Employment Rights Bill receives Royal Assent

Author: Summer Pearce

Key contact: Chris Aldridge

On 18 December 2025, the Employment Rights Bill received Royal Assent, becoming the Employment Rights Act 2025 (ERA 2025). The Act will introduce additions and amendments to existing legislation. Whilst some changes are to be implemented immediately, most key changes are to be phased in gradually, from April 2026 to January 2027.

Unfair dismissal: 2 year qualifying period to be reduced to 6 months

The Labour Government have agreed that unfair dismissal will not be a ‘day one’ right. The current two-year qualifying period before an employee can bring a claim for ordinary unfair dismissal will instead be reduced to six months. This new qualifying period is set to apply to employees who have six months qualifying service on 1 January 2027.

For employers, this may be a welcome change from the proposed day-one right. Probationary periods will not have to change as drastically. However, employers will need to consider whether to decrease existing probationary periods or manage probation strictly to ensure that any final decisions are implemented before the six month mark is reached.

Unfair dismissal: Cap on unfair dismissal compensation removed

The Government also introduced amendments to remove the compensation cap on unfair dismissal claims. Currently, compensation for unfair dismissal is capped at the lower of 52 weeks’ gross pay and £118,223 (current threshold). This cap will now be removed so there is no limit on the amount awarded. The proposed date for this to take effect is 1 January 2027.

Employers should review disciplinary and dismissal policies and processes to ensure that managers are trained on managing performance and conduct issues.

Fire and rehire restrictions

At the moment, when changing terms and conditions of employment, an employee can be dismissed and rehired on the new terms and conditions of employment if the employee disagrees with the variation. If an employee then brings a claim for unfair dismissal, the employer can defend it by proving the changes were for a ‘sound business reason’.

If an employer dismisses an employee for refusing substantial contractual changes, this will be deemed automatically unfair (unless there is no alternative option to save the business as a going concern). It will be unlawful to dismiss an employee in order to relace them with another person on different terms, if carrying out the same role.

Employers will have to engage in a consultation before making contractual changes and must consider alternatives. There will also be a requirement to provide clear written notice setting out business reasons for the changes.

The changes to fire and rehire provisions are set to take effect in October 2026.  

Enhanced Worker Rights – Statutory Sick Pay

Statutory Sick Pay (SSP) will become payable from day one of sickness absence, rather than the fourth day. The lower earnings limit will also be removed. At the moment, workers must earn a minimum amount to be eligible for SSP.

Guaranteed hours and shift scheduling

The ERA 2025 sets out rules which require employers to make an offer of guaranteed hours to a qualifying worker after the end of every reference period, if exceeding the minimum hours set out in their employment contract.

Employers must provide reasonable notice of upcoming shifts, and failure to do this could result in compensation. If a shift is cancelled with little notice, employers may be required to pay a cancellation fee based on the scheduled hours. In practice, employers will need a well-established system to track hours and manage guaranteed hours requests.

Bereavement leave for pregnancy loss

The right to at least one week of unpaid bereavement leave has now been extended to include employees and their partners who experience pregnancy loss before 24 weeks. At present, UK law only provides statutory bereavement leave for stillbirths after 24 weeks of pregnancy or the death of a child aged under 18 years.

This change is likely to be implemented in 2027.

The Fair Work Agency

The Fair Work Agency (FWA) will be established in April 2026 to bring together existing enforcement bodies and take on enforcement of other employment rights such as holiday pay and statutory sick pay. The aim of the FWA is to improve efficiency by ensuring there is one leadership team to oversee work in line with a ‘unified strategy’. The agency will be under the Department of Business and Trade.

Employers must ensure that they are complying with the ERA 2025 to avoid facing consequences. For example, the FWA can undertake unannounced inspections, request documents or interview staff. Penalties can be issued by the FWA requiring payments within 28 days and can impose fines of up to 200% of the owed amount from up to six years prior.

Trade union rights

Unions will be able to apply to the Central Arbitration Committee (CAC) for statutory recognition, potentially reducing the initial threshold for union membership. Also, the requirement to show likely majority support is removed.

There is also a new duty for employers to inform workers of their right to join a trade union, and a new right to reasonable accommodation for trade union representatives carrying out their duties.

Other changes

The ERA 2025 is set to introduce other law reforms, including:

• Employers with at least 250 employees will need to report on ethnicity and disability pay gaps. These must cover measures to address gender pay gaps and support offered to employees during menopause.
• A ‘single worker status’ is set to be introduced under which all workers would have full employment rights.
• Carers’ leave and whether it should be paid.
• The current parental leave system (expected to continue until early 2027).

If you would like further advice on how to prepare for the Employment Rights Act 2025, do not hesitate to contact our Employment Team.