Key Changes to Employment Laws Under the New UK Employment Rights Act 2025

Qualifying Period for the Right Not to Be Unfairly Dismissed. Currently, employees must have two years of qualifying service in order to bring an unfair dismissal claim (unless they are able to bring a claim of automatically unfair dismissal on one of the statutory grounds, which does not require a minimum period of qualifying service). Section 25 of ERA 2025, when in force, will reduce this qualifying period to six months. In practical terms, this generally means that employees with six months' continuous service will acquire protection against unfair dismissal. The government has indicated this change will take effect in January 2027, allowing employers time to update induction, probation and performance‑management frameworks. In terms of impact, the UK government has predicted that reducing the qualifying period from two years to six months will protect a further 6.3 million employees from unfair dismissal, generating an additional 9,000 ACAS early conciliation referrals a year, of which about 3,000 will progress to a Tribunal claim. This is the largest expected impact on the Tribunal system of any of the measures in ERA 2025. The Tribunal system remains heavily backlogged (following the pandemic), with cases often taking over a year for preliminary hearings and case management conferences to take place.

Compensation for Unfair Dismissal. The current cap on compensatory awards for most unfair dismissal cases—being the lower of 52 weeks' pay or the statutory cap—will be abolished under ERA 2025. The government has stated that the reduced qualifying period and the prospect of uncapped compensation may make employees less likely to bring unmeritorious whistleblowing or discrimination claims (that have no cap on compensatory awards) in order to get around these service limitations. We await to see the impact of this change. Note that the average award for unfair dismissal compensation is significantly below the current cap. The published statistics for the 2023/2024 reporting period are: The highest award in an unfair dismissal claim was £179,124 (for an uncapped claim such as a whistleblowing-related dismissal); the median award for unfair dismissal claims was £6,746; the average unfair dismissal award during the 2023/2024 reporting period was £13,749.

Fair Work Agency. The UK government's Next Steps Paper confirmed that a new public authority, to be called the Fair Work Agency, would bring together the existing enforcement functions of: (i) His Majesty's Revenue and Customs, relating to national minimum wage; (ii) the Employment Agency Standards Inspectorate; and (iii) the Gangmasters and Labour Abuse Authority. Over time, the Fair Work Agency is intended to take on the enforcement of a wider range of employment rights, including holiday pay and statutory sick pay. Part 5 of ERA 2025 contains provisions for the enforcement of labour market legislation. The secretary of state will be responsible for the enforcement of relevant labour market legislation and will have the power to delegate certain labour market enforcement functions to a public authority and to appoint enforcement officers. Part 5 will be brought into force by regulations made by the secretary of state. The government has announced that the Fair Work Agency will be established in April 2026. Matthew Taylor has been appointed as its first chairman.

Collective Redundancy Consultation Trigger. Under the current law, where an employer proposes to make large-scale redundancies of 20 or more employees at one establishment within a period of 90 days or less, it must consult on its proposal with representatives of the affected employees and also notify the secretary of state. If employers fail to comply with collective redundancy requirements, employees can claim a protective award of up to 90 days' pay. ERA 2025 increases the maximum protective award to 180 days' pay, applying from April 2026 onward. Moreover, ERA 2025 adds a new threshold test, requiring collective consultation if there are either 20 or more redundancies at one establishment, or if another (and new) threshold test is met. This is yet to be further defined in regulations, and we expect the new test to be introduced in 2027, according to the government's implementation roadmap.

Fire and Rehire. Fire and rehire will be hugely restricted under ERA 2025. Other than in circumstances of financial difficulty, an employee will be deemed automatically unfairly dismissed where they were employed for the purposes of a business carried on by the employer and the reason, or principal reason, for their dismissal is one of the following: (i) the employer sought to vary the employee's contract of employment to make a "restricted variation" and the employee did not agree to the restricted variation; (ii) the employer sought to make more than one variation and the employee did not agree to several variations that included the restricted variation; (iii) to enable the employer to employ another person, or to re-engage the employee, under a varied contract of employment to carry out the same or substantially the same duties as the employee carried out before the dismissal, where one or more of the differences between the two sets of terms is a restricted variation. A "restricted variation" includes a reduction of, or removal of an entitlement to, any sum payable to an employee in connection with the employment, or a variation of the number of hours which an employee is required to work. According to the government, these changes are expected to take effect in 2027, representing a recent delay in implementation of these changes.

Harassment at Work. The Equality Act currently requires employers to take "reasonable steps" to prevent sexual harassment of employees during the course of their employment. ERA 2025 will amend the Equality Act to require employers to take "all reasonable steps" to prevent sexual harassment. Employers will also be under a duty to take "all reasonable steps" to prevent third-party harassment in relation to all relevant protected characteristics. The government will have the power to specify in regulations what will be regarded as the reasonable steps an employer should take, or has failed to take, to prevent sexual harassment. What constitutes "all reasonable steps" will depend on the specific circumstances of the employer, such as their size, sector, working environment, resources and other relevant facts. In terms of impact, the duty to take all reasonable steps to prevent sexual harassment of employees, including by third parties, will be a high bar for employers to meet. The government anticipates that the requirement to take "all reasonable steps" to prevent sexual harassment will come into force in October 2026. Employers should consider training requirements and workplace policies for social events early on to assess if any changes are needed in advance of October 2026.

Employment Tribunal Time Limits. For most Employment Tribunal claims, the primary limitation period is three months from the act complained of. This limitation period will be extended to six months under ERA 2025, except for breach of contract claims arising or outstanding on termination of employment. It is unclear if the exclusion of breach of contract claims was a drafting oversight, as excluding breach of contract claims (which often tie in with unfair dismissal or unlawful deduction of wages claims) increases complexity for claimants, as they will have to be cognizant of the different limitation periods for different parts of potentially the same dispute. This complexity goes against the grain of the legislation. The government has indicated this change is expected to take effect no earlier than October 2026. Increasing the time limit to six months is likely to create more uncertainty for employers and place a greater burden on the already backlogged Employment Tribunal system.