The Employment Rights Act 2025 - Key Changes & Preparation Tips

Transcript

Emma O'Connor: 00:08 

Hello and welcome to DC Talks, a podcast series from law firm Doyle Clayton, where we take a deeper dive into a legal, a leadership, or an HR hot topic. I'm your host, Emma O'Connor, a partner in our employment team and Head of Client Training and there is really only one hot topic de jour and that is the Employment Rights Act 2025. Now, as many of you will know, the Employment Rights Act finally received royal assent before Christmas, after a fascinating game of parliamentary ping-pong between the House of Commons, the Government, and the House of Lords and it really did become a bit of a will they, won't they be able to pass this Act before Christmas. But they did. And now the Employment Rights Act 2025 has now received Royal Assent. The changes brought in by the ERA are huge and their impact cannot be underestimated and I think often we use phrases, don't we, like game changing but when it comes to the Employment Rights Act, I really think it's probably true. Some of the proposed changes under the Act don't need anything more to happen. If you like, before those changes come into force, we just have to wait for the implementation date. However, for some of the changes under the Employment Rights Act, we need secondary regulations to be brought into force before those changes can happen. And what we're going to see moving forward, and actually what we've already started to see in the latter part of 2025, are consultations. We are going to see a number of consultations being launched. As I said, we saw some from 2025, but we'll see some moving forward, particularly in 2026 and these will really shape the way that secondary regulations are brought in, what they contain, and also what the implementation will look like in terms of the Employment Rights Act. I thought it would be helpful to talk about some of the key changes when we can expect those changes to come into force, and also what businesses and more importantly, what HR and management teams should be doing now to get ready for the implementation dates. But before I start, just a reminder that this is a podcast. I'm not giving you legal advice, I'm merely giving you an outline of the changes and when we can expect those changes to come into force. So, if you need any specific advice, then please do get in touch either with Doyle Clayton or with your legal advisors. So, what are the key changes under the Employment Rights Act 2025? When can we expect them to come into force? And what do those changes mean for HR teams, management teams, and for businesses as a whole? Well, I think really the biggest change is the change to unfair dismissal qualifying periods. Now, initially, some of you will remember that the Government proposed in its Manifesto that it would change the current qualifying period of service for ordinary unfair dismissal from 2 years to a day 1 right. However, after much debate and 'ping-ponging' between the House of Commons and the House of Lords, the Government conceded on that manifesto pledge and instead accepted a much shorter qualification period of 6 months' service. However, at the 11th hour, so to speak, the Government threw in a bit of a curveball and removed the current cap on unfair dismissal compensation. Now, at present, if an individual is successful in their employment tribunal claim for unfair dismissal, then compensation for that element, for that element of unfair dismissal is calculated either up to a maximum of the individual's 12 months earning, or it's subject to an overall cap, which is around about £118,000 and as I said, it's whatever is the lower. Now, by proposing to remove that cap on compensation, really has thrown the cat amongst the pigeons. And it will have, when it comes in, now this will come in from the 1st of January 2027, it really is going to have a huge impact on the way that unfair dismissal claims are managed and also on potential settlement and also compensation. Now, as well as this big change to unfair dismissal qualification periods and, of course, compensation, another big change is around the rights of zero, low, and agency workers. And the change is that those workers will be given a right when the law comes into force, they'll be given a right to receive minimum guaranteed hours, and also, they will be given protection if their shifts are cancelled or curtailed at short notice. Now we expect lots of consultation around what these rights will actually look like in practice, and also what the definitions will mean. So, for example, who might be a low-hours worker, what might be unreasonable in terms of cancelling or curtailing shifts? And also what level of compensation an individual might be entitled to. And also, we need to know what this reference period is going to be. How should businesses be calculating what a zero low or agency workers' hours have been, over what period? We think it's going to be 12 weeks, but again, we won't know for certain until we have that consultation. So again, changes will be brought in later on in the implementation timetable, but there's lots of information there that we don't know about, but it really is one area for HR to watch out for. Another big change is going to be around family rights. So, the proposal is that the current qualifying periods of service for both paternity leave and also parental leave will go and instead, these rights, the right to take the leave, will become a day one right. Remembering there that there will still be a qualifying period of service to qualify for paternity pay and also earnings limits as well to take into account. And similarly, we will see changes to the way in which employers can make decisions and communicate those decisions with regards to rejecting flexible working requests. So, some changes there to watch out for in terms of policies and processes. Other really significant changes are around the preventative duty in respect of preventing sexual harassment at work. As we know, that there were changes made in October 2024, bringing in this concept of preventative measures. So, has an employer taken reasonable steps to prevent sexual harassment occurring at work? And again, we're going to see later on, actually in 2026, we're going to see that preventative duty increasing from has the employer taken reasonable steps to has the employer taken all reasonable steps. We're also going to see some changes with regards to third party harassment. Now, whilst we already have the duty to take reasonable steps to prevent sexual harassment at work by third parties, although we don't currently have protected characteristic harassment by third parties, we are going to see new provisions introduced which bring in employer liability specifically for third-party protected characteristic harassment and also specifically for sexual harassment. So, workers will be able to bring claims against their employers where there is harassment by a third party and the employer hasn't taken again those all reasonable steps to prevent such harassment from occurring at work. So again, big changes there to equality laws. Some other new obligations for employers to get to grips with, we're going to see some changes to Statutory Sick Pay and also receive it earlier and we're also going to see the eligibility for employees to receive Statutory Sick Pay, or at least 80% of Statutory Sick Pay where they earn below the lower earnings limit. So, effectively, we're going to see that lower earnings limit restriction being removed. So again, we need to think about sickness absence, we need to think about sickness costs, and also the way organizations manage sickness absence. Another big area of change concerns restrictions on an employer's ability to dismiss and re-engage, or so-called fire and rehire, in circumstances where they are proposing to make restricted variations to an employee's contract of employment. Now, what this change will mean is that any dismissal where an employee refuses to accept a restricted variation to their contract of employment, and a restricted variation is defined, and it will be changes to their pay or hours of work, for example, and that there are other restricted variations. But, essentially it means that if an employee is dismissed because they fail to accept that restricted variation, then that dismissal would be automatically unfair. So again, a big change there. It's also going to be automatically unfair to dismiss an employee and either employ or engage some other employee or worker who will accept the change, the less favourable terms, as is so often the case. There's also going to be restrictions if the employer wants to change a contract to actually include a variation clause and also, as well as this, if an employer wants to change other terms, so not necessarily a restricted variation, but they want to make other changes to the contract of employment, and again the employer refuses and they dismiss. Whilst that dismissal wouldn't be an automatic unfair dismissal, it may still be an unfair dismissal, and there are going to be various tests that an employer is going to have to meet. So, what I would say with regards to that particular change is that it's going to be really important to take legal advice because there are other considerations to take into account if the employer is proposing to make changes to an employee's contract of employment. We're also going to see some big changes in relation to Trade Unions and industrial action. For example, restrictions introduced by minimum service legislation. Well, they've already been removed. They were removed in December. Also, Trade Unions will gain greater access to workplaces for recruitment and representation. For example, employers will have to tell their employees of their rights to join a union so that's going to be a big change there. Watch out, too, for Trade Unions' rights to request access to the workplace, which again are going to be significant. So, for employees, this is going to mean a stronger collective voice at work. And for some employees, it will be perhaps the first time where they are going to have to engage with a Trade Union. Other big changes to collective rights with regards to redundancy and collective consultation and again, the Employment Rights Act 2025 strengthens redundancy protection for employees so, we're going to see the penalty for failing to consult properly double. That's the protective award, and that's going to increase to 180 days pay per affected employee and we're also going to see new consultation thresholds. That is going to potentially capture more restructuring exercises. So again, for employers, this is going to make planning, documentation, timelines, the need for processes to be more robust and legally sound. It's also going to mean taking advice on redundancies, and particularly where you've got smaller pockets of redundancies across a workforce and whether they are potentially caught. Now, when are all these changes going to take place? So we know that the Government have put together an implementation roadmap and this tells us when we can expect firstly consultation to happen. and also it gives us an idea as to when these proposed changes, these key changes, are likely to take effect. So we know that as soon as the Act received royal assent, and that was on the 18th December 2025, we saw that the Minimum Service Levels Act was repealed, and also we saw some changes to the Trade Union Act and again, we saw some clauses there being repealed. Also, watch out for some trade union changes in February of 2026. But really, for HR teams and people teams, the first tranche of changes we can expect to see occurring will be in April 2026. So in April 2026, we are going to see not only the usual statutory rate rises that we see, national minimum wage, maternity pay, etc., but we're also going to have to contend with some ERA changes as well. So from April, we are going to see the protective award increase from 90 days pay to 180 days pay if the employer has failed to follow the rules with regards to collective consultation. Also from April 2026, we're going to see those day one rights to parental and paternity leave coming into force, as well as the anomaly between paternity leave and shared parental leave being removed as well. In April, we're going to see increased whistleblowing protection. So, sexual harassment is going to be a protected, potential protected disclosure there under whistleblowing laws. We're also going to see a new fair work agency being established, so one to watch there in terms of the powers that that fair work agency will be given. Plus, we're going to see those Statutory Sick Pay changes as well as some additional Trade Union changes as well. So, April really is that big time when we're going to see some elements of the Employment Rights Act coming into force and as we move forward to October 2026, we've got the fire and rehire restrictions coming in. We are also going to see changes to sexual harassment and the third-party sexual harassment and protected characteristic harassment, those preventative duties. We're going to see those coming in from October 2026. We are also going to see, and again, this is another big change. We're also going to see from October 2026 the time limit for when tribunal claims can be brought, increasing from three months to six months. And as you'll know, the tribunal system is already very shaky in terms of the amount of claims that it's currently dealing with, the backlog of claims, and also the number of new claims that are coming through. So it's going to be very interesting to see what this changed, the increase from three to six months in terms of bringing a claim, as well as the changes that we saw in December 2025, with the increase in the early conciliation period, that ACAS early conciliation period. So again, all of this is going to have a huge impact on the number of tribunal claims that are coming through, as well as the amount of work the tribunal has to do to manage those claims as well as ACAS. Again, in October 2026, we're going to see new rights there for Trade Unions, and we're going to see some changes whereby employers will need to inform their employees of their right to join a Trade Union and again, we're waiting to see what that obligation will look like via consultation. As I've already mentioned, the changes to the unfair dismissal qualification period of service, and the introduction of unlimited compensation. Now that's going to come into force from the 1st of January 2027. So effectively, anybody that you are recruiting, you're employing from July of this year, once they've reached that six-month service, which will be the 1st of January, then they will qualify for unfair dismissal rights and that right to unlimited compensation. The removal of the cap on unfair dismissal compensation will have a huge impact. Obviously, we have unlimited compensation, don't we, with regards to discrimination or harassment claims and we also have unlimited compensation in whistle-blowing dismissal claims as well, detriment claims as well. So, you know, removing the cap will make predicting compensation for unfair dismissal more difficult, claims will become more complicated. We're going to see losses, aren't we, for pensions, benefits, stock options, other incentive payments, and potentially longer loss periods. Some real challenges there, I think, with regards to how employers manage those claims but obviously, an opportunity there to engage managers. Particularly focusing on fair processes, particularly focusing on probation periods, management training as well. So an opportunity there. As we move further into 2027, and again, we await specific months on this. We'll see some flexible working process changes. So again, really honing in on employers when they reject a claim, making sure that they're able to justify why they are saying no. And we're also going to see some new rights with regards to statutory bereavement leave and miscarriage leave as well being introduced. And we'll also see those changes to the guaranteed contracts, the guaranteed hours for zero low and agency workers being introduced at some point in 2027. Again in 2027, and a new right as well, new dismissal protections planned to be brought in for pregnant women, those who are on maternity leave, and also for a period of time after the woman has returned to work and we've got some current consultation out on that, what that looks like in practice. So I hope you can see that there are some really big changes that we're all going to have to grapple with and a lot of the changes, as I've said, we're going to have to wait and see what they finally look like because of the consultation process, which will shape those final regulations. So it is a marathon, it's not a sprint. So let's finish this podcast by looking at some of the key steps that HR and people teams, managers, and boards should be considering now. Well, really, I think it's around engagement, isn't it? We need our boards, our senior leadership teams to really engage with and understand the Employment Rights Act and how it will impact employment rights and the rights that workforces will have. But there's also an opportunity, I think, to really consider the changes and think about some of the changes that might need to be made now. So, when were your contracts of employment last reviewed? Do we need to think about workforce planning? What about policies, processes, changing those and also training? So again, some things to think about now, some opportunities, but I think we need to obviously take advice, particularly if we're thinking about workforce planning, redundancies, reorganizations, and obviously contracts of employment. As I've mentioned, it is a real opportunity to think about embedding those strong management processes and training programs. So when was the last time you trained your managers, for example, in managing probation, managing performance? What about absence management? Thinking about how managers might conduct a disciplinary or a grievance meeting. All those employee relations type matters are going to be really, really important. It's also going to be really important to think about evidence. So if you're dismissing someone for poor performance, where's the evidence you've got to support that dismissal? And also when we think about those flexible working changes which are coming in in 2027, if an employer wants to reject a flexible working claim by using the one of the eight statutory grounds that are still going to be there. Again, what evidence do they have to be able to justify saying no? Another really important focus is going to be around contracts of employment. We need to be looking at our probation periods. Do we need to shorten those if we think about the six-month qualifying period of service to bring an employment tribunal claim? Again, always do take advice before changing contracts of employment and remember, changing contracts of employment can actually trigger collective consultation rights. We're going to think about workforce planning as well, aren't we? Do we need to be looking at particular areas of the business? Do we need to be thinking about reorganizing, restructuring? What does this look like? Again, remembering always to take advice. We also need to think about the preventative duties around harassment and now sexual harassment, you know, risk assessments, training, embedding good management processes, making sure that we focused on complaints procedures. How easy is it for somebody to raise a complaint of harassment or sexual harassment? And will they be supported, will they be helped, and will they be believed? So again, a real opportunity to focus and refocus our efforts with regards to that preventative duty. Sickness absence, I know I've talked about this before, but again, monitoring sickness absence levels, thinking about sick pay, you know, knowing your people, knowing your teams, being able to act in a preventative way, in a proactive way, is much easier than acting in a reactive way. There are some really good and strong business cases that HR can make for investing in their managers, investing in training and awareness, investing in their documents and auditing their processes as well. You know, zero hours, low hours workers, who's working for you, in what capacity, how long have they worked for you for? So again, investing some time now, getting some help and support again will really pay dividends when we think about the impact of these changes that we've got coming in. Doyle Clayton are here to help. We have a suite of products, services, and training courses ready to help you and your businesses and we are working very closely with our clients, helping them get prepared and giving them the support that they need when they need it. So it's something that you want to find out more about and discuss how Doyle Clayton can help you then again, please do reach out to me for some help and support, and our website address is in the show notes. So, as I've been saying, in all challenge comes opportunity. Some difficult times ahead, some uncertain times ahead, whilst we wait to see what all of this legislation is going to look like and there's also going to be some difficult decisions. But again, I think there's a real opportunity to put employee relations back firmly on the learning and development and the HR agenda. So I really do hope that you found this podcast helpful. As I said, it's a guide. If you want to find out more, get more help and a support, then please do reach out. We will be bringing you more updates on the Employment Rights Act through our podcast and our webinars and our articles. So if you're not already signed up, then please do sign up. And again, the subscription email will be in the show notes. Also, don't forget to like and subscribe to this podcast wherever you are listening. Until I get the opportunity to speak to you again, thank you very much for listening.