Long overdue or a disaster for business? The Employment Rights Act and the big questions still unanswered

Leo Fontes, final-year history student and aspiring commercial solicitor, examines this landmark legislation

The Employment Rights Act became law on 18th December 2025 and has been described as the “biggest upgrade to workers’ rights in a generation”. Some of the changes have already been implemented, such as paternity leave and unpaid parental leave becoming day-one rights, and reporting sexual harassment now counting as a protected disclosure, meaning employees can’t be lawfully dismissed or punished for speaking up. However, the biggest and most consequential changes are still yet to come.

What’s changing and when?

The Employment Rights Act 2025 mostly amends the Employment Rights Act 1996, and many details are still subject to government consultations.

1st October 2026: the time to bring a tribunal claim doubled from three to six months.

30th October 2026: Employers must take ‘all reasonable steps to prevent sexual harassment’ and become liable for harassment from third parties (clients and customers). Upgraded trade union rights will also be introduced.

1st December 2026: Higher standards around workers’ rights for seafarers, and staff must be consulted on tipping policies.

1st January 2026: Employees can claim unfair dismissal after six months in a job instead of two years, the cap on unfair dismissal compensation is removed, and dismissing staff then rehiring them on worse terms (“fire and rehire”)

Later in 2027: New rights for zero-hours workers, including guaranteed hours, and compensation if shifts are cancelled or shortened. There will also be an amendment to flexible working, and a new right to statutory bereavement leave.

Six months for full protection, no cap on awards

The reduction of the qualifying period for unfair dismissal claims is the most significant change in the upcoming legislation, with the government estimating that it will bring protection from unfair dismissal to an additional 6.3 million employees. Since 2012 employees needed two years’ service for them to claim unfair dismissal, meaning employers could dismiss employees without going through a fair process or giving a fair reason. The Act has also meant that the secretary of state for business and trade no longer has the power to change this qualifying period themselves, stopping the political back and forth on this issue, as it had been changed by Blair in 1999 and Cameron in 2012. The new six-month window gives employers a lot less time to decide over dismissals, as six-month probationary periods are now too long. Employers are expected to react to these changes, not only by reducing probationary periods to three or four months, but also investing more in their recruitment process, as there is higher risk involved in making a poor hiring decision.

The more surprising change in the Employment Rights Act is the change to compensation. Unfair dismissal awards are currently capped at the lower of a 52 week’s gross pay or £123,543, but from January that will all change, as there will no longer be cap on unfair dismissal compensation. This will have little impact on the majority of cases because most people find a new job quickly. The two main categories where very high compensation may be awarded are for high earners, and those close to retirement age. For dismissal of high earners, the process will change from a quick, efficient process where the employee will be given a severance payment to cover the maximum unfair dismissal award and a settlement agreement to potentially a lengthier process of performance reviews, and staged warnings in order to mitigate financial risk for the employer. Employees dismissed close to retirement age may be able to claim losses amounting to 15-20 years’ salary, as they may never find work as well paid as the job they lost.

For employers, these changes create much greater financial risk. The cost comes not only from settlements, but from legal fees arising from handling of Acas and tribunal claims, and from a more resource-intensive dismissal process. The government estimates that the shorter qualifying period alone will generate an extra 9,000 Acas referrals a year, and with tribunals already under-resourced and facing long-delays, claims brought against firms will be even longer and costlier.

Zero-hours, and fire and rehire?

Two of the Act’s most important reforms depend on decisions ministers are still yet to make. Fire and rehire is the controversial practice of dismissing an employee and then re-employing them under worse terms. This is usually a last resort an employer will take to force through changes usually around cuts to pay or hours. The government is seeking to restrict the use of this tactic by making dismissals due to certain changes (restricted variations) in an employee’s contract, automatically unfair. These restricted variations include pay, required number of working hours, pension, shift times and length, and time off rights. The government was initially going to make any “sum payable” a restricted variation, but it now accepts that not every expense or benefit matters as much as salary, so it would not be automatically unfair to dismiss an employee to reduce certain expenses or benefits, but the employer would still need a fair reason. Further decisions are also to be made around changes to shifts, but it may only apply to major changes, like moving from days to nights, or weekdays to weekends. Changes to location and job role are not included in as restricted variations, giving businesses some leeway, but the government’s final decision over how far-reaching the restricted variations are will still have a large impact over employers.

The second significant reform that is government is still consulting is zero-hour and low-hours contracts. Workers will gain the right to guaranteed hours that reflect what they actually work. Workers will also have to receive reasonable notice of shifts, and compensation when shifts are cancelled or moved at short notice. The crucial decision for the government is where to set the threshold for who qualifies for the new rights. The government’s current thinking is somewhere between eight and 20 hours a week. This decision is crucial as officials estimate that the policy would cost businesses £2.9bn a year if all zero-hours workers were covered, £1.1bn under a narrower scheme, and £250m at minimum. Again, these changes look to harm employers, but there is also evidence to suggest that greater notice for shifts for workers, help both workers and employers as it leads to lower staff turnover and fewer last-minute absences.

Unintended consequences or catching up?

Critics have warned that these changes will harm the very people it set out to help. At a time where the UK now has one million young people who are neither employed, in education, nor in training (NEET), these reforms are making it costlier for businesses to employ young people. The Times has reported that out of a survey of 1,001 business leaders, 36% have cut entry level jobs in the past year, with that number increasing to almost half for medium and large employers. Their explanation for this was due to increases in the living wage and increased national insurance contributions, as well as strengthened workers’ rights, and with these upcoming changes, that is only making it harder for employers to hire young people.

However, even after every provision is implemented the UK will still have some of the weakest labour rights in the OECD in almost every area, so this Act is also just catching up, rather than overreaching. The decisions that are yet to be made, especially regarding the low-hours threshold and the list of restricted variations will have a significant impact. If the threshold is set too high, it may lead to even greater increases in the number of young people who are NEET. The government must find an appropriate balance. A low-hours threshold that starts low that can rise gradually if needed would provide security for the most vulnerable workers, without stopping employers from hiring young people. A clear list of restricted variations, that would not include all benefits and expenses would give employers certainty over the rules, whilst still allowing for some flexibility, and it would give employees more protection. These small decisions that the government will make in the coming months are key to whether the Act delivers what the government promised.

Leo Fontes is a 4th-year history student at the University of Edinburgh, and aspiring commercial solicitor. He has a keen interest in employment and regulatory law.