Briefing

Employment Rights Act 2025 – Update and practical tips for employers

On 18 December 2025, the Employment Rights Bill received Royal Assent to become the Employment Rights Act 2025. The Act will make sweeping changes to almost all aspects of employment law in the UK. Changes will come into effect in phases across a two-year period. Three important dates and months for employers to be aware of are 6 April 2026, October 2026 and 1 January 2027, when many of the key provisions will come into force. The remaining provisions will be introduced throughout 2027.

Employers will need to keep pace with the key changes coming down the road and be ready to adapt policies and processes to avoid inadvertently falling foul of new rules which affect many areas of the employment relationship. We touch on the key changes and dates below, as well as some top tips to help employers prepare.

1 January 2027 – Unfair dismissal rights from 6 months service and statutory compensation cap removed

The flagship provision of the Employment Rights Act 2025, and the aspect that proved to be the most controversial during parliamentary ping-pong between the House of Commons and House of Lords, is the broadening of unfair dismissal rights.

On 1 January 2027, the qualifying period to claim unfair dismissal will reduce from two years to six months. This will apply to employees with six months service at this date, so to those with a start date of 1 July 2026 onwards. Once employees have the requisite length of service they can only be dismissed for a fair reason (such as conduct, capability, redundancy, some other substantial reason or breach of a statutory enactment) and after a fair process (such as performance management, a disciplinary procedure or redundancy consultation) has been followed. It will therefore be crucial for employers to actively monitor new employees (in relation to both performance and conduct) during probationary periods to ensure that if an employee is not meeting the requirements of the role and the employer wishes to terminate employment, this takes effect before the six month qualifying period of continuous service is reached.

The Government originally pledged to make protection from unfair dismissal a day-one right, but the House of Lords insisted on a qualifying period of six months, which avoided the need for a complicated “statutory probationary period” where a “light touch” dismissal process would have applied.

On 1 January 2027, we will also see the removal of the statutory compensation cap for unfair dismissal. Currently, the cap prevents compensation from exceeding one year’s pay or £118,223, whichever is lower. The Government has announced that it will not be consulting with unions or employers before removing this cap, in contradiction to what it claimed to the House of Lords in December 2025 when attempting to secure the Bill’s passage. This is likely to have a two-fold impact. It will benefit high earning employees who will be able to claim compensation for unfair dismissal based on their actual financial loss, which will have a knock-on effect in exit and settlement negotiations. In addition, there may be a reduction in claims for discrimination and whistleblowing, which are often brought tactically to circumvent the compensation cap in an unfair dismissal claim. If this comes to pass, then cases could be heard through the Tribunal system more quickly, as unfair dismissal cases usually require a shorter hearing than discrimination or whistleblowing.

2027

Zero and low hours contracts and shift work

At some stage in 2027, with the date yet to be set, provisions will be introduced relating to rights to guaranteed hours for workers on zero or low hours contracts, reasonable notice of shifts, and payments for short-notice cancellation of shifts. Employers will be required to offer guaranteed hours contracts to those who regularly work consistent hours over a reference period, expected to be twelve weeks. This will introduce a substantial administrative burden on employers who have a large number of employees on zero or low hours contracts, as reference periods are likely to be determined by start dates (and therefore differ from employee to employee) and an offer of guaranteed hours will have to made after each reference period, even if the employee has previously turned down an offer of guaranteed hours.

There has been no explicit carve out from these provisions for seasonal workers, despite the obvious issue arising where an offer may have to be made at the end of a busy period (for example Christmas for retail workers) where there will be no ongoing business need. However, regulations will likely allow for the offer of guaranteed hours to take the form of a short fixed-term contract.

Limits on “fire and rehire” and “fire and replace”

In January 2027, dismissal as a result of “fire and rehire” or “fire and replace” (in other words, dismissal and an offer of employment on different terms to the same or other workers) is to be deemed automatically unfair, if the employer seeks to make a “restricted variation” to the employee’s contractual terms (related to, for example, pay and/or performance or working time and time off), except where businesses are in severe financial difficulties and genuinely have no alternative.

Flexible working

The Act will make it harder for employers to reject a flexible working request due to new requirements that a rejection must be reasonable and there must be an explanation of the rationale for denying the request.

October 2026

Six-month time limit to bring an Employment Tribunal claim

No earlier than October 2026, the time limit for bringing an Employment Tribunal claim will increase from three months to six months (except for breach of contract claims arising or outstanding on termination of employment). This will be a significant change which will likely see the number of employment tribunal claims increase. This change, coupled with the recent extension of the mandatory ACAS Early Conciliation period from six to twelve weeks, will mean that employers will have to wait a long time to find out if a claim has been issued against them. However, on the positive side, employers and employees will have longer to try to resolve a dispute before litigation is instigated.

Strengthened duty to take all reasonable steps to prevent harassment

There will be a strengthened duty on employers to take ‘all reasonable steps’ to prevent sexual harassment of their employees, as well as a reintroduction of employer liability for harassment of their employees by third parties. It will be a defence to liability if the employer has taken all reasonable steps to prevent this. In 2027, the Government is expected to specify the steps that are considered to be ‘reasonable’.

6 April 2026

Protective award for failure to collectively consult on redundancies to double

On 6 April 2026, the maximum protective award for failure to properly consult on collective redundancies will double from 90 to 180 days’ actual pay per employee. A claim of this kind will still need to be brought by employee representatives.

More employees entitled to statutory sick pay earlier on

Entitlement to Statutory Sick Pay will be broadened by removing the Lower Earnings Limit (currently £125 per week) and the waiting period (which is currently 3 days), which will mean many more workers will be entitled to receive statutory sick pay from their first day of sickness absence.

Strengthened protection for workers who blow the whistle on sexual harassment

There will be strengthened protections for whistleblowers who blow the whistle on sexual harassment by including within the definition of a “qualifying disclosure” a disclosure that sexual harassment “has occurred, is occurring or is likely to occur”. Blowing the whistle on sexual harassment is generally already considered to be included in the existing definition of a “qualifying disclosure” under the existing “breach of a legal obligation” heading, but this makes the point explicit.

Linked to this, the Act will make non-disclosure agreements (“NDAs“) void if they attempt to prevent a worker from making an allegation or disclosure about harassment or discrimination. When this is to come into effect is not yet clear, with consultation expected first.

Rights to paternity and parental leave from day one

Existing entitlements to Paternity Leave and Unpaid Parental Leave will be made available from day one of employment. Currently, Paternity Leave is only a legal right after twenty-six weeks of employment and Unpaid Parental Leave (which is eighteen weeks’ leave for each child under 18) is only a legal right after a year of employment. The Act also removes the restriction on taking Paternity Leave or receiving statutory Paternity Pay following a period of Shared Parental Leave or Shared Parental Pay. Unpaid Parental Leave being a day-one right could have a substantial impact on employers. An employee could be hired and, for example, immediately request four weeks off due to childcare responsibilities such as for the school holidays. However, employers will retain the right to postpone the taking of unpaid parental leave for up to six months, aside from when this is taken by the father or partner immediately after birth or adoption. This is permitted as long as there is a significant reason, such as causing serious disruption for the business, and the employee will still qualify for parental leave after the delay.

7 April 2026 – Fair Work Agency

Finally, the Fair Work Agency (“FWA“) will be established for the enforcement of employment rights, which will bring together existing state enforcement functions and, over time, will take on the enforcement of a wider range of employment rights. The FWA will have powers to inspect workplaces, impose civil penalties for underpayment of wages and bring tribunal cases on behalf of workers. The Government is expected to set out further details on its approach to implementation, which we are monitoring, with a particular interest in the value of claims the FWA will be able to bring and whether it can bring a claim on behalf of a worker without their agreement.

Consultations in 2026

On 4 February 2026, the Government launched a consultation on its proposals in relation to “fire and rehire”, which closes on 1 April 2026. The consultation focuses on which expenses, benefits, and shift changes should be covered by the protections making it an automatic unfair dismissal where an employee is dismissed or replaced in order to make changes to terms in their employment contract.

Consultations concerning changes to collective redundancy processes and flexible working are planned for early 2026 relating to the specifics of measures due to come into force in 2027. The Act is going to widen collective consultation obligations to include where a threshold number of proposed redundancies is triggered across an organisation (we assume from context that this includes all group companies in the UK, but we await further guidance on this point) which will be in addition to the trigger of 20 or more redundancies at one establishment. The consultation is likely to address what this additional threshold number will be.

The Government also plans to consult on the specifics of planned flexible working provisions, and the new requirement that a rejection of a flexible working request must be reasonable.

Top tips for employers

Review and update existing workplace policies in line with the implementation timeline. For example, from April 2026, paternity and unpaid parental leave and sick pay policies should be updated to reflect eligibility from day one of employment.
Consider current contractual terms and whether these are future proof. For most employees, it will be logical to set or keep the contractual probationary period at three months, without having the ability to extend it by a further three months. During the probationary period, it will be paramount to actively assess performance and conduct, and, if the employee is not meeting the requirements of the role, to ensure any dismissal takes effect during or at the end of the probationary period and, crucially, before six months of employment is reached. Employers should review the employment contracts for employees it is hiring now and amend probationary period clauses accordingly.
Improve recruitment processes by making them more thorough and ensure references are checked properly. Consider introducing more test-based questions in interviews and psychometric assessments if appropriate, as part of the application process. It will still be important to assess performance throughout the probationary period, but this will help to ensure that the most suitable candidates are employed and reduce the risk of dismissals early in the employment relationship.
Employers should audit their workforces ahead of the reforms to zero hours and shift work taking effect, to identify how many workers they engage on zero hours and low hours contracts. It will be wise to identify seasonal fluctuations in demand for work, as short fixed-term contracts may be more appropriate for these workers going forward.
Settlement agreement templates, which will include confidentiality and non-disclosure provisions, will need to be reviewed, as NDAs will be void if they attempt to prevent a worker from making an allegation or disclosure about harassment or discrimination. NDA’s in settlement agreements will need to be updated to include an express carve out for harassment and discrimination, as well as the existing carve out for whistleblowing. Consultations are expected on when an NDA can still be used in cases of harassment and discrimination (referred to as an excepted agreement) and to whom workers may still make a disclosure, even if an excepted agreement is in place.
Managers and senior leaders will need to be made aware of the changes and their implications through relevant training and updates. We are on hand to assist our clients with preparing for and navigating these significant changes.

Charlotte Soanes, Trainee Solicitor, assisted in the preparation of this briefing.