Key predictions and how you can prepare for the Employment Rights Bill
The first changes introduced by the Employment Rights Act will start to affect employers this year. Employment law experts Rena Magdani and Matt McBride explain what you need to know, actions employers can take and possible consequences of the changes.
Unfair dismissal
From 1 January 2027, employees will be able to claim unfair dismissal after six months of qualifying service. This is an improvement for employers on the day one rights originally proposed, but it isn’t all good news.
In exchange for getting rid of day one unfair dismissal rights, the cap on compensation for unfair dismissal was removed. At the moment, if someone brings an unfair dismissal claim, provided it's not related to one of the automatically unfair grounds such as whistleblowing, and it's not discrimination, the maximum award is a year's pay or £118,000, whichever is the lower of the two. Although the government has said that there will be an impact assessment of this reform, a U-turn seems unlikely so employers should assume that from January 2027, there will be no cap on unfair dismissal compensation. The average compensatory award is currently £14,000, so for a lot of cases the removal of the cap won't make a difference, but it might in some instances. Very high earners who currently do not pursue unfair dismissal claims may choose to do so in the future. Individuals in defined benefit pension schemes who can’t get a job with a similar pension scheme often find their compensation limited by the current cap, so there is the potential for higher awards there. Similarly, individuals who can’t get another job could claim career-long loss compensation higher than the current cap. Finally, it may be harder to manage claimants with unrealistic expectations.
A potential practical downside of the reduction in the qualifying period to 6 months is that it might make businesses performance manage staff aggressively in the first six months, creating a workplace culture that isn’t welcoming for new recruits.
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Guaranteed hours for zero and low hours workers
At some point in 2027, new rules around zero and low hours will come in, but there is a lot of detail to be ironed out before that. After a particular reference period, an individual on a zero hours contract will have the right to be offered a permanent contract reflecting the hours that they have worked during that reference period. The employer will be obliged to offer a contract with those guaranteed hours at the end of every reference period. There will be a duty for employers to provide reasonable notice of shifts and reasonable notice of shift cancellations. Using agency workers is not a way round this.
How long the reference period will be, what reasonable notice of shifts will be, and what the low hours threshold will be (the number of hours that someone would have to be working a week to fall outside of this regime) all need to be decided. Whatever is adopted, there will be a significant administrative burden for businesses with a lot of zero hours workers.
There's concern about the impact on seasonal workers. The government hasn’t agreed to a formal exclusion, but they will consult about using fixed-term contracts for temporary need. Unfortunately, businesses will have to wait for the detail to be able to prepare fully for these changes.
Fire and rehire
At the moment, if you can't agree a change to a contract of employment with an employee, you can terminate their current contract and offer to re-engage on a new contract. If the employee doesn’t accept the new contract, as long as your proposals are reasonable and you have gone through the proper process, it would not be an unfair dismissal. However, from October 2026, it would automatically be an unfair dismissal if you are changing pay, pension, working time, time-off or variation clause. The only exception is if an employer has to change a contract because otherwise, they would go bust.
Changing employment contracts will get much more difficult following this reform. Employers may want to think about introducing flexibility clauses into contracts for new employees now. The law is relatively clear on flexibility clauses: you can't have a clause at the end of a contract that simply says you can change anything within this contract, but well-drafted and specific flexibility clauses may work, so seek advice on wording.
Collective consultation on redundancies
Currently, when 20 or more redundancies are planned at one establishment within a 90-day period, the employer has to go through a collective consultation period of 30 days for 20 to 99 redundancies and 45 days for 100 or more redundancies. From 1 April 2026 we expect the penalty for failing to consult will double from 90 days’ pay to 180 days’ pay. At some point in 2027, there will also be a requirement to consult if more than a certain of number of redundancies are planned across the business as a whole, not just in one location. There will be a consultation on what this number should be, but depending on what that threshold is, large employers could be collectively consulting and submitting HR1 forms constantly.
Harassment
From October 2026, the duty to take reasonable steps to prevent sexual harassment will increase to a duty to take all reasonable steps to prevent sexual harassment. Until the government implements regulations on what they mean by all reasonable steps in 2027, we will have to operate on the basis of non-statutory guidance and case law. Businesses will also become liable for third-party harassment where the employer has failed to take all reasonable steps to prevent the third party from harassing the employee in the course of employment. If you haven’t already, take steps now to get on top of this before October 2026 including carrying out risk assessments, managing those risks, training employees and sharing codes of conduct with third parties, for example.
Pregnancy and maternity-related dismissals
At some point in 2027, it will become automatically unfair to dismiss for any reason someone who is pregnant, on maternity leave, or within six months of return from maternity leave, except in specific circumstances. We don't know what those specific circumstances will be, but there will have to be some sort of redundancy exception. There are concerns that a potential unintended consequence of this could be a reluctance to hire women if they then benefit from better job protection if they have children.
Non-disclosure agreements (NDAs)
The Government have said that they will introduce reforms that mean provisions in non-disclosure agreements will be void if they relate to harassment or discrimination, except for excepted agreements. We don't know what excepted agreements will mean and there will be consultation on this. A possible unintended consequence of this could be forcing unwilling employees to bring claims in the employment tribunal where they might otherwise have been able to agree a settlement.
Other changes
From April 2026, from day one of employment workers will be entitled to Statutory Sick Pay with no lower earnings limit.
In 2027, in addition to fitting into one of the eight acceptable grounds for refusal, reasons an employer can give for refusing a flexible working request will have to be reasonable. All employees will also be entitled to one week’s bereavement leave.
Various reforms will come in to increase the presence and strength of trade unions: it'll be easier for them to seek recognition, easier for them to take industrial action; they will have rights of access to the workplace, and employers will be required in their contracts of employment, or statements of terms of employment, to inform employees of their right to join a trade union.
The employment tribunal system
There is a huge backlog in the employment tribunal system. The reforms in the Employment Rights Act will lead to more claims because more people will have the right to claim unfair dismissal; there are more employment rights; without the cap on compensation, claims will be more lucrative; there might be fewer NDAs; the Fair Work Agency can bring claims on behalf of individuals; claimants will have six months to bring claims rather than the current three months; and there will be an increased trade union presence.
There are some possible mitigating factors: there is now a longer ACAS conciliation period, so there's more time to try and settle claims; and there is an argument that an increased presence of trade unions might reduce the number of claims because good relationships with trade unions can avoid disputes.
The government have said they will do something to alleviate the pressure on the Tribunal system, but we don't know what that will be.
For advice on any aspect of the Employment Rights Act, please get in contact with Rena Magdani or Matt McBride.
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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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