Employment rights reforms in 2026: round up of latest developments

The first phase of implementing the Employment Rights Act 2025 (ERA) begins today with changes aimed at making industrial action easier to organise with less scope for employers to challenge.  

In the last few weeks, the Government has also published various consultations and a revised ERA timeline for implementation. In this Law-Now we provide a round-up of ERA related developments and the industrial action changes that are now in force.

Timeline changes

On 4 February 2026 the Government published an updated timeline Plan to Make Work Pay and Employment Rights Act: timeline update for implementing the ERA. The headline is the fire and rehire changes will now be introduced in 2027 instead of October 2026. The date for the removal of the compensatory cap for unfair dismissal (currently the lower of £118,223 or a year’s salary) has been confirmed as 1 January 2027, without any further consultation. Otherwise, the remaining timescales are largely in place, meaning that employers should continue to press on with their ERA planning as the legislation is phased in over the next two years.

Industrial action changes now in force

Key changes implemented as of 18 February 2026 include the removal of the 40% support threshold for industrial action ballots in important public services and an increase in dismissal protection for taking part in industrial action. The ERA also shortens the notice period for industrial action from 14 days to 10 days, extends the period during which industrial action ballots are valid from 6 months to 12 months and simplifies industrial action and ballot notices. Finally, it changes the rules around picketing by removing the requirement to appoint a picketing supervisor.

Employer impact

Employers with a union presence worried about possible industrial action should pay close attention to the changes. Lawful industrial action can be triggered more quickly and there is less scope for employers to challenge the process. The exact dates for when the changes kick in are subject to transitional provisions, depending on when the industrial action was called. No date has been scheduled for the removal of the 50% turnout threshold, although it is expected to be August 2026. Potentially affected employers should ensure they have systems in place to deal with contingency planning and issue communications at shorter notice.

Consultation on fire and rehire

On 4 February 2026 the Government launched a new consultation, Make Work Pay: fire and rehire – changes to expenses, benefits, and shift patterns on regulations that will exclude some expenses, benefits and shift patterns from the list of restricted variations in the new “fire and rehire” regime. 

The ERA will make it automatically unfair to dismiss an employee and re-engage them to impose specified “restricted variations” to their core terms (including pay, pensions, total hours, leave and defined shift pattern changes), subject to a narrow exemption requiring financial distress. It does not mean that an employer cannot look to vary terms, since there is still the first step of obtaining the employee’s agreement to the change, or relying on a valid variation clause. However, if an employee refuses to agree to a change (where this is a “restricted variation”), the final step that an employer can currently take of dismissal and re-engagement will become a high-risk exercise, unless there is strong evidence of financial distress.

This consultation changes the list of restricted variations and considers different options for doing so.

With expenses and benefits/payments in kind, the first option (which is the Government’s preference) is to exclude these payments. The second option is to exclude all expenses/benefits except a narrow set similar to pay (e.g., certain contractual share scheme commitments, long-term accommodation, specified travel/accommodation arrangements).

In relation to shift patterns, the first option is to treat moves between day and night or weekday and weekend working as restricted variations (this is the Government’s preferred option). The second option looks at whether changes to shift timing and duration would not amount to automatic unfair dismissal.

Employer impact

Reducing the list of restricted variations should give employers greater flexibility to adapt to organisational changes, although the final rules are still to be determined. Employers who anticipate making changes to core contractual terms should do so before the new regime comes into force in January 2027. Variation clauses should also be reviewed to determine how effective they will be, and whether an updated clause should be introduced into contracts and templates before the law changes.

Consultation on flexible working

Published on 5 February 2026, the consultation Make Work Pay: consultation on improving access to flexible working focuses on a new consultation process an employer must follow when an employer rejects a flexible working request. The consultation asks for views on a proposed light-touch consultation process with employees, what training/resources would help employers manage requests, and what else could improve access to flexible working more broadly.

Under the existing framework, unless the employer decides to agree to the employee's written request in full, they must consult the employee before they make a decision. Employers should hold a meeting and communicate the outcome and appeal within a 2-month period from the date of the request. However, the current flexible working framework does not specify what should be discussed at the meeting. This consultation aims to address this by proposing a requirement that the decision maker clarifies with the employee whether the request is a reasonable adjustment, that a meeting note must be kept, that alternatives should be considered at the meeting, that challenges should be discussed and there will be rules relating to the content of the outcome letter.

Employer impact

These changes are likely to involve tweaks to an employer’s flexible working policy, and training for managers carrying out the meeting to ensure they follow the correct procedure and understand what to say in an outcome letter. In addition to the procedural changes discussed in this consultation, the ERA also introduces a new ‘reasonableness test’ which managers must understand when dealing with a request. Employers will still be able to refuse a flexible working request provided they rely on one of the eight statutory grounds but will need to ensure they have reasonable grounds to do so.

Consultation on Modernising the Agency Work Regulatory Framework

Published on 6 February 2026, the consultation Make Work Pay: Modernising the Agency Work Regulatory Framework brings umbrella companies into scope of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 (the Conduct Regulations).

There has been a rapid growth in umbrella companies in the UK in recent years, which are a form of payment intermediary between agencies and end user clients. However, the Conduct Regulations were not designed to deal with this extra step in the supply chain, and this has led to gaps in protection for workers.

The Government is seeking views on how the regulatory framework should be adapted to account for the activities of umbrella companies, and what broader changes should be considered in order to modernise the rules.

Specifically, the consultation seeks views on (1) strengthening security for agency workers, (2) providing greater transparency regarding information on pay, contracts, and employment rights (3) empowering workers with greater choice in how they are engaged and paid, and (4) updating regulations to reflect current working practices.

Employer impact

The changes discussed in this consultation are not expected to come into effect until 2027 and, while there is a possibility of a second consultation, this is not certain. Employers who use agencies that work with umbrella companies should audit their supply chain taking into account the move towards greater worker protection.

There are separate tax changes coming into effect in April 2026 through the Finance Bill 2026: PAYE rules for labour supply chains that include umbrella companies from 6 April 2026. These tax changes will move the tax liability to the agency rather than the end hirer, unless the end hirer contracts directly with the umbrella company.

While the new consultation is not about the tax changes relating to umbrella companies, as these are coming into affect anyway in April 2026, employers may also see agencies adopt a more rigorous approach to their use of umbrella companies.

Consultation on strengthening the law on tipping

On 5 February 2026 a consultation Make Work Pay: strengthening the law on tipping was published. New requirements will be introduced on employers to consult workers when developing or reviewing tipping policies and to review the policy every three years. Employers will also be required to make available a written, anonymised summary of the views expressed in the consultation to all workers at the place of business. This follows the changes that were introduced in October 2024 as a result of the Employment (Allocation of Tips) Act 2023, discussed in more detail in our Law-Now Tip-top: new legislation on tipping.

The consultation relates to the new section 14 in the ERA which says that, prior to developing a written tipping policy, employers will be required to consult with the representatives of a recognised trade union or worker representatives, or, where there are no such representatives in place, workers likely to be affected by the policy. The consultation also asks for feedback on how the existing tipping regime works in practice, and whether improvements are needed, alongside consideration of the existing statutory code and non-statutory guidance on fair distribution of tips.

Employer impact

Employers in the hospitality sector should pay close attention to the outcome of this consultation and plan ahead for a consultation process on their tipping policy. The new provisions are expected to come into force in October 2026 alongside an updated Code of Practice.

Other industrial relations reforms to (1) access during recognition and unfair practices, and (2) e-balloting

Two other documents were published on 4 February 2026: the Draft Code of Practice: Access and Unfair Practices During the Recognition and Derecognition Process and a consultation covering both (Make Work Pay: Consultation on (1) the revised Code of Practice on Access and Unfair Practices and (2) unfair practices in electronic ballots. 

The new Code of Practice on Access and Unfair Practices during recognition and derecognition (the new Code) will apply once the CAC notifies parties that a relevant application has been accepted, (i.e. an application for statutory recognition, derecognition or an application relating to the bargaining unit). The new Code does not cover the new general right of access, which will be brought into force in October 2026.

In addition to improvements for the frequency and duration of access meetings during a recognition process, the new Code also addresses unfair practices such as increasing the size of the bargaining unit to avoid recognition, and new rights of digital access. Digital access includes communications using “online meetings or via the dissemination of materials via an email or on an employer’s intranet.” It seems likely that a similar description of digital access will be used in the general right of access, and a draft Code of Practice explaining how this will work is expected this spring.

Two methods of electronic balloting for unions are being proposed. Pure e-balloting, where both ballots are distributed and voting is done electronically, and hybrid e-balloting, where ballots are distributed via post and voting is done either electronically or via post. The plan is to introduce these changes in phases, with hybrid balloting introduced in phase one for certain ballots. It will not be until phase two that e-balloting will be possible for statutory recognition ballots. The Government is committed to ensuring that, before pure e-balloting is permitted for recognition, the necessary safeguards are in place to prevent any interference in these ballots.

Employer impact

Requests for statutory recognition are relatively rare (63 applications were made to CAC in the year to 31 March 2025) but are expected to increase in the future. The new Code improves access rights during a recognition process and will provide increased protection against unfair practices. The Government's updated timeline states that electronic and workplace balloting for statutory trade union ballots will take place in August 2026, rather than April 2026, and for recognition and derecognition ballots in 2027.

For more information on ERA related reform and the impact on your workplace please speak to your usual CMS contact or visit our Employment Rights Act 2025 hub.