up to 25% to any tribunal award

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The Five Fair Reasons for Dismissal

UK law recognises five potentially fair reasons. Your dismissal must fit one of them:

1. Capability. The employee cannot do the job to the required standard, through poor performance or ill health. See our capability procedure guide.
2. Conduct. Misconduct (repeated lateness, refusing reasonable instructions) or gross misconduct (theft, violence, serious safety breaches).
3. Redundancy. The role is genuinely no longer needed. This has its own process: see our redundancy step-by-step guide.
4. Statutory restriction. Continuing the employment would break the law, for example the employee loses their right to work in the UK.
5. Some other substantial reason (SOSR). A catch-all for genuine business reasons that do not fit the other four, such as an irreparable breakdown in working relationships.

"They were not a good fit" is not on this list. Neither is "I could not afford them any more" (that is redundancy, with a redundancy process). Pick the real reason and name it honestly, because a tribunal will test whether it was genuine.

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The Fair Process, Step by Step

Having a fair reason is half the job. The other half is procedure. For conduct and capability dismissals, follow the Acas Code of Practice on disciplinary and grievance procedures. Tribunals can increase compensation by up to 25% where an employer unreasonably fails to follow it.

Step 1: Investigate First

Gather the facts before deciding anything. Speak to witnesses, collect documents, check records. Do not prejudge the outcome. In a small business the investigator and decision-maker may have to be the same person, and that is acceptable, but keep an open mind and write down what you find.

Step 2: Put the Case in Writing

Write to the employee setting out the specific allegations or performance concerns, the evidence, and a warning that the outcome could be dismissal. Give them enough detail and enough time to prepare a response. 48 hours' notice of the meeting is a sensible minimum.

Step 3: Hold a Formal Meeting

Present the evidence. Let the employee respond fully. Listen, take notes, and be prepared to pause the meeting if something new comes up that needs checking.

Step 4: Allow a Companion

Employees have a statutory right to be accompanied at a disciplinary meeting by a colleague or trade union representative. Tell them this in the invitation letter.

Step 5: Consider Alternatives Before Deciding

For performance: has the employee had a warning and a real chance to improve? For most conduct issues (other than gross misconduct): is this really beyond a written warning? Dismissal for a first offence is usually only fair for gross misconduct.

Step 6: Confirm the Decision in Writing

The dismissal letter should state the reason, the evidence relied on, the notice period and last working day, and the right to appeal.

Step 7: Hear Any Appeal

Offer an appeal and hold it with a different person if your business has one available. If you are the only senior person, hear it yourself with fresh eyes. A fair appeal can cure earlier procedural defects. Skipping it does damage on its own.

For the full procedure with template steps, see our disciplinary procedure guide.

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Notice and Final Pay

Unless you are dismissing for gross misconduct, the employee is entitled to notice: their contractual notice period, or the statutory minimum if that is longer (one week after one month's service, then one week per full year up to twelve weeks). You can pay in lieu of notice if the contract allows it.

Final pay must include accrued untaken holiday. Issue a P45 promptly.

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What Is Changing: October 2026 and January 2027

Two changes under the Employment Rights Act 2025 raise the stakes for small employers:

From October 2026, tribunal time limits double. Employees will have six months instead of three to bring most claims, so a dismissal can come back at you for longer. Keep your records.

From 1 January 2027, the unfair dismissal qualifying period drops from two years to six months. Anyone with six months' service on that date gains protection immediately. The cap on the compensatory award is also being removed. Full detail in our guide to day one unfair dismissal rights and what changed.

The practical consequence: the informal "it's not working out" exit that many small businesses use inside two years stops being safe from January 2027. Your probation process becomes your main protection, and the fair process described above becomes the standard playbook much earlier in employment.

Note that some dismissal reasons are automatically unfair from day one already, with no service requirement: pregnancy, whistleblowing, trade union activity, and asserting statutory rights. Discrimination claims also have no qualifying period.

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Common Mistakes Small Businesses Make

• Dismissing on the spot. Even for apparent gross misconduct, suspend on full pay and investigate first. Instant dismissal without a meeting is almost always procedurally unfair.
• No paper trail. "We told him verbally loads of times" carries little weight at tribunal. Put concerns in writing as they happen.
• Using redundancy as a cover. If the role is readvertised three weeks later, the redundancy was not genuine and the dismissal is unfair.
• Skipping the process for short-service staff. Risky now (discrimination and automatically unfair claims have no qualifying period) and not viable at all from January 2027 for anyone past six months.
• Inconsistency. Dismissing one person for something you tolerated from another will be picked apart by a tribunal.
• No appeal offered. It costs you one meeting and removes an easy procedural criticism.

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FAQ: Dismissing an Employee Fairly

Q: Can I dismiss an employee with less than two years' service without a process?

Currently, employees with under two years' service usually cannot claim ordinary unfair dismissal, so the procedural risk is lower. But discrimination, whistleblowing and other automatically unfair dismissal claims apply from day one regardless of service. And from 1 January 2027 the qualifying period drops to six months. Following a basic fair process is cheap insurance even now.

Q: Do small businesses have to follow the Acas Code?

Yes. There is no small business exemption from the Acas Code of Practice on disciplinary and grievance procedures. Tribunals take size and resources into account when judging what was reasonable, so a five-person company is not held to the standards of a corporate HR department, but the core steps (investigate, meet, allow a companion, appeal) apply to everyone.

Q: How much does an unfair dismissal claim cost an employer?

Defending a tribunal claim typically costs employers around £8,500 in legal fees, win or lose. Awards include a basic award (calculated like statutory redundancy pay) plus a compensatory award for lost earnings. The compensatory cap is being removed from January 2027, so the downside risk is increasing.

Q: Can I just offer the employee money to leave instead?

Yes, via a settlement agreement. The employee waives their right to bring claims in exchange for a payment, and must take independent legal advice for it to be binding. This is often the pragmatic route when the relationship has broken down. See our settlement agreement guide.

Q: What counts as an automatically unfair dismissal?

Dismissals for pregnancy or maternity, whistleblowing, trade union membership or activity, asserting a statutory right (like requesting the minimum wage), and certain health and safety actions. These need no qualifying service and awards for some are uncapped already. The reason for dismissal matters more than the length of service.

Q: Do I need to give a dismissed employee written reasons?

Employees with two years' service can request written reasons and you must respond within 14 days. From 1 January 2027 that right kicks in at six months' service. Either way, your dismissal letter should state the reason clearly: it is your best evidence that the dismissal was fair.

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Get the Process Right Before You Need It

Most unfair dismissal claims are lost on process, not reason. A documented disciplinary procedure, used consistently, is the difference between a defensible dismissal and a settlement cheque.

EmployerKit Audit from £49. Upload your employment contract and we check it against current law and the Employment Rights Act 2025 changes, including your probation and notice clauses.

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Last updated: June 2026

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Sources and further reading

Official guidance and legislation referenced in this guide:

• Dismissals (Acas)
• Following a fair procedure (Acas)
• Unfair dismissal (Acas)
• Dismissing staff (GOV.UK)
• Employment Rights Act 2025 (legislation.gov.uk)
• Unfair dismissal rights (business.gov.uk)