The Employment Rights Act 2025: An Overview
The Employment Rights Act 2025 launches some of the most substantial reforms seen in decades.
Following several months of back and forth between the House of Commons and the House of Lords, royal assent was granted on December 18th 2025. This made Labour’s ‘Employment Rights Bill’ the ‘Employment Rights Act 2025’. With major implementations coming into force in 2026 and 2027, employees and employers will face a rapidly evolving landscape over the coming years. This article will outline some of the Employment Rights Act's most influential upcoming changes. This includes their anticipated dates of action and how they may affect you or your business.
Unfair Dismissal
Under the current legal framework, an employee must have served a minimum of 2 years’ continuous service to qualify for the right to bring a claim for unfair dismissal at a tribunal. This does not apply to those under the umbrella of automatically unfair reasons such as pregnancy, whistleblowing or trade union membership.
Labour’s ‘Make Work Pay’ initiative, launched in October 2024, proposed removing the two-year qualifying period. This would make unfair dismissal a day-one right, whilst also enabling employers to operate statutory probation periods to ensure employees are capable and suited to the role. Following resistance from the House of Lords and negotiations between business representatives and trade union representatives, it was confirmed in November 2025 that the qualifying period will be set at 6 months of continuous service. Probation periods will be shelved. These changes are set to come into effect in January 2027.
How will this affect the Tribunals?
Employment tribunal backlog is continuing to build. It is likely that this reduction in the qualifying period will exacerbate the number of cases in the system awaiting hearing. A reported 52,000 cases were outstanding in March 2025. This is an almost 25% increase from the previous year.
Whilst this new amendment is aiming to promote justice, we must acknowledge that providing citizens with ‘swift justice is a vital public service, not a luxury’ (Richard Atkinson, President of the Law Society of England and Wales). With 450,000 individuals currently awaiting resolution of employment disputes, the reform risks placing further pressure on an already overstretched system. As wait times increase, with some cases now listed in late 2028, delays are causing significant anxiety and frustration amongst claimants. These delays may also be increasing potentially unrecoverable costs.
How will this affect businesses?
Many businesses have raised concerns about the potential challenges and costs this reduced qualifying period may cause in the recruitment process. Reducing the qualifying period is set to heighten the legal and procedural risks associated with each new hire. This requires employers to ensure their recruitment processes are stringent and robust to guarantee employees are the correct fit. Striking the balance between fairness and flexibility is vital to ensure vulnerable employees receive fair treatment without stunting the recruitment process entirely.
Compensatory Award for Unfair Dismissal
Currently capped at the lower of 52 weeks’ gross pay or £118,223, The Employment Rights Act 2025 is also set to remove the statutory cap on the compensatory award applied to unfair dismissal claims. Removing the cap creates an opportunity for higher earners to benefit the most and seek significantly higher damages. This is also likely to impact settlement expectations as it awards employees more bargaining power and removes the ability for employers to rely on the cap as an upper ceiling.
Ultimately, this change is bound to increase the financial stakes of every termination. This means that ensuring that all dismissals are both procedurally and legally compliant will remain more crucial than ever.
Fire and Rehire
Fire and rehire refers to the practice of changing the terms and conditions of an individual’s employment. This is done by way of dismissing and then re-engaging them on generally less favourable terms. This was previously a lawful method to amend contracts whilst avoiding unfair dismissal claims. However, the Employment Rights Act 2025 introduces significant restrictions on these practices.
From January 2027, the Employment Rights Act 2025 proposes ‘to close the loopholes which allow firms to engage in these unscrupulous practices’ by tightly regulating the rules surrounding fire and rehire. Dismissal will now be considered ‘automatically unfair’ in circumstances where it is linked to refusal to accept changes in core contractual terms. This is also known as imposing ‘restricted variations’. As a result, any dismissal linked to pay, working hours, pensions, shift patterns or time off will be considered automatically unfair. It will also be unlawful to rehire the same employee or recruit a new employee on less favourable terms where the duties are substantially the same.
The only exception to this will be in the narrow circumstances where businesses are experiencing genuine and severe financial difficulties affecting business viability. The proposed changes will either mitigate these financial problems or will simply be unavoidable in terms of sustaining the business.
Employers who do not comply with these new requirements put themselves at risk of unfair dismissal claims and of a protective award, as well as increased compensation awards of up to 25% and potential damage to their reputation.
How will this affect employees?
For employees, these changes provide much greater job security. Seeing that employers cannot misuse their power and undermine terms negotiated in good faith enables greater financial stability. Preventing these practices mitigates any potential power imbalance. It also prevents employees from feeling pressured to comply with changes they believe are unfair.
How will this affect employers?
Employers planning to use these practices should approach the matter with extreme caution. Whilst they remain lawful, these practices should be employed only as a last resort. Employers should ensure they consult with their employees and their representatives honestly and meaningfully before proceeding. They should document all rationale and alternatives and ensure they follow fair procedure and the ‘Dismissal and Re-engagement Code of Practice’ to avoid any legal, financial or reputational risk.
Bereavement Leave
It is estimated that 1 in 10 employees may be affected by bereavement each year. However, at present, there is no statutory entitlement to bereavement leave, except in the limited circumstance of a parent suffering a child loss or miscarriage beyond 24 weeks of pregnancy. This current legal framework remains outdated and ill-defined. Consequently, those in an already vulnerable position are left with inconsistent support.
Labour’s proposed amendments demonstrate recognition for the vastly different way that grief impacts individuals. Accordingly, it comprehends the need to treat employees in these circumstances with compassion. The amendments acknowledge that ‘grief cannot be confined to rigid timescales, or a one-size fits all approach’.
What does the act propose?
- A day one right to unpaid bereavement leave. All employees will be entitled to a minimum of one week of leave. This can be taken within a window of a minimum of 56 days.
- A broadened scope of relationships that are included in the description of ‘loved ones’. Although the specifics are yet to be set out in forthcoming law, parents, partners and siblings are expected to be included.
- An extension of bereavement rights to families who experience pregnancy loss before 24 weeks. This is set to apply to the woman physically experiencing that loss, but also to the partner involved.
- An extension of bereavement rights to women experiencing ectopic pregnancy, molar pregnancy, embryo transfer loss during IVF, and terminations for medical reasons.
By implementing this as a statutory right, it sets a clear minimum standard for employers, removing current reliance on good faith and discretion. Employers will be required to act with compassion in these circumstances. As a result, employees can properly grieve without the added anxiety of their job security being undermined.
With an estimated 250,000 pregnancy losses a year, the necessity for a minimum standard in law is overwhelming. This inclusion in law recognises the emotional, psychological and physical toll of pregnancy loss. Furthermore, it demonstrates a recognition of the nuances of loss, whilst displaying a commitment to fostering profoundly more positive and considerate workplace practices.
Public consultation for these matters closed on the 15th of January 2026. Key details are to be confirmed soon, in the coming months. We are expecting these changes to be launched in 2027.
Zero hours contracts and agency workers
1.13 million employees in the UK are on zero-hour contracts, representing 3 per cent of the workforce. They are amongst some of the lowest paid and face the most job instability. In light of this, the government’s initial manifesto displayed a commitment to ‘tackle insecure work’ and end ‘one-sided flexibility’ by pledging to ‘ban these exploitative zero-hour contracts’.
The Employment Rights Act 2025 reflects a slightly softened version of this. Whilst not eradicating them entirely, it attempts to make them fairer for both employers and employees. As a result, under the new regulations, zero-hour, low-hour and agency workers are set to have a right to:
- ‘Guaranteed hour contracts’ which will reflect the hours worked during a specific reference period, expected to be twelve weeks.
- Reasonable notice of the date, time and set hours of their shifts, expected not to exceed seven days.
- Compensation for short notice cancelled or significantly shortened shifts.
- Protection from unfair dismissal.
Consultation on this matter is planned for early 2026, with full implementation by 2027. It is expected that non-compliance with these new regulations could risk costly tribunal claims.
Conclusion
The Employment Rights Act 2025 is landmark legislation which is set to be transformative to the current employment landscape. Increased protection for employees indicates increased legal risks and exposure for employers.
To mitigate these risks employers should:
- Conduct early impact assessments to address the legal, financial and operational risks arising from these amendments.
- Prioritise auditing employee contracts and reviewing existing workplace policies. This ensures adherence with legal requirements and identifies areas in need of update and restructure.
- Implement staff training and increased awareness so that those responsible for implementing legal changes act consistently and precisely.
- Remain proactive and informed about ongoing government consultations and anticipated timelines. This ensures compliance and mitigates potential legal and reputational risks.
By adopting these proactive measures, employers can ensure regulatory compliance while effectively responding to the demands of an increasingly dynamic employment landscape.
How can Crane and Staples assist you?
If your business needs guidance on how to prepare for the Employment Rights Act 2025, we offer advice on policy updates to ensure compliance and minimise legal exposure. Please contact Michael Scutt to book an appointment and discuss how these changes may affect your organisation.
For employees, we can help you understand your new rights under the Act. These include unfair dismissal, bereavement leave, zero-hour contract protections, and more. We can help you feel confident about your workplace entitlements. Please contact Michael Scutt to book an appointment to discuss the best steps to protect your rights.