The Employment Rights Bill Has Become Law — Here’s What Employers Need to Know

The most significant overhaul of UK employment law in decades has now become reality. On 18 December 2025, the Employment Rights Bill officially received Royal Assent, transforming it into the Employment Rights Act 2025 (ERA).

This landmark legislation introduces a sweeping range of reforms that will reshape how employers manage dismissals, redundancies, contractual changes, working hours, NDAs, and employee protections more broadly. While some measures will take time to come into effect, the ERA signals a fundamental shift in the balance of workplace rights and employer obligations.

Below, we summarise the headline changes and what they mean for your organisation.

Unfair Dismissal: Six-Month Qualifying Period and the End of Compensation Caps

One of the most consequential updates relates to unfair dismissal.

Originally drafted to give all employees day-one unfair dismissal rights, Parliament ultimately settled on a six-month qualifying period, which is due to take effect on 1 January 2027.

However, the most dramatic late-stage amendment is the removal of the cap on unfair dismissal compensation.
Under current law, awards are limited to either 52 weeks’ pay or a statutory maximum. Once the new system is implemented, this cap will disappear — meaning compensation could reach substantially higher figures, particularly for senior or high-earning employees.

For employers, this significantly increases the cost and risk associated with dismissals and will require even greater diligence in following fair procedures.

Collective Redundancies: Higher Risks and Stricter Thresholds

The ERA introduces major changes to collective redundancy obligations, including:

A new threshold test for triggering collective consultation (details to come in future regulations)
Retention of the “at one establishment” requirement, but with expanded scope for determining when consultation is required
A doubling of the maximum protective award from 90 to 180 days’ pay

This substantially increases potential liability for employers handling large-scale workforce reductions.

Fire and Rehire: Stricter Rules for Changing Terms

The legislation tightens restrictions on the controversial practice of “fire and rehire”.

From October 2026, dismissals undertaken solely to impose certain “restricted variations” — such as changes to pay, working hours, pensions, shifts, or time off — may be deemed automatically unfair.

The rules now also extend to “fire and replace”, where employees are dismissed and substituted with contractors or agency workers performing the same work.

While the government has included limited exemptions for businesses in extreme financial distress, employers will need robust processes, clear consultation records, and non-coercive communication when seeking to restructure contracts.

Guaranteed Hours, Shift Protections and Zero-Hours Reforms

The ERA makes significant strides toward regulating insecure work.

Key measures include:

A duty to offer guaranteed hours to workers who regularly exceed their contracted minimum
A new right to reasonable notice of shifts, including protections for altered or cancelled hours
Application of these rights to agency workers
Scope for employers and unions to enter bespoke collective agreements to vary the regime

These rules are complex and will depend heavily on forthcoming consultations and regulations. Employers operating variable-hours models must prepare for substantial administrative and payroll implications.

Pregnancy Loss Bereavement Leave

The ERA introduces a new right to at least one week of unpaid bereavement leave for employees and partners who experience a pregnancy loss before 24 weeks.

Consultation is ongoing to determine eligibility criteria and notice requirements.

Restrictions on Non-Disclosure Agreements (NDAs)

Late additions to the Bill significantly curtail the use of NDAs in cases involving:

Harassment
Discrimination
Failure to make reasonable adjustments

Any clause preventing a worker from making allegations or disclosures about such matters will be considered void, with the government expected to define limited exceptions through future regulations.

For employers that rely on settlement agreements to resolve disputes, this marks a major procedural shift.

Extended Employment Tribunal Time Limits

Primary limitation periods for bringing tribunal claims will increase from three months to six months, a change expected to take effect from October 2026.

This extension will likely lead to more claims, longer waiting times, and a greater need for employers to retain thorough documentation.

Creation of the Fair Work Agency (FWA)

The new Fair Work Agency will consolidate multiple enforcement bodies and gain considerable powers to:

Enter premises (including private homes)
Demand information
Investigate labour exploitation
Enforce minimum wage, holiday pay, SSP, and other statutory rights
Impose penalties

This signals a stronger enforcement environment — and less tolerance for non-compliance.

What Happens Next?

Most changes will NOT take effect immediately.

Only selected trade union measures will apply from February 2026, with the remaining provisions requiring:

Commencement regulations
Consultations
Extensive secondary legislation

However, employers should not wait. The direction of travel is clear: stronger rights, higher compensation, more enforcement, and greater procedural obligations.

What Employers Should Do Now

Given the scale of the reforms, employers should begin preparing by:

Reviewing disciplinary, dismissal, and redundancy procedures
Updating contract templates and policies
Reviewing zero-hours and variable-hours working arrangements
Preparing for expanded tribunal risks
Assessing the need for strengthened HR training and documentation
Auditing the use of NDAs in settlement agreements

This is the largest shift in employment law in decades — and businesses that act early will be far better protected.

Are You Prepared for These Changes?

Most businesses aren’t — and it’s not surprising.

With 173 separate legal changes, many employers are unsure:

Which new laws apply to them
How to update their processes
Where their biggest risks lie
Whether existing policies will still protect their business

Our Impact Assessment Helps You Understand:

How the new laws apply to your business
What policies and procedures must be updated
Where your risks and exposures are
What actions you must take to remain compliant
How to protect your business from claims

You’ll walk away with clear, practical advice that you can implement immediately.

Book Your Free Consultation

If you’re unsure what these changes mean for your organisation, now is the time to act.

Book a free, no-obligation consultation with one of our Employment Law specialists:
https://employmentlawservices.com/book-a-free-consultation/

This reform represents the biggest shift in employment rights in decades.
Make sure your business is ready.