Employment Rights Act 2025: key changes and what they mean for employers

The Act forms part of the government’s wider programme of employment reform following the 2024 general election and aims to strengthen worker protections while reshaping how employers manage employment relationships.

On 16 December 2025, the government’s long-awaited Employment Rights Bill was approved by the House of Lords and has now received Royal Assent.

In this article, Sam Lawn outlines the key updates, changes and debates surrounding the Employment Rights Act 2025, and explains what the new employment law reforms will mean for UK employers.

The Employment Rights Act 2025 will introduce significant reforms to UK employment law between 2026 and 2027. Employers should begin preparing now.

For employers, the key implications are:

• Recruitment and probation processes will require closer scrutiny.
• Exposure to employment tribunal claims may increase.
• Employers will face stronger duties to prevent workplace harassment.
• Organisations using zero-hours contracts will face new obligations.

Employers should review recruitment processes, dismissal procedures and workplace policies to ensure they are prepared for these reforms.

The Employment Rights Act 2025 introduces a wide range of changes to UK employment law. Many reforms will take effect between 2026 and 2027.

Key developments include:

• Reduction of the unfair dismissal qualifying period from two years to six months (expected January 2027)
• Removal of the unfair dismissal compensation cap
• Expansion of day-one employment rights including sick pay and family leave
• Strengthened employer duties to prevent workplace harassment
• Restrictions on “fire and rehire” practices
• New protections for workers on zero-hours contracts

The Bill’s parliamentary journey has not been without struggle, with almost 12 months of negotiation and, recently, three successive rejections from the House of Lords. That journey will now continue as the government makes secondary legislation (which will contain some of the detail we don’t yet have) and it is not yet clear when some of these provisions will come into effect.

Whilst the Bill still reflects Labour’s plans to “Make Work Pay”, there have been significant concessions and amendments to the Bill’s original contents, the most significant of which are explained below.

Day 1 unfair dismissal rights

The qualifying period required for employees to bring an unfair dismissal claim will be reduced from two years to six months. Employers should therefore ensure they follow a fair procedure when dismissing employees to reduce the risk of unfair dismissal claims.

Despite forming a key part of the government’s manifesto, the commitment to give people protection from unfair dismissal from day one of their employment has now been dropped. Instead, because of the House of Lords’ opposition to day one rights, the government has agreed that the qualifying service needed to bring such a claim should be reduced from the current two-year period to six months. This is expected to come into effect from 1 January 2027 and to apply to anyone employed from 1 July 2026.

Whilst this concession will be welcomed by employers, the practical effect of the compromise solution is that after 1 July 2026 they will need to take greater care during the first six months of employment to assess whether new joiners are a good fit in order to avoid potentially costly unfair dismissal claims (see below).

Unfair dismissal compensation cap removed

The statutory compensation cap for ordinary unfair dismissal claims will be removed, significantly increasing potential financial exposure for employers.

An unexpected addition, criticised for its lack of consultation, came in the form of an amendment to remove the compensation cap on unfair dismissal claims. Currently, compensation in ordinary unfair dismissal claims is limited to the lower of £118,223 (adjusted by inflation each financial year) or 52 weeks’ gross salary. The new proposals remove this cap entirely but it is expected that this change will only be introduced from 1 January 2027.

This will make ordinary unfair dismissal claims much more attractive to high earners. Employers will need to ensure that they dismiss employees who have more than 6 months’ service for a fair reason after following a fair procedure, particularly those who are likely to find it difficult to secure a new role on equivalent overall compensation, or who are likely to lose valuable equity or deferred benefits as a result of any dismissal.

Tribunal time limits

The time limit for bringing most Employment Tribunal claims will increase from three months to six months from the date of dismissal or the act complained about. This change is expected to take effect in October 2026.

The extension of tribunal claim time limits, combined with the removal of the unfair dismissal compensation cap, may increase both the number and potential value of employment tribunal claims.

Fire and rehire

The Act introduces new restrictions on the use of “fire and rehire” practices, limiting the circumstances in which employers can dismiss employees and re-engage them on revised terms.

The government initially planned to ban all “fire and rehire” practices but this has been watered down. Instead, fire and rehire will become more difficult for employers, with restrictions on which terms within employment contracts may be relevant for unfair dismissal purposes, and exemptions where the employer is in financial difficulty. 

However, there is a specific “fire and replace” provision which seeks to ban the controversial steps taken by the likes of P&O Ferries in appointing self-employed contractors and agency workers to replace employees carrying out the same work. 

Collective redundancy consultation

The maximum protective award for failure to collectively consult on redundancies is doubled, from 90 to 180 days’ pay per employee, which will make it even more crucial for employers to correctly assess whether they have an obligation to collectively consult. 

Harassment

The Act strengthens the preventative duty on employers to protect employees from workplace sexual harassment.

The government’s proposals to strengthen harassment protections for employees remain. In particular:

• The current duty on employers to take “reasonable steps” to prevent sexual harassment will increase to “all reasonable steps”; and
• Employers will be liable for harassment by third parties if they have not taken all reasonable steps to prevent it.

Organisations should ensure their policies and procedures are reviewed to minimise the risk of workplace harassment claims.

Sick pay

Employees will be entitled to statutory sick pay, paternity leave and (unpaid) parental leave from their first day of employment.

Zero-hour contracts

Workers on zero-hours contracts will gain rights to guaranteed hours and greater notice of shifts.

The complex rules governing zero hours contracts are here to stay. These require employers to offer guaranteed hours to zero-hours contracts workers (and agency workers) and provide reasonable notice of shift changes. Much of the detail for these complicated provisions will be revealed in secondary legislation.

Key implications include:

• Greater scrutiny of recruitment and probation processes
• Increased financial exposure in unfair dismissal claims
• Extended time limits for tribunal claims
• Stronger compliance obligations around harassment prevention
• More complex workforce management where zero-hours arrangements are used

The reforms introduced by the Employment Rights Act 2025 will require employers to review several aspects of their employment practices.

Key implications include:

• Reviewing recruitment and probation procedures in light of the shorter unfair dismissal qualifying period.
• Ensuring dismissal processes follow fair procedures given the removal of the compensation cap.
• Preparing for longer employment tribunal limitation periods.
• Strengthening workplace policies and training to prevent harassment.
• Reviewing workforce models where zero-hours or variable hours contracts are used.

With the Bill receiving Royal Assent on 18 December 2025, employers have received a timely Christmas present in the form of the Employment Rights Act 2025. However, the Act is complicated and there remain many outstanding questions about implementation over the next few years.

If you have any questions about how the new Act will affect your organisation, or about how best to prepare for these changes, Russell-Cooke’s employment specialists or dedicated charity employment specialists are available to support you.

Sam Lawn is an associate solicitor in the charity law and not-for-profit team. Sam has experience advising on a wide variety of employment law issues, including redundancies, discrimination, whistleblowing disputes and the operation of TUPE.