Employment Rights Bill receives Royal Assent – What does it mean for employment litigation and what happens next?

The Employment Rights Bill received royal assent on 18 December 2025 and will now become the Employment Rights Act 2025.  After months of negotiation with business, unions, and parliamentary back and forth, this bulletin summarises key outcomes of the new legislation.

 

Where the Bill landed on key points

Unfair dismissal

While “day one” unfair dismissal was originally contemplated, the final Bill provides for a six-month qualifying period for unfair dismissal.  Claimants will be in scope if their qualifying period is satisfied as at 1 January 2027.

The result of a qualifying period for unfair dismissal will be welcomed by employers, however the Bill was also amended to remove the cap on compensation for unfair dismissal.  The removal of the compensation cap is a win for claimants, particularly for high earners who are currently subject to the statutory cap of the lower of 52 weeks gross salary or £118,223.

In terms of the risk profile of unfair dismissal claims and the bargaining range for settlement, it will put them more on par with discrimination claims once the compensation cap is removed (also as at 1 January 2027).

 

Fire & Rehire

The final Bill limits automatic unfair dismissal in cases of fire and rehire to situations where core terms of the employment contract have been changed (e.g., pay, hours, pension, leave), with further detail of what practices will constitute automatic unfair dismissal to come in 2026 when implementing regulations are hammered out ahead of October 2026 effectiveness.

The use of short term contractors in fire and replace scenarios is prohibited.  The key question of fact for the tribunal will be whether a contractor is doing substantially the same work as the employee they are replacing.

 

Collective Redundancy

The Bill will retain that “at one establishment” test under existing law, which brings redundancy processes in scope of collective consultation requirements where 20+ redundancies are made within 90 days, but further regulation will be promulgated in 2026 in order to define how the test will work – both in terms of how it is tested across legal entities within a single corporate group, and what numerical thresholds will apply.

A key development in the Bill around collective redundancies which is due to take effect from April 2026 relates to the maximum protective award for non-compliance with collective redundancy consultation requirements.  The Bill increases the maximum protective award from 90 to 180 days pay.  Given the widespread practice of negotiated waivers of consultation periods in redundancy settlement agreements, employers will no doubt consider how doubling the ceiling on the protective awards should be priced in as April 2026 approaches.

 

Time Limits on Claims

The Bill extends the time limit for bringing claims of unfair dismissal, discrimination and unlawful wage deductions from 3 months to 6 months of the infringing act – effective October 2026.

 

Guaranteed Hours, Shift Notice

The Bill introduces protections for workers on variable hours contracts who are found to regularly work hours in excess of the minimum hours required, providing employers must give them certainty with guaranteed hours based on their track record of hours worked.  The Bill also introduces new notice requirements for shift workers to be given reasonable notice of their shifts, as well as changes or cancellations to their shift schedules.  Agency workers will be in scope of the new rules.

The guaranteed hours and shift notice rules are subject to further commencement regulation to be determined during 2026 before taking effect in 2027.  Notably, collective bargaining arrangements are expected to be outside the scope of the new regulations.

 

Day One Rights

A major win for workers is that statutory sick pay, paternity leave and unpaid parental leave will be “day one” rights not subject to a minimum continuity of employment requirement.

 

Non-Disclosure Agreements

One aspect of the Bill which was not subject to prior consultation was a ban on non-disclosure agreements which would restrict workers from alleging discrimination, harassment or failure to make reasonable adjustments.  An employer’s response to whistleblowing and employees making protected acts and disclosures also appears to be in scope of the restriction on NDAs which would be void insofar as they purport to limit an employee’s ability to discuss those matters.

 

Implementation and next steps

Much of the impact of the new legislation will hinge upon regulations which are developed during 2026 and the Government has promised further consultation and case studies of the impact of the Bill’s changes on the labour market and on employer-employee relations.  This will include defining the remit and enforcement powers of the Fair Work Agency, due to be established in April 2026.

 

 

Analysis and review produced by Clark Gard, Probationary Tenant of Farrar’s Building.  Clark accepts instructions across the core areas of Chambers and has an extensive background in commercial matters.  For further information, please contact the Clerking Team.

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