New Employment Rights laws: updates, changes and battles in the Houses of Parliament

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 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

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

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 claims in the Employment Tribunal 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.

Fire and rehire

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 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.

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

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.

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 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.