The Real Cost of Getting Redundancy Wrong: What UK Small Business Owners Need to Know

Employment tribunal claims are rising at a pace that should alarm every small business owner in the UK. If you are planning a redundancy and you get the process wrong, the financial and operational consequences are severe. This is not a theoretical risk. It is happening to businesses like yours right now and the law is about to make it significantly worse.

The numbers that should stop you in your tracks

Let us start with the data, because it is worse than most people realise.

Unfair dismissal complaints reached 5,481 in Q3 2025/26 alone — up 72% year on year. Unfair dismissal now makes up 53% of all single employment tribunal claims.

Single claims overall hit 10,424 in Q3 2025/26, a 61% increase compared to the same quarter the year before. The mean time to clear a claim has risen from 19 weeks a year ago to 31 weeks now, a 63% increase in twelve months.

Claims relating to redundancy pay are climbing, with increases of around 25% year on year.

The total number of open single claims in Q2 2025/26 was 52,000 — a 30% increase from 40,000 open claims the previous year. Experts anticipate an even steeper increase as the measures set out in the Employment Rights Act 2025 come into force.

These are not statistics about large corporations with dedicated legal teams. The majority of these claims are against small and medium-sized businesses — precisely the businesses that can least afford to deal with them.

What a tribunal claim actually costs you

This is where most business owners underestimate the exposure. They think about the compensation award. They do not think about everything else.

The compensation award

In 2023 to 2024, the average award for unfair dismissal was £13,749.

An average of £14,000 and a maximum of £179,000 was awarded across cases in the UK in 2023 to 2024.

That is the award the employee receives if the tribunal finds in their favour. It is painful but it is only part of the cost.

Your legal fees

Legal fees for defending a tribunal claim typically range from £10,000 to £18,000 plus VAT for a simple case, £18,000 to £30,000 for medium complexity, and £24,000 to £54,000 or more for discrimination or whistleblowing claims.

Read that again. Even for a straightforward, simple case, you are looking at £10,000 to £18,000 in legal fees. Before the award. Before any settlement. Just to defend yourself.

The management time you will never get back

Defending a tribunal claim can consume up to one month of management time when you account for document collation, evidence gathering, preparing witness statements, corresponding with solicitors, and attending the hearing itself. For an SME with a small leadership team, losing a director or senior manager for weeks at a time has a disproportionate impact on the business. Projects stall, decisions get delayed, and the day-to-day running of the company suffers.

For a small business, one month of a director's time is not an abstract cost. It is deals not closed, decisions not made, and a business running at reduced capacity for weeks.

The timeline

The average unfair dismissal case takes 33 weeks from filing to resolution. Cases that proceed to a full hearing sit closer to 47 weeks or beyond.

The average wait from a tribunal claim being filed to a final hearing is approximately 12 months, with some claims taking up to 18 months to reach a conclusion.

Eight months to a year and a half of uncertainty, legal correspondence, and distraction. For a small business owner who just wanted to restructure their team and move forward, this is devastating.

The total exposure

Add it up for a single unfair dismissal claim that goes to a full hearing:

Cost element Amount Compensation award (average) £13,749 Legal fees to defend (simple case, minimum) £10,000 Management time (conservative estimate) £8,000 Stress, distraction, reputational damage Incalculable Minimum total exposure £31,749

For a business with ten employees and a turnover of £500,000, this is not a rounding error. It is an existential financial event.

It gets worse: the Employment Rights Act 2025

Everything above reflects the current environment. The law is about to change in ways that will make the risk significantly greater for small businesses.

The Employment Rights Act 2025 received Royal Assent on 18 December 2025. From 1 January 2027, the qualifying period for unfair dismissal rights will reduce from two years to six months. At the same time, both statutory caps on unfair dismissal compensation will be abolished entirely.

Let that sink in. Two changes, both coming at once.

Change 1: Six months instead of two years

Currently, an employee needs two years of continuous service before they can bring an unfair dismissal claim. From January 2027, that threshold drops to six months.

Around 6.3 million employees — 22% of all employed adults — have been working with their current employer for between six months and two years. These employees currently have only very limited protection against unfair dismissal.

From January 2027, every single one of them will have full unfair dismissal protection. If you make any of them redundant from that date and you get the process wrong, they can bring a claim.

Change 2: The compensation cap is gone

The statutory caps on unfair dismissal compensation will be abolished. Currently, the compensatory award is capped at the lower of 52 weeks' gross pay or £118,223.

With the six-month qualifying period and uncapped compensation both applying from 1 January 2027, employers have a narrowing window during 2026 to proactively prepare for this change.

Remove the cap and the financial exposure for a single wrongly handled redundancy — particularly one involving a well-paid employee — becomes open-ended.

Why redundancy claims succeed: the process failures that cost employers

Here is the critical point. The majority of successful tribunal claims do not succeed because the employer made the wrong business decision. They succeed because the employer followed the wrong process.

A redundancy that is genuine, for a legitimate business reason, affecting the right person — can still be found unfair by a tribunal if the process was flawed. The most common process failures, in order of frequency, are:

Failing to consult genuinely. Issuing an at-risk letter and a confirmation letter within days of each other, or holding a consultation meeting that was clearly a formality, tells a tribunal that the decision was made before consultation started.

No documented selection process. If multiple employees do the same role and you cannot produce an objective, scored, documented selection matrix applied consistently before the decision was made, your selection will not withstand scrutiny.

Ignoring protected categories. Employees who are pregnant, on maternity leave, have a disability, or have recently raised a grievance have additional legal protections. Making them redundant without specialist guidance significantly elevates the risk — and in some cases creates exposure to discrimination claims, which carry uncapped compensation.

Failing to consider suitable alternative employment. Before confirming any redundancy, an employer must genuinely consider whether another role exists that could be offered to the affected employee. Skipping this step is a common and expensive oversight.

Getting the financial calculation wrong. Underpaying statutory redundancy pay, miscalculating notice periods, or forgetting accrued holiday pay turns a clean redundancy into a financial dispute.

Missing letters or issuing them in the wrong order. The sequence of documents matters. Each letter is a timestamped record of the process. A gap in the sequence — or letters issued out of order — raises questions that are difficult to answer in a tribunal.

Even winning costs you

One of the most misunderstood aspects of employment tribunal risk is that winning is not free.

Approximately 79% of employment tribunal cases are resolved without a full hearing — through settlements facilitated by ACAS or by being withdrawn.

That sounds reassuring until you understand what it means in practice. Most of those settlements involve the employer paying money to make the claim go away. The employee does not need to win at tribunal to extract a cost from you. The mere act of filing a claim — which is free for them since tribunal fees were abolished in 2017 — puts you on the hook for legal fees, management time, and potentially a settlement payment, regardless of the merits of the claim.

The British Chamber of Commerce estimates the average cost to an employer of an employment tribunal claim at £8,500. That is the average across all outcomes, including cases the employer wins. Getting it wrong costs far more. Getting it right costs nothing.

The maths that makes Redundly obvious

You are a small business owner. You need to make one person redundant. You have two options.

Option A: Do it yourself Spend several hours researching the process. Download a generic letter template from the internet. Hope you have not missed anything. If you get it wrong, face a claim with a minimum total exposure of £31,749 and eight months of distraction.

Option B: Use Redundly Answer structured questions about your specific situation. Receive a complete, legally structured process pack in 15 minutes. Follow the personalised step-by-step guide. Pay £149.

The question is not whether £149 is worth spending. The question is whether you can afford not to.

What is changing right now that makes this more urgent

The Employment Rights Act 2025 is not a future problem. It received Royal Assent in December 2025. The implementation timetable is confirmed. The qualifying period for unfair dismissal claims reduces from two years to six months, effective 1 January 2027.

Economic pressures have led to more redundancies and restructuring, which often triggers disputes. Greater awareness of employment rights, particularly around disability, discrimination, and whistleblowing, also plays a role.

The environment in which redundancies are being made is more legally exposed than at any point in the last decade. Claim volumes are up. The qualifying period is shrinking. The compensation cap is being removed. And the tribunal backlog means that if a claim is filed against you, it will follow your business for the better part of a year.

This is precisely the wrong time to take shortcuts on process.

Redundly generates a complete, legally structured redundancy process pack for UK small businesses in 15 minutes. Seven personalised documents, a step-by-step process guide, built-in risk flags, and a full statutory redundancy pay calculation. From £149. Start at redundly.co.uk.

If your situation involves protected employees, collective redundancy, or any unusual complexity, our specialist HR consultants are available for a one-hour consultation from £150. Quote your order number for a prepared briefing.