Employment Rights Act 2025 receives Royal Assent: next steps for employers

After months of parliamentary debate and 'ping-pong' between the House of Commons and House of Lords, the Employment Rights Bill has become law and is now the Employment Rights Act 2025, marking the most significant reform to UK employment law in decades. 

This article explores the Employment Rights Act 2025 and how the two major late-stage amendments reshaped the bill. It also outlines the phased implementation timeline and sets out next steps for employers in terms of risk management, compliance and workforce strategy.

Last minute changes that reshaped the Employment Rights Bill

Two major late-stage amendments reshaped the bill:

• Day-one unfair dismissal rights dropped: instead, a six-month qualifying period was agreed. This will be welcomed by employers by way of compromise compared to the alternative which was a focus on potentially complex light touch dismissal processes during an initial period of employment, but it does mean that recruitment and probationary review processes will need to be scrutinised and tightened.
• Compensation cap removed: awards for unfair dismissal will now be uncapped, aligning them with discrimination and whistleblowing claims. The removal of the statutory cap on compensatory awards for unfair dismissal aims to simplify claims and reduce pressure on the tribunal system. Under the previous regime, high earners often pursued complex discrimination or whistleblowing claims - uncapped by law - solely to circumvent the unfair dismissal cap. These claims significantly increased hearing time and costs, contributing to tribunal backlogs.

However, the change introduces new challenges. Uncapped compensation creates greater financial exposure for employers, particularly in senior or high-value roles, and undermines the predictability that previously supported negotiated exits. Without a clear ceiling, settlement discussions may stall, increasing the likelihood of litigation. While tribunals will continue to apply principles of mitigation and fairness, claimant expectations are likely to rise, and employers should anticipate more protracted disputes and higher-value claims.

Implementation timeline

Royal Assent has now triggered the start of a phased implementation plan stretching across 2026 and 2027. Whilst the timetable may need to be reassessed as a result of the three months lost on the extended debates, currently expected key milestones include:

• April 2026: day-one rights for statutory sick pay and paternity leave, launch of the Fair Work Agency, doubling of the cap for collective redundancy pay.
• October 2026: ban on 'fire and rehire' and guaranteed hours provisions.
• January 2027: six-month qualifying period for unfair dismissal comes into effect and removal of cap for unfair dismissal compensation.

Further reforms, such as enhanced flexible working rights and bereavement leave, will follow later in 2027. 

Next steps for employers

The Employment Rights Act 2025 is not just a legal milestone, it's a cultural and operational shift that will require employers to rethink how they manage people, risk, and compliance. The phased timetable offers some breathing space, but preparation cannot be left until the last minute. Organisations should start by mapping the reforms against their current policies and identifying where gaps exist - whether in dismissal procedures, flexible working arrangements, or redundancy planning.

Recruitment and probationary processes will need particular attention. With the qualifying period for unfair dismissal dropping to six months, employers will have less time to assess suitability before full protection applies. This makes robust onboarding, clear performance objectives, and well-documented reviews more important than ever.

The removal of the compensatory cap adds a further layer of complexity. Employers accustomed to predictable settlement ranges will now face open-ended exposure, especially for senior roles. This will require a more strategic approach to risk management, including revisiting settlement frameworks, considering insurance options, and training managers to handle exits with care and consistency.

Beyond these headline changes, the Employment Rights Act 2025 introduces new rights and obligations that will reshape everyday employee relations - from guaranteed hours and enhanced family leave to proactive duties around workplace culture and harassment prevention. Success will depend on early engagement: briefing leadership teams, updating contracts and handbooks, and equipping managers with the knowledge and tools to navigate the new landscape confidently.

In short, the Employment Rights Act 2025 is not a compliance exercise; it's a call for employers to modernise their approach to workforce management. Those who act now will be best placed to minimise risk, maintain trust, and turn reform into an opportunity for stronger, fairer employment practices.

For further information, please contact our employment team.