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The Employment Rights Act is now law: what this means for employers and employees

The Employment Rights Act is now law: what this means for employers and employees

After a complex journey through Parliament, the Employment Rights Act has officially passed into law. While many of its provisions will require further detail through regulations following consultations scheduled for 2026, some key points are already clear. This new legislation heralds significant changes to employment rights and obligations, with important implications for both employers and employees.

Key changes to unfair dismissal rights

The most notable change concerns unfair dismissal rights, which will no longer be a ‘day one’ right contrary to the Government’s initial proposal. Employees must now complete six months of service before being eligible to bring a claim for unfair dismissal. This new service requirement will take effect from 1 January 2027 and will therefore apply to employees who start work on or before 1 June 2026, provided they are still employed on 1 January 2027.

In a surprising twist, the current statutory cap on compensation for successful unfair dismissal claims has been abolished. Currently, compensation is capped at the lower of one year’s pay or £118,223, effectively limiting pay outs for higher earners. With the removal of both caps, claim values could increase significantly, particularly for higher-paid employees, unless new limits are introduced through future regulations. This unexpected development has raised concerns among employers and could dramatically alter settlement negotiations and tribunal outcomes.

These changes come at a time when the Employment Tribunal system is already experiencing chronic delays, with many cases taking more than a year to reach a hearing. The removal of compensation caps may further exacerbate these delays, as higher-value claims could crowd out lower-value cases. Employers are advised to address any performance or conduct issues promptly, ensuring any necessary terminations occur well before January 2027 to avoid potentially higher claim costs.

Family and leave rights: a day one entitlement

The Act also introduces day one rights for family and other types of leave, expected to come into effect sometime in 2027. These rights include:

  • Bereavement leave: Employees will be entitled to at least one week of bereavement leave, which will apply to early pregnancy loss as well as all other types of bereavement.
  • Parental leave: Employees will have the right to 18 weeks of unpaid parental leave from day one of employment, to be taken any time between the birth of a child and their 18th birthday. Currently, low uptake of this leave is attributed to the fact that it is unpaid.
  • Maternity and paternity leave: These rights will also apply from day one, with no obligation for employees to disclose pregnancy or impending parenthood during recruitment.
  • Statutory sick pay: Employers will be required to pay statutory sick pay from the first day of illness, ending the current three-day waiting period. However, the statutory sick pay rate remains low, capped at £123 per week, with no indication of significant increases.

Trade Union rights: A shift in the balance of power

The Act introduces major changes to trade union rights, which will take effect from February 2026, with some immediate repeals for public sector workers. Key changes include:

  • The removal of restrictions on the number of employees allowed to picket their employer’s premises.
  • A reduction in the notice period for strike action from 14 days to 10 days.
  • An obligation on employers to provide all employees with written information about their right to join a trade union.

Other reforms

The Act also introduces a range of other significant reforms including:

  • Zero-hours contracts: Employees on zero-hours contracts will, in certain circumstances, have the right to guaranteed hours, and employers will be required to give reasonable advance notice of working hours.
  • Pay gap reporting: Employers with more than 250 staff will face extended paygap reporting obligations, aimed at addressing inequalities.
  • Menopause policies: Employers with over 250 employees will also be required to adopt and publish formal policies to support employees going through menopause.
  • Fair work agency: A newly created fair work agency will enforce rights related to minimum wage, sick pay, holiday pay, and modern slavery. However, further details are awaited regarding the extent to which this agency will replace employment tribunals for claims in these areas.

What’s next?

While the passing of the Employment Rights Act into law provides some clarity, much remains uncertain. Several consultations are underway, with more expected, and the start dates for many provisions have yet to be confirmed.

What is clear, however, is that the Act represents a significant shift in the balance of rights and obligations in employment relationships. Employers should take proactive steps to prepare for these changes, including reviewing policies, addressing current employee issues, and planning for the impact of these reforms on their business operations.

As more details emerge, employers will need to stay informed and adapt to ensure compliance with this transformative piece of legislation.

AUTHORS

Yvonne Gallagher Partner

Yvonne is an employment partner and head of the firm’s employment group.

Yvonne is an employment partner and head of the firm’s employment group.

Yvonne advises on a full range of contentious and non-contentious employment law matters, including board disputes, employment claims (including discrimination claims) and disputes of all types in relation to remuneration and benefit arrangements. She is highly regarded for her realistic and pragmatic approach to finding resolutions to workplace conflicts.

Yvonne has longstanding expertise in relation to transfer of undertakings (TUPE) and practical management of the implications for businesses of TUPE transfer situations. She has developed a particular specialism working with employers to resolve complex board disputes.

She has considerable experience in advising charities and not-for-profit organisations as well as corporates of all sizes and structures ranging from startups to listed entities. Her advice includes ensuring contracts and policies are fit for purpose and resilient.

Yvonne carries out both senior executive and partnership work alongside a busy corporate employment practice.

She regularly advises high profile individuals who are exiting their roles and taking up new positions. This includes advising on complex remuneration and incentive structures.

She is also very experienced in advising on the enforceability of restrictive covenants in executive service agreements and negotiating the terms of appointments.

Yvonne is well known in the market and is often quoted in national and specialist press in relation to employment and HR topics. Please note that a subscription is needed to access the following articles: