UK employment tribunal claims have surged 54% in a year, and the compensation cap on unfair dismissal disappears entirely from January 2027, before the Employment Rights Act 2025 has even fully landed.

The Employment Rights Act 2025 received Royal Assent on 18 December 2025, marking the most significant overhaul of UK employment law in a generation. Rather than a single change taking effect on one date, the Act rolls out in phases across 2026 and into 2027. 

The scale of the Act is substantial. Over 18 million workers are directly affected, including 6.3 million employees who gain accelerated protection from unfair dismissal and up to 1.3 million workers newly eligible for Statutory Sick Pay, according to the government’s own economic analysis of the Act. Yet readiness varies sharply by business size: just 20% of SMEs currently name regulatory compliance as an organisational priority, compared to almost a third of larger firms (32%), according to CIPD’s Winter 2025/26 Labour Market Outlook.

Employers are absorbing this change alongside other rising costs. The National Living Wage rose 4.1% to £12.71 an hour from April 2026, adding further pressure on top of the Act’s own requirements, according to GOV.UK. 

For HR teams and business leaders, this means preparation cannot wait until each implementation date arrives. Policies, systems and manager capability all need to evolve in step with the new legal landscape.

This guide serves as the hub for everything HR teams need to know about the Act. It covers:

• What the Act is designed to do, and the debate over its true cost to business 
• The key areas of change employers must prepare for 
• Reforms to NDAs, and the misinformation still circulating about the Act 
• What the Act means for recruitment, workforce planning, and what HR should do now 

The Employment Rights Act 2025 forms part of the government’s wider “Plan to Make Work Pay” agenda, aimed at ending what ministers describe as “one-sided flexibility” in the labour market. 

The cost of delivering that ambition has shifted considerably as the Act moved through Parliament. The government’s original 2024 impact assessment estimated costs to business at up to £5 billion a year. Following concessions made during the Bill’s passage, including the move to a six-month unfair dismissal qualifying period rather than a day-one right, the updated January 2026 assessment revised this down to approximately £1 billion, or 0.1% of the UK’s total pay bill. The British Chambers of Commerce has publicly questioned whether that revised figure fully reflects the true cost to employers. 

On the benefits side, official modelling is comparatively modest: a 0.1% increase in employment and a 0.04% boost to GDP. Independent analysis commissioned by the TUC puts the wider economic benefit considerably higher, at an estimated £10 billion a year, largely through reduced workplace conflict and improved staff wellbeing. 

For employers, the detail of that debate matters less than the direction of travel it points to. The Act is designed to:

• Expand employment rights from day one, reducing or removing qualifying service periods 
• Increase employer accountability, particularly in high-risk areas such as dismissal, harassment and pay 
• Reduce reliance on individual enforcement, through stronger state oversight and intervention 
• Address insecure work, including zero-hours arrangements and short-notice shift cancellations 

In practical terms, this means a shift away from minimum-compliance thinking. It will no longer be enough to simply have policies in place. Employers will increasingly need to show that those policies are up to date, clearly communicated, applied consistently, and understood by managers.

The changes introduced by the Act span pay, absence, enforcement, dismissal, and workplace culture. Here’s what employers need to know about each, at a glance.

Unfair Dismissal 

From 1 January 2027, the qualifying period for unfair dismissal claims falls from two years to six months. This is a change from the Act’s original proposal: a day-one right to claim unfair dismissal was dropped before Royal Assent, in favour of the six-month model that survived into the final legislation, according to law firm commentary from DLA Piper and Slaughter and May. Alongside this, the statutory cap on unfair dismissal compensation, previously the lower of £118,223 or 52 weeks’ pay, is removed entirely, materially increasing employers’ financial exposure. 

Statutory Sick Pay Reform 

From April 2026, SSP becomes a day-one right for all employees, per Acas guidance. The three-day waiting period and the lower earnings limit are both removed. Under the government’s Employment Rights Act SSP factsheet, employees are paid whichever is lower: the standard flat rate, or 80% of their normal weekly earnings. 

The Fair Work Agency 

Launched on 7 April 2026, the Fair Work Agency consolidates enforcement powers previously spread across several bodies. It can issue penalties of up to 200% of any underpayment identified, capped at £20,000 per worker (reduced to 100% if settled within 14 days), and can review employer records going back up to six years, according to the official enforcement statement. 

Employment Tribunal Risk 

From October 2026, the time limit for bringing most tribunal claims doubles from three months to six, according to Littler. This lands against a system already under strain: single tribunal claims were up 54% year-on-year in Q3 2025/26, according to provisional Ministry of Justice figures. Combined with the separately extended 12-week Acas Early Conciliation window, a workplace dispute can now remain legally live for up to ten months after an employee leaves, making thorough record-keeping more important than ever. 

Zero-Hours Contracts 

Reforms guaranteeing hours reflective of actual working patterns are expected from 2027. This lands against a backdrop of rising zero-hours use: a record 1.23 million UK workers are currently on zero-hours contracts, including 1 in 8 young workers, according to Work Foundation analysis of ONS data. 

Alongside its better-known provisions, the Act introduces significant new restrictions on how non-disclosure agreements can be used. 

Under the new rules, NDAs will be unenforceable where they are used to prevent employees or witnesses from reporting or discussing harassment, discrimination, or abuse. In practice, this means:

• Settlement agreements must include clear carve-outs allowing individuals to speak to police, regulators, or legal advisors 

• Existing grievance, disciplinary and whistleblowing procedures should be reviewed against this standard 

• Employers should move toward a culture of openness, with stronger protections for those who raise concerns

This is a meaningful shift from how NDAs have traditionally been used in workplace settlements, and it’s worth reviewing any standard settlement agreement templates well before the wider provisions of the Act come into force.

Beyond NDAs, a handful of further provisions round out the Act. None will dominate headlines the way unfair dismissal reform or the Fair Work Agency have, but each carries its own compliance deadline:

• Tipping law reforms. From October 2026, employers must formally consult staff or trade union representatives before drafting or revising tipping policies, and must review those policies at least once every three years, according to Acas and confirmed in the government’s consultation on strengthening the law on tipping. 
• Adult Social Care Fair Pay Agreement. A new sector-specific negotiating body will set minimum pay, terms and conditions across the adult social care sector, backed by £500 million in government funding, with the first agreement expected in 2028. 
• Reasonable notice and shift-cancellation compensation. Alongside the guaranteed-hours reform covered above, workers will also gain rights to reasonable notice of shifts and compensation for shifts cancelled at short notice, per GOV.UK’s factsheet on zero-hours reforms. 
• Mandatory gender pay and menopause action plans. Voluntary from 6 April 2026, becoming mandatory for employers with 250 or more workers in 2027, per Acas guidance. 
• Umbrella company regulation. The Act expands the legal definition of “employment business” to bring umbrella companies into scope, introducing new oversight of pay and deductions for agency workers, per Littler analysis. 

Each is easy to miss if attention stays fixed on the headline changes alone, but worth having on your radar before the relevant deadline arrives. 

With legislation this wide-ranging, it’s no surprise that misinformation has circulated alongside the genuine detail. A few claims are worth addressing directly. 

Media reports have suggested, inaccurately, that the Act mandates diversity quotas or bans certain types of workplace conversation. Government sources have firmly denied these claims, clarifying that:

• Employers are not required to appoint diversity officers 

• There is no legal prohibition on workplace conversation, provided it does not amount to harassment or discrimination 

• NDAs are not banned outright, but are being reformed specifically to protect whistleblowers and victims of misconduct, as covered in the previous section 

For HR professionals, the safest approach is to rely on official guidance and seek legal advice where needed, rather than responding to unverified reports or secondhand summaries. Given how much of the Act’s detail is still being finalised through secondary legislation, this is likely to remain true throughout 2026 and 2027.

The Act is already shaping how employers approach hiring, well ahead of most provisions taking effect. 

According to CIPD’s Winter 2025/26 Labour Market Outlook, a survey of 2,082 UK employers, the net employment balance (the difference between employers expecting to increase headcount and those expecting to reduce it) has fallen to +7, the lowest level recorded outside the pandemic. More than a third of employers (37%) say they plan to hire fewer permanent staff as a direct result of the Act’s reforms, and 74% expect their employment costs to rise. 

This points to a real risk worth planning around: employers responding to increased cost and risk by leaning more heavily on temporary staff, self-employed contractors, or automation, rather than permanent headcount. For recruitment and workforce planning teams, this makes it worth revisiting hiring strategy now, rather than waiting for each provision to land individually.

Despite the scale of the changes ahead, many organisations are further behind than they’d like to be. A survey by law firm Birketts found that 81% of HR professionals and business leaders describe their organisation as only “somewhat prepared” for the Act, and just 9% consider themselves fully prepared. 

To close that gap, employers should focus on three priorities: 

• Audit. Review existing policies, pay practices and records against each area of change covered above, particularly sick pay, dismissal and probation, and record-keeping. 

• Train managers, not just HR teams. Line managers are the ones who will handle the practical impact of these changes day to day, from probation decisions to absence conversations, and most have had no dedicated preparation for it. 

• Build internal confidence. Employment law decision-making will come under more scrutiny, from both employees and the Fair Work Agency. Confidence built now reduces the likelihood of disputes and costly claims later. 

Early preparation won’t remove the compliance burden the Act introduces, but it significantly reduces the risk of disputes, enforcement action, and tribunal claims once the framework is fully in force. 

At Avado, we help HR professionals build the employment law knowledge and confidence needed to navigate the Employment Rights Act with certainty, not guesswork. Our CIPD HR courses cover the latest developments in detail, equipping HR teams to manage risk, support managers, and stay compliant as the Act comes fully into force. 

Explore our CIPD courses and prepare for the employment law changes ahead!