Employment Law Coffee Break: The Employment Rights Act 2025 - what's next for employers and agency worker suppliers?

After months of intense parliamentary debate and tripartite negotiations between the government, trade unions, and business organisations, the Employment Rights Act 2025 has received royal assent today (18 December 2025).

The Act underwent substantial amendments during its parliamentary journey, with several provisions being significantly reshaped and the government's original commitment to introduce day-one unfair dismissal rights being fundamentally revised following sustained parliamentary opposition.

Six month qualifying period for unfair dismissal and removal of the compensation cap

The unfair dismissal qualifying period provisions represent the most dramatic shift from the government's original proposals. Initially, the Make Work Pay paper promised day-one unfair dismissal rights. However, following substantial disagreement during the parliamentary process, the government compromised: instead the Act now reduces the current two-year qualifying period to six months. The Act also provides that any future changes to the qualifying period can only be made through primary legislation, ensuring full parliamentary scrutiny, rather than amendment via secondary legislation.

Perhaps the most controversial and unexpected change from the first draft of the bill is the removal of the statutory compensation cap for unfair dismissal claims. This was introduced by the government during final deliberations as part of the broader unfair dismissal negotiations. The Act provides for both the 52 weeks' pay cap and the current maximum award of £118,223 to be removed. While initially rejected by the House of Lords, this provision was ultimately approved as the final obstacle to royal assent.

The reforms are anticipated to take effect from 1 January 2027, though formal confirmation is awaited. The government has committed to publishing an enactment impact assessment before commencement, although it is unclear the extent to which this will influence the ultimate removal of the compensatory cap.

Implementation timeline

The government has not provided any updates to its implementation roadmap published in July. It is assumed that this will now be followed, although with further consultations and statutory regulations promised, there may be some movement on this.

Only limited provisions take effect immediately upon royal assent (primarily the repeal of the Strikes (Minimum Service Levels) Act 2023 and related trade union provisions). For most employers, the first critical implementation date is 6 April 2026.

Commencing on 6 April 2026

The following provisions are currently scheduled to commence in April 2026:

• doubling of the maximum protective award from 90 to 180 days' pay per affected employee for collective redundancy consultation failures;
• statutory sick pay payable from day one of absence with removal of the lower earnings limit. This will apply to employees and workers, including agency workers;
• statutory paternity leave and unpaid parental leave becoming day-one rights;
• employees entitled to take paternity leave before or after shared parental leave;
• protected disclosures expressly extended to include sexual harassment concerns;
• simplified trade union recognition processes;
• electronic and workplace balloting provisions; and
• Fair Work Agency will launch to tackle enforcement of minimum wage, holiday and sick pay, labour exploitation and agency worker rights.

Gender pay gap and menopause action plans will remain voluntary at this stage, becoming mandatory for large employers in 2027.

Employers should also note that April will see an increase in the statutory national minimum wage rates following Autumn Budget 2025.

Further provisions from 1 October 2026

Under current proposals, further significant provisions will take effect from October 2026, including:

• extension of employment tribunal time limits from three to six months;
• enhanced duty to take "all reasonable steps" to prevent sexual harassment (strengthened from the current "reasonable steps" requirement);
• reintroduction of third-party harassment protections;
• fire and rehire restrictions (making dismissals automatically unfair where there is a restricted variation unless business viability is at stake);
• new duty to inform workers of their right to join a trade union; and
• enhanced trade union access rights.

2027 and beyond

The following provisions are currently expected during 2027:

• unfair dismissal qualifying period reduced to six months and removal of the compensation cap (anticipated 1 January 2027);
• bereavement leave (including pregnancy loss);
• enhanced protections for pregnant employees and those returning from family leave;
• flexible working reforms (employers must provide "reasonable" reasons to refuse requests);
• zero-hours and agency worker contract reforms (guaranteed hours offers);
• gender pay gap and menopause action plans becoming mandatory for large employers; and
• changes to collective redundancy consultation thresholds.

Consultations in progress and forthcoming

Several consultations are currently under way or recently launched:

• draft code of practice on electronic and workplace balloting (closes 28 January 2026);
• enhanced protections for maternity dismissals (closes 15 January 2026);
• the right to bereavement leave (closes 28 January 2026); and
• rights for unpaid carers (review expected to conclude by end of 2026).

Consultations on trade union access and provision of trade union information closed on 18 December 2024.

The government has indicated that numerous further consultations will be issued throughout 2026, shaping the detailed regulations that will govern how many reforms operate in practice. However, there are indications that the proposed consultation on employment status, which is related to many of the Act provisions albeit not part of the Act itself, has been further postponed. 

What does this mean for employers?

The removal of the compensation cap will require employers to reassess their approach to managing exits for senior employees and high earners, as potential tribunal awards will now no longer be financially capped. Board-level departures, in particular, will require more careful handling and potentially more generous settlement terms to avoid litigation risk. Likewise, older workers may seek higher compensation awards for career losses.

The removal of the cap will also have an impact on compensation awards where there is an associated breach of the Acas code for which a tribunal can adjust compensation by up to 25%.

The unfair dismissal reforms combined with the extended tribunal time limits (expected to come into force in 2027) and other reforms in the Act (such as the reintroduction of third-party harassment and enhanced requirements around flexible working requests) will lead to increased risks of litigation and the consequent need for careful management of the legal and practical risks; particularly as we see a heightened use by claimants of AI tools to generate and manage claims.

As part of its wish to create a more dynamic labour market, the government is also currently consulting on potential reforms to non-compete provisions. If such clauses are banned or restricted, employers will also face the prospect of determining how they will effectively protect their business interests on termination.  

It will also be important for employers and users of agency workers to monitor closely consultations on guaranteed hours for zero-hours workers and agency workers to check whether the "reference period" for guaranteed hours rights to apply will be the same as the qualifying period for unfair dismissal and/or whether engagement on zero hours or as an agency worker will count towards the unfair dismissal qualifying period.

Most immediately, employers should prioritise preparation for the April 2026 reforms (together with the increases to the national minimum wage rates). Key immediate actions include:

• reviewing and updating sickness absence policies to reflect day-one statutory sick pay, budgeting for increased costs and updating payroll systems;
• updating family leave policies to reflect day-one paternity and parental leave rights;
• reviewing collective redundancy consultation processes in light of the doubled protective award;
• ensuring whistleblowing policies expressly cover sexual harassment concerns; and
• updating recruitment materials to include information on trade union membership rights.

However, it will be important not to lose sight of the reforms currently expected to come into force towards the end of 2026/start of 2027 and to take appropriate steps now.

The start of 2026 should see employers carefully considering the impact of the changes to the unfair dismissal qualifying period and ensuring that appropriate probationary periods and other measures around recruitment and performance are put in place to mitigate risk. Employers should also look at existing contract terms and consider what changes may be needed in light of the more restrictive obligations on fire and rehire provided for in the Act.

In light of the potential reform to non-competes, alongside the reduced qualifying service for unfair dismissal, employers may also want to take this opportunity to consider retention incentives, carefully tailored restrictions for specific roles, and alternative protections against unfair competition.

Employers should monitor ongoing and future consultations closely, as they will shape the detailed operation of a number of the new rights in the Act including zero-hours contract reforms, bereavement leave and enhanced maternity protections. Osborne Clarke's microsite provides comprehensive guidance on preparing for the Act's provisions as they come into force (together with progress on other reforms being progressed by the government as part of its Make Work Pay).