Groundbreaking Legal Reforms Passed with Important Last-Minute Amendments: Employment Rights Act 2025

On 18 December 2025, the Employment Rights Bill received Royal Assent, becoming the Employment Rights Act 2025 following months of back-and-forth between the House of Commons and the House of Lords, and represents the most significant package of reforms to UK employment law in decades. The final stages of the act’s passage included late-stage amendments in relation to unfair dismissal that could constitute the most significant reforms brought about under the act.

See our LawFlashes on the initial 2024 announcement, and further amendments in the spring and summer of 2025 for more information on reforms in the Bill.

The provisions of the Employment Rights Act 2025 (the Act) will not come into force all at once. Instead, the reforms will be introduced in phases, with the first significant wave of changes expected in April 2026, and further changes expected later in 2026 and throughout 2027. On 7 January 2026, the government published an impact assessment providing analysis of the economic impact of the reforms. 

KEY LAST-MINUTE CHANGES TO UNFAIR DISMISSAL 

Many key provisions remained largely unchanged from previous iterations of the Employment Rights Bill as amended—for example, in relation to harassment and sexual harassment, trade union reforms, zero-hours workers, fire and rehire practices, flexible working, collective redundancies, bereavement leave, non-disclosure agreements, equality action plans, and time limits for employment tribunal claims. 

However, some late amendments were made in relation to the following before the Employment Rights Bill gained Royal Assent:

Unfair Dismissal - Reduction of Qualifying Period

• Employees will need six months’ continuous service to receive unfair dismissal protection.
• Although this falls short of the government’s original proposal for day-one unfair dismissal rights and is a welcome change for employers in comparison to the Employment Rights Bill’s provisions, it nonetheless represents a substantial expansion of the class of employees able to bring unfair dismissal claims.
• There will be no “initial period” of employment during which a lighter touch approach to dismissals would have applied.
• This reform is expected to take effect on 1 January 2027, which is earlier than previously envisaged. In practice, this means that someone hired from around July/August 2026 could have unfair dismissal protection on 1 January 2027.

Unfair Dismissal – Compensatory Awards

• Compensation is currently capped at the lower of 52 weeks’ gross pay or a statutory maximum (currently £118,223).
• The government has unexpectedly removed this cap.
• Employment tribunals will have the power to make uncapped compensatory awards in all unfair dismissal claims, subject to the existing requirement that compensation must be “just and equitable” and reflect actual financial loss. The removal of the cap will therefore have a more significant impact for high earners, as noted in the government’s impact assessment.
• At present, the timing and date for commencement is unclear but could align with the reduction of the qualifying period for unfair dismissal.
• This change does not affect the calculations of the basic award or statutory redundancy pay.
• The amendments to unfair dismissal rights could have a significant impact. With no cap on compensatory awards, employers are likely at greater litigation risk given the larger potential award available to high-earning employees and could face more challenging negotiated exits with employees who might have increased financial expectations.

TIMETABLE AND COMMENCEMENT: WHAT WE KNOW SO FAR

The Act will come into force in stages, and consultations on detailed regulations are expected to continue throughout early 2026. The only provision that took effect immediately on Royal Assent was the repeal of provisions introduced by the Strikes (Minimum Service Levels) Act 2023 in relation to minimum service levels during strike action.  

The first significant tranche of reforms is expected to come into force from April 2026. Relevant details will depend on commencement regulations, but the measures expected to be introduced include the following:  

• Doubled protective award for collective redundancies: Employers who fail to comply with collective consultation obligations may face a protective award of up to 180 days’ pay, doubling the current maximum.
• Day-one paternity and parental leave: The length of service requirement for statutory parental leave and paternity leave will be removed, making these rights available from day-one of employment.
• Statutory Sick Pay (SSP) reforms: SSP will become payable from the first day of sickness (removing waiting days), and to all eligible employees regardless of earnings, following the removal of the lower earnings limit.
• Creation of the Fair Work Agency: A new Fair Work Agency will be established to consolidate and strengthen enforcement of certain employment rights. While this body is expected to be created in April 2026, the timing of its active enforcement power remains unclear.
• Trade union recognition reforms: Key changes include the removal of the 40% threshold in recognition ballots, and earlier application of restrictions on unfair practices once a recognition request is accepted by the Central Arbitration Committee.
• Electronic balloting: Trade unions will be permitted to conduct ballots electronically, which follows the changes in relation to industrial action that will come into force in February 2026. These include the reduction of required notice for industrial action and the lengthening of industrial action mandates to 12 months.
• Sexual harassment whistleblowing protections: Disclosures relating to sexual harassment will qualify as protected disclosures. Currently, although employees may raise concerns about sexual harassment which amount to whistleblowing, they must usually frame them as falling within another prescribed category, such as a failure to comply with a legal obligation. From April 2026, disclosures relating to sexual harassment can qualify as protected disclosures, provided the requisite tests are met (including public interest and reasonable belief).
• Equality Action Plans (including gender pay and menopause action plans): Employers with 250+ employees will be required to produce and publish Equality Action Plans, including menopause action plans and gender pay action plans. Mandatory compliance is expected from 2027, but a voluntary introduction period will begin in April 2026.

The remaining reforms are expected to become effective throughout the rest of 2026 and into 2027.

NEXT STEPS

Employers should consider preparing now for the first wave of significant reforms expected to come into force in April. Although there will be further clarifications on the precise scope and practical operation of some of the new measures, employers can take early steps to prepare for the changes, including the following:

• Reviewing dismissal and probationary period procedures: Given the reduction in the qualifying period for unfair dismissal claims, employers should review their probationary period practices and dismissal procedures to make sure they are sufficiently robust and effective.
• Reviewing collective redundancy and consultation processes: In particular, employers should assess how the increased protective award and forthcoming unfair dismissal reforms affect risk management and decision-making.
• Updating polices and contracts: Policies on sickness absence, family leave, and whistleblowing, for example, will need to be reviewed and updated to reflect new day-one rights and SSP reforms.
• Training managers and HR teams: Managers should be trained on the increased risks associated with dismissals, expanded scope of whistleblowing protections, and enhanced duties in relation to harassment.
• Risk assessments: Employers should carry out risk assessments to consider risk factors and determine how they can mitigate the risk of harassment and sexual harassment in the workplace.
• Auditing collective and union-facing arrangements: Employers with recognised unions, or those operating in unionised sectors, should assess how the revised recognition rules and electronic balloting may affect their industrial relations strategy.
• Monitoring further guidance and regulations: Much of the operational detail will be contained in secondary legislation and ACAS or government guidance. Employers should ensure they are tracking developments closely throughout 2026.

How We Can Help

Morgan Lewis lawyers stand ready to assist employers in keeping abreast of these important changes and the applicable implementation timelines to appropriately plan for the impacts such changes could have on their workforce.

Trainee Eleanor Beckett contributed to this LawFlash.