Employment Rights Act 2025 – update for SMEs 

Parliamentary ping pong and a government U-turn: the Employment Rights Bill provoked strong debate and even stronger headlines. But having received Royal Assent at the end of last year, employers and managers need to understand the implications for their businesses. Employment lawyer, Kate Lawson, director of  Element Law, outlines what you need to know to make sure your business remains compliant.  

A painful parliamentary journey  

On 18 December 2025 the long-awaited Employment Rights Bill received Royal Assent to become an Act – the Employment Rights Act 2025. This seismic change in employment rights, due to be introduced in stages over the next two years, was a key part of the Labour Manifesto and their commitment in the Make Work Pay Plan.  

The Act has been painful in its passing, and indeed we are still some way from being clear on the detail of certain aspects of its content.  

Minimum qualifying period for unfair dismissal claims 

Delay in the introduction was, in the latter stages, caused by parliamentary “ping pong”, with the House of Lords objecting in particular to the proposed complete removal of any qualifying service before an employee can make a claim for unfair dismissal. This sticking point for the House of Lords led to a U-turn by the government, resulting in agreement on a six-month qualifying period.  

At present a dismissed employee must have been in their employment with their current employer for at least two years (indeed, more correctly, one year and 51 weeks) before they can bring a claim in the Employment Tribunal for unfair dismissal. This qualifying period will reduce to just six months. This change is expected to take effect from 1 January 2027, meaning new employees in employment now and any employees starting from now will immediately have this protection from 1 January 2027.  

Cap removed on compensation awards for unfair dismissal 

Of huge significance, as a last-minute inclusion, the Employment Rights Act 2025 removes the cap on unfair dismissal compensation that can be awarded in the Employment Tribunal. This cap is currently the lower of one year’s salary of the claimant and the statutory cap, which increases annually by the rate of inflation and is at present £118,223. (Compensation for claims for unlawful discrimination, based on one or more of the nine protected characteristics, or for dismissal or detriment as a result of whistleblowing, is not capped.) 

The current average (mean) award on claim for unfair dismissal is only around £14,000, according to the Tribunal Statistics for the latest available period April to June 2024. However, this change remains significant for many reasons. One is that many potential cases settle based on this cap applying if the matter were to go to Tribunal. Further, removing the cap may mean that high earners who would not previously have considered it worthwhile going to Tribunal may now be tempted to do so.  

We are not clear exactly when the removal of the compensation cap will happen, and presume this will also be when the new six-month qualifying period comes in, so potentially 1 January 2027. We are also not clear if this may be replaced by a new form of cap on compensation, and understand consultation on this point will be undertaken.  

This step was so last minute it is fair to say everyone is a bit uncertain as to what happens next with regard to this huge shift. The government has committed to publishing an impact assessment on the implications of the removal of the cap on unfair dismissal compensatory awards prior to commencement regulations.  

A complex timetable for ERB changes to be implemented  

The Government’s Roadmap sets out timescales for introduction of the changes under the Employment Rights Act 2025; the government has confirmed it remains committed to this timetable in spite of delays to the introduction of the Act.  

I will focus here on elements from the Roadmap of widest application to employers.  

Immediate Impact of the Employment Rights Act 2025   

The immediate impact of the new Act is on areas of strike action, including the removal of the government’s minimum service level powers for strikes in the blue light and utilities sectors. Other trade union elements, largely removing any restrictions on industrial action and picketing and making strike balloting easier, will come into force on 18 February 2026.  

Significant Changes from April 2026   

The following changes will be implemented from April 2026:

• Day one right to Paternity Leave  

• Day one right to Unpaid Parental Leave  

• Removal of the three “Waiting Days” for Statutory Sick Pay (SSP).  

• Removal of the Lower Earnings Limit, so all employees will be entitled to sick pay at the lower of SSP at the applicable rate (currently £118.75 a week) or 80% of their earnings; currently those who earn below £125 a week are not entitled to SSP.  

• The maximum protective award that can be made by the employment tribunal when employees fail to follow collective consultation obligations in relation to redundancies of 20 plus employee will be doubled from 90 to 180 days’ actual pay for each employee.  

• Changes will simplify the process for application for official recognition of a union in the workplace. 

We have provided more information on some of these new rights in my earlier article.  

Increased time limits for employment tribunal claims 

One of the changes set to be introduced from October 2026 is to increase the time limit for employees to bring claims in the employment tribunal from the current three months to six months. While this seems a simple change to understand, unfortunately other factors make understanding the length of time that employees have to bring a claim a more complex jigsaw: 

• The current situation: On 1 December 2025, the ACAS conciliation period required before an employee can lodge a claim increased from six weeks to 12 weeks. As the ACAS conciliation period “stops the clock” on tribunal time limits, this means that in effect at present the potential time period to bring a tribunal claim is six months.  

• From October 2026: When the time period to present a claim plus the ‘stop the clock’ element of conciliation means that an employee will effectively have just short of nine months from the date of dismissal or date of breach of contract or date of (last) act of discrimination. 

Bearing in mind at present cases in tribunal are already taking 18 months to two years to reach a hearing, this potentially means cases may only reach a hearing in the employment tribunal about three years after the employee is dismissed.  

Other employment rights and protections being introduced

October 2026 will also bring a tightening up of protections against sexual harassment and increase in employers’ obligations to prevent sexual harassment in the workplace, including from third parties such as clients.

Looking forward to April and October 2027, we expect the introduction of a right to unpaid bereavement leave as a ‘day one right’ and greater protections from dismissal for both pregnant women and new mothers, covering a period of potentially up to six months after return from maternity leave.

2027 will also be a significant year for greater protections for zero hours and low hours workers, such as hospitality casuals, medical and social care bank staff and platform workers, to end one-sided exploitation of these workers. Flexible working rights will also be re-enforced.

Will employers face more Tribunal claims?  

There is no doubt the landscape is changing – again. However, justice is a difficult beast to measure. Yes, employment rights are being strengthened for employees and workers. But, with significant backlog already playing havoc with the employment tribunal system, delays seem destined to only increase.  

Faced with the choice between bringing a claim and then potentially waiting three years for it to be heard, or settling now and/or moving on to new work asap without the wait, legal costs and general disruption, most employees are likely to prefer to move on.  

The rights are there, but without an efficient enforcement system, these rights will remain fragile and somewhat vain. 

If you’re looking for office space from a provider that provides free expert advice to help you succeed, get in touch. 

MEET THE EXPERT  

The director of Element Law, Kate Lawson is a specialist employment law and HR solicitor for businesses and employees across the country. She also provides bespoke HR Training and Mediation Services.