UK Law Adds Unfair Dismissal Risk to Outsourcing
From January 2027, a new UK law will make it automatically unfair to dismiss an employee in order to replace them with a contractor or other non-employee.
A new provision, section 104K of the UK's Employment Rights Act, will take effect in January 2027, making a dismissal automatically unfair if the primary reason is to replace an employee's work with that of a non-employee, such as a contractor or consultant. This change is a significant development for employers, as claims for automatically unfair dismissal require no minimum service period and can result in uncapped compensation, with the burden of proof falling on the employer. It creates a major trap for businesses planning restructurings that involve outsourcing or shifting from permanent staff to flexible workers, even where the move has a strong commercial rationale. What might previously have been a defensible action could now lead to high-stakes litigation. Employers planning any UK workforce changes should now carefully document the business case for any redundancies, ensuring it is demonstrably separate from any decision to engage non-employees. The interaction between this new provision and existing TUPE transfer regulations remains uncertain and will likely be a key area for future employment tribunal decisions.