Important changes for UK employers: the Employment Rights Act 2025

Far-reaching changes to UK employment laws have now been finalised. It will be essential for businesses to understand, plan for and implement these significant changes during 2026.

On 16 December 2025, the Employment Rights Bill was approved in the House of Lords after an extended parliamentary process. Royal Assent is provisionally scheduled for 18 December 2025. The House of Lords gave way on the last major issue: removal of the cap on a compensatory award for unfair dismissal. Only a few changes, such as repealing the minimum service levels restrictions on strike action and some industrial action provisions will take effect immediately on or soon after Royal Assent. The majority of the changes introduced by the legislation will be implemented gradually over the next two years according to the Government’s Implementation Roadmap (published back in July 2025) although it remains to be seen whether the Government will stick to the timings outlined given the extended ping pong process and the considerable delay in finalising the legislation.

In this Law-Now we outline the headline changes for employers under the legislation.

Unfair dismissal

Shorter qualifying period

In a significant concession to its manifesto commitment, the Government has agreed that unfair dismissal will not become a ‘day one’ right. Instead, the current two-year qualifying period before an employee can bring a claim for ordinary unfair dismissal will be reduced to six months. This will, overall, be a welcome development for employers who will no longer have to get to grips with the previously proposed complex provisions around statutory probationary periods.

During the parliamentary debates, the Government committed to introducing a shorter, six-month qualifying period for unfair dismissal from 1 January 2027. This would mean that where an employee’s effective termination date is on or after 1 January 2027 they would benefit from the shorter qualifying period and so careful planning and changes to probationary policies and performance management processes will be needed during the first half of 2026.

Removal of the cap on compensatory awards

It is not all good news for employers. In an unexpected and late change to the legislative proposals (understood to be a concession to the trade unions because of the row back from day one unfair dismissal rights), the limit on compensatory awards which is currently the lower of 52 weeks’ pay or £118,223 will be removed. This change will have a significant impact on dismissals of higher earning staff and will materially alter the cost and risk profile of senior exits in particular. It is also likely to lead to an increase in employment litigation, although the nature of the litigation may change. High earners often look to include claims with uncapped remedies (such as discrimination or whistleblowing) to overcome the problem of capped compensation. One possible benefit of the removal of the cap could be less complex employment tribunal claims, with a greater focus on ordinary unfair dismissal. Getting the process right will therefore become increasingly important for businesses.

Given this change post-dates the Implementation Roadmap, it is not yet known when it will take effect although we can probably expect this to be at around the same time as the shorter qualifying period. The Government has committed to publishing an impact assessment regarding the removal of the unfair dismissal compensation cap in due course.

Longer limitation period

The Act also extends the time limit for bringing a claim in the employment tribunals from three months to six months for most types of claims. We expect this will result in more tribunal claims in a system that is already heavily stretched, although the Government’s hope is that this will be eased by the extension of the Acas Early Conciliation period from six weeks to twelve weeks which took effect on 1 December 2025.

Collective redundancy consultation

The Act retains the ‘at one establishment’ test under the collective redundancy consultation regime for when the obligation to consult collectively is triggered. It also introduces a second, standalone trigger where a threshold number of employees are proposed to be made redundant across an employer’s business. The threshold number is to be set out in regulations. We do not yet know at what level the threshold will be set.

The potential financial exposure associated with non-compliance will increase, as the cap on the protective award is set to double from 90 days’ pay to 180 days’ pay per employee.  Again, therefore the risk for employers in getting the process wrong has increased significantly.

The doubling of the protective award will take effect from April 2026, while the collective redundancy consultation trigger is expected to take effect later on, in 2027.

Fire and rehire

The Act will curtail an employer’s ability to make changes to terms and conditions of employment other than where a change is not a ‘restricted variation’ (such as a change in the place of work).

The changes mean that, other than in circumstances of financial difficulty, an employee will be automatically unfairly dismissed where the reason or principal reason for their dismissal is either that: (i) the employer sought to vary the employee’s contract of employment to make a restricted variation and the employee did not agree to that variation, or (ii) the employer sought to make more than one variation and the employee did not agree to several variations that included a restricted variation.

There will be an exception where an employer can demonstrate that the reason for the variation is that it was facing financial difficulties threatening its viability, and that in all the circumstances they could not reasonably have avoided the need to make the variation. In all other cases it will amount to automatic unfair dismissal.

The Act also prohibits the inclusion in an employment contract of a new term permitting an employer to make any restricted variation without the employee’s consent. Any such existing terms will remain enforceable.

The fire and rehire provisions also extend to “fire and replace” scenarios, where employees are dismissed and replaced with self-employed contractors, workers who are not employees, agency workers, or any other non-employees to do substantially the same work.

It is expected that this change will be introduced in October 2026.

Zero hours contracts

The Act will introduce new rights to (i) a guaranteed hours offer where certain conditions are met (the Government having resisted the Lords’ attempts to water down this right by making it a ‘right to request’), (ii) reasonable notice of shifts, shifts changes and cancellations, and (iii) payments for cancelled, moved or curtailed shifts. There is an exception which recognises the possibility of short-term labour needs (such as seasonal working arrangements) and permits an employer to offer guaranteed hours on a fixed-term rather than permanent basis where that is reasonable.

These are some of the most complex provisions in the Act and much of the detail is yet to be developed in consultation and secondary legislation in due course. They will have the most significant impact in certain sectors such as hospitality, retail and social care, which have traditionally relied on zero hours and fixed term contracts and variable shift patterns.

According to the Implementation Roadmap, the final rules are not expected until 2027.

Trade union rights

The key provisions of the Act affecting trade union rights and the recognition process have not changed significantly during the parliamentary process.

Information

The Act introduces an obligation on employers to inform workers of their right to join a trade union in a written statement – in practice this is likely to be included in the employment contract and potentially at periodic intervals afterwards.

Right of access

The Act gives listed trade unions a new statutory right to physically or virtually access workplaces under access agreements. This right is designed to give unrecognised unions an opportunity to recruit and organise within a workplace with the aim of gaining recognition.

Recognition

The Act will replace the current 10% membership requirement within the proposed bargaining unit for statutory recognition purposes with a lower figure (anywhere between 2% and 10%) to be set by regulations. The TUC has made it clear that it will press for the lowest possible threshold of 2%.

This change is expected to come into force in April 2026 and the information and access rights will apply six months later, from October 2026, although the precise detail remains subject to a live consultation as set out in our previous Law-Now article – Four consultations published on the Employment Rights Bill.

Industrial action

The Act removes the initial turnout threshold which required 50% of all eligible members to have voted in a trade union ballot to be able to hold official strike action. Once in force, all that will be required will be a simple majority of those voting to vote in favour of industrial action. It will therefore become easier to call industrial action. Voting will also be simplified with the introduction of electronic balloting. The Government opened a consultation on workplace balloting in November 2025, and the outcome from this will inform the details behind these proposals. For further information, see our Law-Now article – Employment Rights Bill: Government publishes further consultation on electronic balloting.

These measures are expected to take effect in 2027.

Statutory rights

Statutory sick pay and family leave

The Act introduces a ‘day one’ right to paternity leave and unpaid parental leave, and removes the lower earnings limit and three-day waiting period for statutory sick pay. These changes will apply from April 2026.

The existing statutory parental bereavement leave regime will be extended so that employees have a ‘day one’ right to take time off to grieve the loss of a loved one, and additional rights will be given to protect pregnant employees. The Act gives the Government power to introduce regulations to extend existing protections for employees in redundancy situations to cover non-redundancy related dismissals taking place during pregnancy, maternity leave or following a return to work from family leave. These measures are expected to take effect in 2027, and are currently subject to live consultation as set out in our previous Law-Now article – Four consultations published on the Employment Rights Bill.

Flexible working

The Act will make two key changes to the existing statutory flexible working regime. An employer will only be able to refuse a flexible working request where it is reasonable for them to do so, and an employer must set out the ground(s) for refusal and explain why it is reasonable to refuse the request on those ground(s). The eight statutory reasons will remain the same. These changes are not expected until 2027.

Equality

Third party harassment

The Act will reintroduce third party liability for harassment, enabling a worker to bring a claim against their employer if: (i) a third party harasses them in the course of their employment, and (ii) their employer has failed to take all reasonable steps to prevent the harassment.

This protection goes beyond the duty to prevent sexual harassment in the workplace introduced in October 2024, and applies to harassment on the grounds of any of the relevant protected characteristics covered by the existing harassment provisions. These changes are not likely to come into force until October 2026 and will be particularly significant for employers operating in the hospitality and retail sectors where staff frequently interact with members of the public.

Sexual harassment

The Act strengthens the duty to prevent sexual harassment by imposing a higher compliance standard in terms of taking all reasonable steps rather than reasonable steps.

Regulations specifying what amounts to reasonable steps (on a non-exhaustive basis) are expected in due course in 2027.

The Act also makes reporting sexual harassment a new category of protected disclosure under the whistleblowing regime.

Equality Action Plans

The Act will require large employers (that is, those with 250 or more employees) to develop and publish an equality action plan setting out how they are addressing the gender pay gap, and supporting employees going through the menopause. This will be introduced on a voluntary basis in April 2026 before compliance becomes mandatory in 2027.

Ban on non-disclosure agreements

The Act contains a ban on employers using confidentiality clauses which prevent a worker from making allegations or disclosures about harassment or discrimination, or disclosures about their employer’s response to discrimination/harassment allegations.

Regulations may define “excepted agreements” to which the ban does not apply although it is not yet clear what may be covered by this exception. 

This change was not included in the Implementation Roadmap and so it is not yet known when this change will take effect. 

Final thoughts

There is a lot of change ahead for UK employers, but the Act will be implemented in stages, and careful planning will assist in making this more manageable.  We invite you to join us for our two-part webinar series on 13 and 22 January 2026 when our employment specialists will outline what businesses need to know, what action they need to take and when. To keep up to date with the changes in the meantime, you can visit our Employment Rights Bill hub.

We invite you to join us for our two-part webinar series on 13 and 22 January 2026 when our employment specialists will outline what businesses need to know, what action they need to take and when. Please see our invitation for more information and to sign up.