Employment Law Update: Employment Rights Act 2025 - A New Phase in UK Employment Law

Following Royal Assent in December 2025, the Employment Rights Act 2025 marks a substantial recalibration of UK employment law. It represents one of the most significant reforms to the employment framework in a generation and forms a central pillar of the Government’s Plan to Make Work Pay.

Rather than introducing immediate and uniform change, Parliament has adopted a phased approach to implementation. Substantive provisions will come into force progressively throughout 2026 and 2027, reflecting both the scale of the reforms and their anticipated impact across the labour market.

The immediate question for employers and employees is how these reforms will be applied in practice, and which aspects will have the greatest practical significance.

This is less a matter of isolated changes, and more a reflection of a wider recalibration of the principles governing the employment relationship.

A Fundamental Recalibration

The Act does not merely amend existing legislation. It recalibrates fundamental principles that underpin the employment relationship.

Areas such as dismissal protection, statutory pay, contractual variation, and collective rights are being reshaped in ways that will materially influence how employment risk is assessed and managed. For many organisations, practices that have long been treated as settled will now require careful reconsideration.

In practice, this reflects a more structured and evidence-based approach to decision-making across the employment lifecycle. Matters that were once capable of being addressed at a later stage are now more likely to crystallise earlier in the employment relationship.

What follows is an examination of how this recalibration translates in practice, and where its effects are most likely to be felt across the employment relationship.

The implications differ in emphasis for employers and employees, but together they illustrate the scale of change introduced by the Act.

Implications for Employers

From an employer perspective, the Act reflects a clear shift in both legal and commercial risk.

Protection against dismissal will arise at a much earlier stage of employment, while the scope to impose contractual changes through dismissal and re-engagement will be substantially constrained. In parallel, Statutory Sick Pay will become payable from the first day of absence, with corresponding implications for cost exposure and compliance.

Taken together, these developments will require employers to apply greater procedural discipline and to articulate more robust justification when making workforce decisions.

Implications for Employees

For employees, the reforms are intended to strengthen protection at an earlier stage of the employment relationship.

A number of statutory rights will apply from the outset of employment, and eligibility for unfair dismissal protection will arise after six months rather than the current two-year qualifying period. In addition, the statutory cap on compensatory awards for unfair dismissal will be removed, and certain forms of insecure working will be subject to increased regulatory control.

The effect is that enforceable rights will arise much earlier than has traditionally been the case, altering the balance of protection during the initial stages of employment.

Consequences of the New Regime

While the Act introduces a broad package of reforms, its practical impact will not be felt evenly across all areas of employment law.

The most significant consequences are likely to arise in relation to dismissal risk, contractual flexibility, statutory pay obligations, and collective protections. These are also the area’s most likely to give rise to material legal and financial exposure where organisations do not adjust their approach in good time.

In practice, this represents a shift in how employment risk will surface and be managed, with issues arising earlier and attracting closer scrutiny under the new regime. Failing to do so may result in increased exposure to claims, regulatory scrutiny, and avoidable cost as the new regime takes effect.

Preparing for Implementation

Although many provisions will not take effect until late 2026 or 2027, the implementation timetable leaves little room for complacency.

Employment contracts, workplace policies, and HR procedures should be reviewed well in advance. Workforce planning assumptions and restructuring strategies may also need to be reassessed in light of the reduced scope for flexibility.

Experience suggests that early preparation is likely to prove significantly less costly than reacting once the reforms are already in force.

Conclusion

The Employment Rights Act 2025 marks the beginning of a new phase in UK employment law.

While the reforms are phased, the direction of travel is clear. Employers who engage early will retain greater control over risk, while those who delay may find that flexibility has already narrowed.

The period from 2026 to 2027 should therefore be viewed not simply as a compliance window, but as a strategic transition.

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