Employment Rights Act 2025 — A New Landscape for Workers

The Employment Rights Act 2025 (ERA) received Royal Assent on 18 December 2025, kick-starting the most significant and wide-sweeping employment reforms in a generation. The ERA was passed after a protracted period of parliamentary ping-pong between the House of Commons and the House of Lords, which resulted in the introduction of last-minute concessions and additional reforms. The reforms will impact a wide range of employment rights, from enhanced unfair dismissal protections to day-one family rights. While many of the reforms are not immediate and will come into force over the next two years, employers need to start preparations now for the new landscape ahead.

Unfair Dismissal

Much of the focus leading up to the ERA receiving Royal Assent was on the changes to unfair dismissal protection. While the UK government originally proposed making unfair dismissal a “Day One” right, it ultimately accepted a House of Lords amendment substituting the current two-year qualifying period with a six-month period instead. The government is committed to bringing this change into effect from 1 January 2027, but it will impact employees who join the workforce from July 2026 onward. Therefore, employers must review and update their employment contracts and policies now to ensure their probationary and performance management processes are up-to-date and suitably robust for them to make decisions about the suitability and performance of new employees within that six-month period. It is likely this reform will impact employers’ hiring practices (potentially slowing businesses’ willingness to hire new employees) and management of employee performance during the initial period of any role because of the additional costs of bringing employment to an end beyond that six-month period.

A last-minute and unexpected amendment to the Employment Rights Bill was the removal of the statutory cap on the compensatory award applied to unfair dismissal claims. Currently, the compensatory element of such claims is capped at the lower of one year’s gross pay or approximately £118,000. This reform presents one of the most significant changes to workers’ rights as it will directly impact how employment disputes are valued (particularly for senior employees or high earners), the approach to settlement negotiations between employers and employees, and, potentially, the number of tribunal claims. The impact of this change shouldn’t be understated. While the removal of the cap along with the shorter qualifying period may simplify the claims employees bring (one view being that it is less likely that employees without the requisite period of service or, alternatively, those who are high earners will resort to bringing discrimination or whistleblowing claims, which are uncapped in value), the risk profile around managing employee dismissals will be hugely elevated. In the short term, it is also likely to create uncertainty as departing employees’ expectations of the value of the potential claims go up, which may lead to increased employment tribunal claims that could impact the employment tribunal system, which is already struggling to deal with the current number of claims.

While it can’t be known definitively what impact these material changes to the unfair dismissal regime will have on growth and investment in the UK, it is possible they will lead to restructurings and employee terminations in 2026 as businesses look to prepare for the higher cost and uncertainty of what these changes will bring.

Fair Work Agency and Extension of Time Limits for Claims

The Employment Rights Act creates a new state enforcement agency, the Fair Work Agency. The aim of this agency is to consolidate several fragmented regulators and help enforce compliance with minimum wage and employers’ holiday pay and sick pay obligations. While the implementation of this agency shouldn’t change businesses’ approaches to compliance, it may increase the likelihood of claims being brought against employers (particularly as the new agency will have direct enforcement rights with respect to holiday pay calculation, with the onus currently being on employees to bring such claims).

Additionally, the ERA will extend the time limits for employees to bring claims. Currently, most employment tribunal claims need to be brought within three months from the day of the act being complained about. However, because of the ERA, this time limit will be extended to six months. While this change will aid employees contemplating bringing an employment claim, it will create a longer period of uncertainty for employers and may impact how they deal with departing employees going forward (and how businesses looking to acquire other businesses will deal with such matters).

Harassment

Following the introduction in 2024 of the duty on employers to take reasonable steps to prevent the sexual harassment of their workers, the Employment Rights Act extends this further by requiring employers to take all reasonable steps to prevent the harassment of their workers. While further detail is awaited on what “all reasonable steps” amounts to, this change, along with other reforms under the ERA, should impact how employers consider and address their existing policies and processes dealing with the harassment of their workers now.

Related changes that will come into effect as a result of the ERA include: rendering employers liable for third-party harassment, recognising a disclosure of sexual harassment as constituting a “qualifying disclosure” (which can amount to whistleblowing), and banning the use of nondisclosure agreements preventing workers from making allegations or disclosures about harassment or discrimination.

It is clear, given the number of changes introduced under the ERA to tackle this area, that harassment (and sexual harassment) is a key area of focus for the government and that employers will need to take proactive steps to ensure they comply with the law and adequately protect their workforce. This is something that employers should review now.

Family Rights

The Employment Rights Act introduces a host of ‘Day One’ family rights, including the right to paternity leave, unpaid parental leave, and statutory bereavement leave (which will also extend to pregnancy loss). These changes are expected to come into force in April 2026 to make good on the government’s promises to make work more “family friendly.” The introduction of additional Day One family-friendly rights is one of the changes that have brought less controversy given many employers are willing to grant employees additional leave (even if they are not obligated to do so), but the legislative changes will require businesses to ensure their policies are up-to-date. So, again, this is something that employers need to grapple with now to ensure compliance.

Collective Redundancies

Currently, employers have a duty to collectively consult employees within 90 days when they propose redundancies of 20 or more employees at “one establishment.” Failure to do so can result in employees claiming protective awards (of up to 90 days’ pay). The Employment Rights Act will amend the existing collective consultation trigger so that employers will have to collectively consult employees if there are either 20 or more redundancies in one establishment or a new, currently undetermined, threshold test is met. Additionally, the ERA will increase the cap on protective awards employees may receive when an employer fails to comply with its information and consultation obligations to employees. These changes will directly impact employers making reductions to their workforce across multiple sites and will require them to carefully track whether collective consultation may be triggered. Additionally, the increase in the value of the protective award will make noncompliance more financially costly for employers.

*  *  *

The previously discussed changes are only some of the key reforms introduced by the Employment Rights Act. These generational changes to workers’ rights and protections will be phased in during the coming months and are subject to various secondary legislation and consultation. However, even if some details will be worked out later, the general trend toward a more employee-friendly legal framework is clear (and the onus is on employers to ensure they continue to comply with developing legislation). Businesses that proactively prepare to comply with their obligations under the ERA will find themselves best equipped to deal with employees’ queries and manage their workforce going forward.

Please reach out to your Goodwin contact or either of this alert’s authors should you want to discuss any of the matters raised in this briefing in more detail or would like support with preparing for these changes.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.