Introduction & Background
On 4 September 2025, the London UK Department of Employment and Labour published and brought into effect the 2025 Code of Good Practice: Dismissal (hereafter “the Code”).
This new Code replaces:
- Schedule 8: Code of Good Practice on Dismissal (conduct & capacity grounds)
- The previous Code of Good Practice on Dismissal based on Operational Requirements (i.e. retrenchment code)
Its aim is to consolidate, clarify, update and modernize the legal framework for dismissals under the Labour Relations Act (LRA), while retaining fairness, due process and legal rights. It also seeks to reflect recent case law and practical challenges.
Structure and Key Features of the New Code
The 2025 Code of Good Practice: Dismissal is organized in a clearer, more structured way than previous codes. It is divided into logical Parts (A–G), with numbered sections and annexures, making it easier for employers, HR professionals, and legal teams to navigate.
One of the most notable changes is the recognition of small businesses. The Code acknowledges that smaller enterprises often lack extensive HR infrastructure or resources to follow highly formal processes. To accommodate this, it allows simpler, less formal procedures in situations where full formal processes may be impractical. However, this flexibility does not remove the obligation to act fairly. Even simplified procedures must be based on fair reasons and must respect fair process principles.
The Code also consolidates the grounds for dismissal, bringing together dismissals for conduct, incapacity, and operational requirements — including retrenchment rules — under one unified framework. This unification simplifies the reference process for HR and legal teams, removing potential overlaps or conflicting regimes and creating a single authoritative source for dismissal procedures.
Probation has been redefined and expanded. It is no longer solely about assessing performance; the Code now includes suitability, such as cultural fit and alignment with organisational values. While probation dismissals may involve less stringent criteria due to the employee’s newness, fairness still applies: employees must be given an opportunity to make representations. Misuse of probation, for example dismissing and re-hiring to avoid permanency, is explicitly discouraged.
In terms of misconduct and disciplinary measures, the Code provides more detailed guidance. It encourages the use of informal steps, such as advice or warnings, where appropriate, while also considering the severity of misconduct, the employee’s past record, and the harm caused. The Code recognizes that in exceptional circumstances, deviations from formal procedures may be justified, but such deviations must be reasonable and defensible. Employers are expected to document all disciplinary steps and ensure employees are aware of the rules and consequences.
For operational requirements and retrenchments, the Code sets out clearer processes around consultation, selection criteria, severance pay, and even potential re-employment preferences. The annexures provide templates for notices, including the Section 189(3) notice, helping reduce uncertainty and risk of procedural unfairness claims.
Throughout the Code, there is an emphasis on fairness, both procedural and substantive. A dismissal must always be for a fair reason and in accordance with a fair procedure. The Code clarifies what fairness looks like across various contexts, including probation, misconduct, incapacity, and operational requirements. Automatic unfair dismissals remain strictly prohibited.
Finally, while the Code allows some flexibility — particularly for small businesses and senior employees — any deviations from standard procedures must be justified. Employers cannot ignore procedural requirements without exposing themselves to legal or HR challenges. All deviations must be reasoned and defensible, ensuring that fairness remains central even when flexibility is applied.
Key Implications & Risk Areas
For industry professionals, the changes carry both opportunities and some risks. Below are some of the most significant:
- Policy & Contract Review
Employers will need to revise or develop policies (disciplinary, performance management, retrenchment) to ensure they align with the Code—especially definitions, procedures under probation, notice templates, severance, re‐employment preference, etc. - Training & Capability of HR / Line Management
Managers and HR need to be trained not just in the “what” but the nuances: when informal steps are appropriate, what counts as fair warning, how to document performance or conduct, how to evaluate “suitability” or “incompatibility.” - Documentation & Evidence
Because many procedural elements require opportunity to respond, evaluation, warnings etc., failure to keep proper records will create exposure. This is particularly so in cases of incapacity or retrenchment. - Small Business Compliance
While the Code gives flexibility, small businesses must still be able to show that any shortcuts or simplified procedures are reasonable and justified. Absence of a formal HR department or familiarity with complex procedures will help small employers—but good faith, fairness, and consistency remain critical. - Senior / Specialized Employees
For more senior or highly skilled employees, the Code acknowledges that certain warning steps may not always be needed before dismissal for poor performance. But this means higher expectations in setting standards, giving feedback, and proving that the employee had notice of what was required. - Incompatibility and Organisational Culture
This is a grey area. Recognizing incompatibility formally introduces risk of disputes: What standard of “compatibility” is required? How is culture assessed? How much subjectivity is allowable before decisions are overturned? There is need for cautious handling, consultation, documentation, ideally mutual feedback etc. - Retrenchment Obligations
With clarified rules, including templates and notice requirements, any missteps in retrenchment process (selection, consultation, notice, severance) will be more likely to lead to successful challenges. Also preference for re‐employment (when skills match) may bring new obligations. - Automatic Unfair Dismissals
These remain strictly off‐limits (for example dismissals for protected actions, pregnancy, discrimination etc.). Even under the new Code, these grounds remain non‐waivable. Employers must ensure compliance is universal. - Legal Risk & Dispute Exposure
As with any law or Code involving procedural fairness, real world practices that deviate from the ideal (e.g. lazy performance evaluations, inconsistent application, insufficient warnings or feedback) may lead to claims under the CCMA or in Labour Courts. And the new Code provides less wiggle‐room for arguing that a prior practice sufficed if it is clearly not aligned.
Comparative Observations vs. Previous Code(s)
- Greater codification of what was often case‐law: many principles that courts have developed over years (e.g. in probation or performance, or in incapacity related to ill‐health) are now more explicitly part of the Code. This reduces uncertainty and ambiguity.
- Unified Code: previously misconduct and capacity dismissals were under one code (Schedule 8), but operational requirements (retrenchment) under another. Having all in one simplifies reference and harmonises approach.
- Recognition of business realities, especially for small businesses: previous Code/Schedule 8 was more generic and less explicit about differential capacity. Now more allowance for flexibility, but with continuing fairness obligations.
- More emphasis on suitability/cultural fit (“incompatibility”): previous codes did not explicitly treat incompatibility as a ground, though in practice sometimes invoked; now it is under incapacity.
- Templates / forms / annexures: The provision of standard retrenchment notice templates (e.g. for Section 189(3)) improves consistency and reduces risk of defective process.
What Remains Unchanged or Similar
It is important to note certain constants: the legal foundations remain the same in many respects.
- The requirement under the LRA: dismissals must be for a fair reason and follow a fair procedure.
- The three core grounds for fair dismissal remain: misconduct, incapacity, operational requirements.
- The concept of automatic unfair dismissals remains robust (protected categories, discrimination, etc.).
Tips / Best Practice Guidance for Implementation
For employers, legal teams, HR professionals, unions, here are some suggested practical steps for aligning with the new Code, and managing transition risk.
- Policy Audit & Update
Go through current dismissal, probation, retrenchment, disciplinary policies. Update definitions, procedures, notice templates. Ensure all those documents reflect the new Code’s requirements (e.g. suitability, incompatibility, simplified procedures where applicable). - Train & Sensitize Management
Especially line managers: about what “fair process” means, giving feedback, documenting performance and conduct, differentiating between “unsatisfactory performance” vs “incapacity due to illness/injury,” etc. - Documentation Practices
Maintain good records: performance reviews, warnings, notifications, responses by employees; records of consultation in retrenchments; any notices served; evidence of steps taken to accommodate incapacity; any attempts at remedial action or alternative roles. - Determine which employees are “senior / highly skilled”
If you plan to apply different (more stringent) expectations (e.g. less need for warnings) to senior or specialized staff, you’ll need to define what “senior” means in context, ensure standards have been communicated, ensure employees understand what is expected of them. - Retrenchment Planning
Develop or review retrenchment plans: ensure selection criteria are fair and objective; ensure consultation is meaningful; severance pay is handled correctly; ensure notice templates are used; plan for possible re‐employment preference if skills match; consider the human / reputational cost. - SMEs / Small Business Considerations
If you run a small business, assess your procedures: where simplification is possible, but still document clearly, ensure fairness. Also, consider whether your business qualifies for “small business” flexibility, and ensure you can justify any procedural deviations if challenged. - Risk Assessment & Legal Review
Legal review of past dismissals, ongoing performance or incapacity issues, misconduct issues, to see whether any current practices risk being out of compliance; especially in cases where previous Code guidance might have allowed looser standards and now stricter ones are more codified.
Potential Grey Zones & Litigation Risks
- Incompatibility / Suitability / Fit: As noted, subjective terms. Disputes likely over whether incompatibility was serious enough, whether the employer provided feedback or opportunity to change, whether process was followed.
- What counts as “small business”: The Code does not define “small business” clearly in a quantitative sense (number of employees, revenue etc.). This vagueness can lead to legal argument over whether the business deserved flexibility. Employers should document their size, capacity constraints etc. proactively.
- Advance warning vs immediate dismissal: For serious misconduct, the Code retains that immediate dismissal may be justified. But what counts as “serious enough” will be scrutinised (gravity, harm, risk, past record, etc.).
- Senior employee expectations: Where less formal steps or warnings are acceptable, the employer will need to show that the employee had notice of the required standard and that those standards are reasonable. If failings are sudden, whether opportunity to remedy etc. was sufficient.
- Retrenchment and re‐employment preference: If an employer re‐hires, or hires new employees after retrenchment, there may be claims if employees who were retrenched believe they had preferential re‐employment rights. Ensuring transparency in selection, criteria, communication is essential.
- Procedural deviations: The Code allows deviations in exceptional cases, but deviations must be justified. E.g., skipping certain steps because of business exigency, but that will be scrutinised. The more serious the dismissal, the more rigorous the procedural protections expected.
Strategic & Broader Impacts
- Cost of dismissals / labour disputes: Possibly reduced costs for small employers if simpler procedures suffice. But conversely, more litigation risk where practices are informal and not well documented.
- Organisational culture: Because “suitability” and “incompatibility” are now emphasised, employers may invest more in culture, alignment, teamwork etc., rather than only formal performance metrics.
- HR as strategic partner: HR will need to be more involved upstream (selection, feedback, performance management, culture fit) rather than only reacting to misconduct or performance failures.
- Union / collective bargaining dynamics: Unions will likely monitor how employers implement the new Code, test in CCMA & courts, possibly use collective agreements to push for higher standards than minimum Code. Employers may prefer to bring in collective agreement terms that harmonize with, or exceed, Code minimums.
- Employment creation / flexibility / economic policy: The Government frames the changes as balancing rights with flexibility, especially for small business, to assist with job creation, reduce uncertainty in hiring/dismissals.
Conclusion
The 2025 Code of Good Practice: Dismissal represents a significant evolution in London UK’s labour law regime around dismissals. It consolidates and clarifies, while introducing important new dimensions (suitability/incompatibility, clearer small business relief, retrenchment templates etc.). For employers and HR professionals, the clock starts ticking: policies, procedures, practices need to be reviewed and updated; managers and leadership need to be trained; documentation must be improved; and risk exposures addressed.
For employees, the new Code offers some greater clarity on what is fair, what process they may expect, and stronger codification around rights (especially in probation, incapacity, retrenchment). But as always, much will depend on how it is implemented on the ground.
