Employment Law +

Review of the Year (Part 1)

As 2025 draws to a close, we review this year’s employment law developments. As usual, we’ve split our Review of 2025 into three – there’s a lot going on as you know! In today’s edition, we look at the employment reform agenda. 

Employment law reform

The ERB is expected to become the Employment Rights Act 2025 after ‘ping pong’ between the Commons’ and the Lords’, most notably on the introduction of ‘day one’ unfair dismissal rights. The very latest news is that the government has agreed a six-month qualifying period for unfair dismissal rather than continuing to insist on this as a ‘day one’ right. The Commons will consider the amended ERB on 8 December and it is expected to be passed by the Lords on 10 December. Royal Assent will follow shortly thereafter. The timings in the government's roadmap are stretched and many consultations scheduled for Autumn will now follow after Royal Assent. 

ERA headlines include:

• Unfair dismissal – ‘day one’ rights, subject to a lighter touch dismissal process akin to a probationary period, have been replaced by a six month qualifying period for unfair dismissal. This change is very welcome news for employers but will still impact employers’ approach to recruitment, performance management and termination processes, because getting things right in that first six months becomes doubly important. When the change will be introduced has still to be announced – speculation is that it may come in 2026, rather than 2027. The government also announced that the compensation cap for unfair dismissal will be lifted  - again more detail is awaited. The government could remove the 52 weeks’ actual gross pay cap whilst retaining the statutory cap, currently £118,223, or it may remove the cap altogether! 

• Tribunal time limits - ET claim time limits will be increased from three to six months.

• Flexible working - although flexible working requests became a “day one” right from 6 April 2024, the ERB goes further and employers will be able to reject a flexible working request only where there is one of the current statutory grounds for refusing a request and it is reasonable for the employer to refuse the application. 

• Zero-hours/ Low hours workers - a raft of complex provisions will go some way to “banning exploitative zero-hour contracts” which was Labour’s policy statement. Provisions include frameworks to give workers a right to a contract that reflects hours regularly worked, reasonable notice of changes in shifts, and compensation for shifts cancelled or curtailed at short notice. Zero hours rules will apply to agency workers too. Whether the Lords will continue to insist on its amendments to these provisions remains to be seen.

• Collective Redundancy - enhanced collective redundancy protection will be achieved by a change to the test for establishment. Separate geographical establishments will not apply, and each employing company will be one GB establishment. The government confirmed that it will strengthen remedies against abuse of rules on collective redundancy by increasing the cap on protective awards from 90 to 180 days’ pay. 

• Fire and rehire – there will be defined categories of “restricted variations” where it will be automatically unfair to dismiss and offer re-engagement on new terms unless a financial necessity test is met. These include detrimental changes to pay, pensions, hours, shifts, and holidays. Seeking to impose a clause which enables the employer to vary the contract in these areas will be a restricted variation in itself. However, an automatic unfair dismissal will not be triggered where changes are minor, “routine and non-detrimental” or the change relates to the place of work. A new test of fairness will be applied in cases of non-automatic unfairness. Specific amends also apply to the public sector – where a different test of financial necessity will apply.

• Replacement - it will be automatically unfair to dismiss an employee where they are to be replaced by “an individual who is not an employee of the employer” and that individual will undertake the same or substantially the same activities as the employee performed prior to dismissal. Clearly intended to catch circumstances where employees are replaced with e.g. agency workers.

• Harassment prevention - a new duty will rest on employers to take all reasonable steps to prevent sexual harassment (including by third parties such as customers or suppliers) – this goes further than the current obligation to take ‘reasonable steps’. The ERB is also reintroducing employer liability for third-party harassment in relation to all relevant protected characteristics (not just sexual harassment). ERB also builds in further whistleblowing protections for those reporting sexual harassment and NDAs will be void in cases of harassment or discrimination.

• Family friendly reforms - include making parental, paternity and bereavement leave available from ‘day one’ on the job. A framework for new protections from dismissal for women whilst pregnant, on maternity leave, and within six months of returning to work except in specific circumstances will also be established, which will benefit other family leavers too.  Consultation on enhanced dismissal protections for pregnant women and new mothers remains open until 15 January. Families who experience pregnancy loss before 24 weeks will be entitled to protected bereavement leave, extending the protection which is already in place for those who suffer pregnancy loss after 24 weeks. Consultation on leave for bereavement including pregnancy loss also remains open until 15 January.

• Menopause and gender pay gap protection will be extended by a requirement to create equality action plans.

• Trade Unions and Industrial Relations – the ERB aims to refresh the employer/ employee bargain and contains a raft of provisions to reset relationships between employers and trade unions. Changes include:
o simplified processes regulating trade union recognition and industrial action, 
o increased protection for members taking industrial action,
o increased rights for trade union representatives, 
o trade unions can request physical and digital access to workplace for specified purposes,
o retrospective protection might apply to wildcat strikes, and 
o minimum service level legislation will be repealed. 
Consultations will close on 18 December on the duty to inform workers of right to join a union and trade union rights of access. A further ERB consultation on a new draft code of practice on electronic and workplace balloting for statutory union ballots has a response deadline of 28 January.

• Sick pay - the ERB contains provisions to strengthen statutory sick pay by removing the lower earnings limit - lower-wage employees, including those earning below the lower earnings limit of £123, will be entitled to sick pay of 80% of their wages. The “waiting period” will also be removed so that SSP becomes payable from day one of absence. 

• Single enforcement body - to be known as a Fair Work Agency, with a view to strengthening the enforcement of workplace rights. For example, enforcement of annual leave will come under the remit of the Fair Work Agency.

• Procurement - provisions to enable the government to reinstate and strengthen the two-tier code for public sector contracts are included in ERB and reflect the government’s wider intention to use public procurement to increase employment protections. 

• Fair pay agreements – The ERB provides for new powers to be given to the government to introduce regulations to create a new Adult Social Care Negotiating Body, which itself could be given powers to intervene on matters pertaining to the remuneration, and wider terms and conditions, of social workers. A consultation opened on the fair pay agreement process in adult social care and it closes on 16 January.

Aside from the ERB, the government also consulted on ethnicity and disability pay gap reporting. It wants to adopt a similar reporting framework for ethnicity and disability to that which is currently in place for gender pay gaps, such as the same six pay gap measures, including mean and median differences in average hourly pay. We await a draft Equality (Race and Disability) Bill.

We also await clarification of the government’s intentions around introducing a single employment status which was part of its Plan to Make Work Pay.

The government is also consulting on reforms to restrictive covenants, particularly non-compete clauses. Options include statutory time limits, salary-based restrictions, or an outright ban. The aim is to boost labour market flexibility, innovation, and job mobility while balancing legitimate business interests: Working paper on options for reform of non-compete clauses in employment contracts invites responses by 18 February.

Northern Ireland - The Department for the Economy released its response to the 2024 ‘Good Jobs’ consultation and confirmed those proposals which it intends to now take forward. The proposals – set out under four themes of terms of employment, pay and benefits, voice and representation and work-life balance – will align Northern Ireland’s employment laws with those applicable in Great Britain in a number of areas, but will also leave significant divergence between the laws in both jurisdictions.. 

2026

• Our UK Employment Law Reforms Hub will continue to be your go-to resource through 2026 and beyond for the latest updates and timetables. It includes implementation dates for the ERB changes.
• 26 ERB/ Plan to Make Work Pay consultations anticipated 
• Equality (Race and Disparity) Bill to be published
• ‘Good Jobs’ Employment Rights Bill to be put before the Northern Ireland Assembly by January 2026

This page is updated weekly with News and Views from that week’s employment weekly briefing email. For previous articles, please contact us: Employment Law Plus.

Useful links:

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