Employment Rights Act 2025: Employers must prepare for major change in 2026

UK Parliament has completed its passage of the Employment Rights Bill. The Bill has now received Royal Assent to become the Employment Rights Act 2025 (18 December).  

This landmark legislation represents one of the most significant overhauls of individual employment rights in a generation, introducing wide-ranging reform to unfair dismissal, leave entitlements, statutory payments and more.

Adrian Hoggarth, Head of Employment Law at Jurit LLP, explores what will change and how employers can prepare.

The Act’s provisions will not come into force immediately. Instead, reforms will be implemented in a phased approach throughout 2026 and 2027 via commencement regulations and secondary legislation.

Key changes under the Employment Rights Act include:

1. Removal of the unfair dismissal compensation cap

One of the most contentious late amendments was the government’s proposal to abolish the statutory cap on compensatory awards for unfair dismissal, removing the existing limit that currently restricts awards to the lower of 52 weeks’ pay or a financial cap (currently £118,223).

Under the text agreed by both Houses, that statutory cap will be removed entirely.

During parliamentary debate, the government reiterated its commitment to publish an impact assessment on the consequences of removing this cap before the relevant provisions are commenced.

This follows pressure from peers to ensure employers and stakeholders can assess the implications before implementation.

According to Adrian, the removal of the statutory cap on unfair dismissal compensation risks transforming unfair dismissal from a manageable HR issue into a more significant concern for employers.

“Much of the early commentary has focused on headline-grabbing examples such as professional footballers, but the more consequential impact is likely to be felt in the boardroom. Senior executives and C-suite leaders, whose remuneration packages often include complex incentives and long-term awards, could pursue substantially higher claims.”

He warns that the removal of the cap will undermine some of the predictability employers rely on when managing exits, even where employment contracts include carefully drafted limitations on loss relating to share options and incentive arrangements.

“By eliminating the cap, the legislation erodes employers’ ability to assess risk with confidence,” Hoggarth adds. “As the boundaries of uncapped compensation are tested, unfair dismissal claims are likely to be elevated into the boardroom, becoming a material governance and financial risk for organisations.”

2. Shorter unfair dismissal qualifying period

The qualifying period for bringing an ordinary unfair dismissal claim will reduce from two years to six months for employees hired after a specified commencement date.

“The legislation now offers a simpler, more predictable framework for unfair dismissal rights than was originally proposed under the Government’s “day one” unfair dismissal rights proposal,” commented Adrian.

“The new protections will still significantly strengthen employee rights compared with the current two-year rule. Dismissals after six months could be challenged as unfair. Employers will need to ensure that all dismissal, redundancy, or probationary exit decisions are underpinned by robust, fair, and well-documented processes,” he added.

3. Other rights from April 2026

Several other employment rights will begin to take effect from April 2026, with many phased in over the next 18 months.

These include stricter rules on ‘fire and rehire’, new rights for zero-hours workers (guaranteed hours, short-notice pay), stronger protections against sexual harassment/discrimination (banning ‘gagging’ NDAs), enhanced trade union rights, and new family leave provisions like miscarriage bereavement leave.

What employers need to know

Employers should start planning now. Key practical steps include:

• Reviewing dismissal practices and contracts: Current caps have allowed contractual provisions to limit liability exposure. Without a statutory cap, contractual risk allocation and termination provisions will need revisiting.
• Monitoring secondary legislation: Much of the Act’s detail will be set out in secondary legislation and guidance. Employers will need to track forthcoming instruments and consultations to ensure compliance. Our lawyers will continue to monitor developments to keep clients updated.
• Updating policies: Workforce policies, performance management processes, and probationary structures should reflect the shortened qualifying period and revised compensation framework.
• Risk assessment: Organisational risk registers should incorporate the potential for uncapped compensation awards and adjust workforce planning and dispute mitigation accordingly.

The Employment Rights Act 2025 ushers in a transformative era for UK employment law. For employers, early preparation and legal review will be essential to navigate 2026 and beyond with confidence.

How Jurit’s employment law team can help

Jurit is advising employers at every stage of this transition, from strategic workforce planning and contractual risk management through to policy updates, senior exits and complex litigation.

Our employment law team works closely with boards, HR leaders and in-house counsel to anticipate exposure, redesign dismissal and probation frameworks, and ensure organisations are fully prepared ahead of the April 2026 changes.

If you would like to understand how the new regime may affect your business, or to begin preparing now, please contact our Employment Law team for tailored, commercially focused advice.