The Employment Rights Act 2025 is finally here.  What do employers need to know now?

What you need to know

• The parliamentary process is over and the Employment Rights Bill has become the Employment Rights Act 2025.
• The government abandoned its manifesto commitment to introduce unfair dismissal rights from day one of employment. Employees will instead have the right to claim unfair dismissal after six months. And at the last minute the government introduced a further significant change, which is to abolish entirely the caps on compensation for unfair dismissal.

What you need to do

• We now move to the implementation phase. Employers will have to deal with a steady stream of changes over the coming months and years. The first will be changes to do with trade unions, which will be effective over the next two months. The remainder of the changes will come into effect on a staggered basis over the course of 2026 and into 2027.
• There are things that employers can do now to prepare, although there is also much that is unknown because the detail of many changes will be in regulations which are yet to be made. It will be important for employers to remain alert to developments and be ready to adapt and respond.

The Employment Rights Bill, the most radical overhaul of employment rights in decades, cleared its last Parliamentary hurdle on 16 December 2025 and received Royal Assent on 18 December 2025.

Key points:

• The parliamentary process is over and the Employment Rights Act has become law.
• The government abandoned its manifesto commitment to introduce unfair dismissal rights from day one of employment. Employees will instead have the right to claim unfair dismissal after six months. And at the last minute the government introduced a further significant change, which is to abolish entirely the caps on compensation for unfair dismissal.
• We now move to the implementation phase. Employers will have to deal with a steady stream of changes over the coming months and years. The first will be changes to do with trade unions, which will be effective over the next two months. The remainder of the changes will come into effect on a staggered basis over the course of 2026 and into 2027.
• There are things that employers can do now to prepare, although there is also much that is unknown because the detail of many changes will be in regulations which are yet to be made. It will be important for employers to remain alert to developments and be ready to adapt and respond.

What happened in Parliament?

The government's proposals were always going to be high profile and hard-fought. Even so, few would have foreseen just how complex a journey the reforms would have through Parliament.

That journey culminated with the "ping pong" process between the House of Commons and House of Lords, during which the government made a dramatic about-turn on its flagship policy of "day 1" unfair dismissal rights and introduced an unexpected change to unfair dismissal compensation limits.

Late changes to the unfair dismissal proposals

When the Bill was first introduced back in 2024 it removed the current two-year qualifying period for claiming unfair dismissal and introduced instead the concept of a statutory probation period (the so-called "initial period of employment") during which employees would still have the right to claim unfair dismissal but employers would be able to apply a more "light touch" process.

This change was fiercely resisted in Parliament by the opposition parties, who were emboldened by the Labour-aligned Resolution Foundation saying that the government's policy got the balance between protection and flexibility wrong. After multiple rounds of back and forth between the Commons and Lords, the Bill looked to be at an impasse, but a breakthrough came in late November when the government announced that it had arrived at an agreement with trade unions and businesses.

Despite some dispute about whether the parties really had agreed on all aspects of the proposal, the Bill has now passed, and the position on unfair dismissal is:

• the qualifying period will be retained but reduced to six months (rather than two years); and
• the cap on compensation for unfair dismissal (currently the lower of a fixed amount or 52 weeks' pay) will be abolished entirely;
• the change to qualifying periods will take effect from 1 January 2027, so anyone with six months' continuous service as at that date will have the right to claim unfair dismissal; and
• the government will publish an enactment impact assessment once the Bill achieves Royal Assent and before commencement regulations on the unfair dismissal package are brought to Parliament.

What happens next?

• Royal Assent: The Bill received Royal Assent on 18 December 2025 and became the Employment Rights Act 2025.
• Changes with immediate effect: A small number of the Act's provisions relating to trade unions will come into effect on or shortly after Royal Assent. The minimum service levels regime introduced by the previous Conservative government will be repealed immediately upon Royal Assent, and a range of other changes come into effect two months after Royal Assent, including changes in relation to industrial action ballots.
• Staggered implementation: The remainder of the Act requires regulations to be made to bring it into force. According to the government's roadmap, a tranche of changes is due to come into effect in April 2026, another in October 2026 and some in 2027 (including the unfair dismissal changes).
• Consultations galore: Although we now have an Act, the process of change is only just beginning and there are still a lot of unknowns. The detail of many of the changes is to be contained in regulations which will follow in the coming months, in some cases after consultation. Current and upcoming consultations of particular interest include:

Recent and Upcoming Consultations

• Duty to inform workers about their right to join a trade union: The government has consulted on what this statement provided to workers should contain as well as how often this will need to be delivered to the worker. The government's proposal is for the statement to be delivered annually in the form of a standard statement to which employers would add the details of their own recognised union(s) (if any).
• Trade union right of access the workplace: The government has proposed that employers would have five working days to respond to the request for access, followed by 15 working days for the parties to negotiate an access agreement with the union, and the ability to refer to the matter to the Central Arbitration Committee within 25 days of the request. The government's proposed model access terms include weekly access (physical, digital or both) and two working days' notice of access.
• Collective redundancy: The government is expected to consult the threshold at which an employer must collectively consult when making redundancies. The bill was amended earlier in 2025 to retain the "at one establishment" threshold, but to add a new alternative threshold to be set via regulations, which might (for example) be a set number or a proportion of employees across the business.

What do employers need to do?

• Prepare to manage the new trade union landscape: Employers with unionised workforces will feel the effects of the Act first. The changes are likely to embolden and empower trade unions and if there is a dispute it will be generally easier for trade unions to take industrial action and employers will have less information about and notice of industrial action. Employers with unionised workforces could:
  • focus on maintaining and developing relationships with unions with the goal of avoiding disputes occurring and being escalated to industrial action;
  • develop contingency plans for possible disruption to operations, which will be particularly important given the proposed shorter timeframes for notice of industrial action; and
  • review the logistics of their trade union arrangements (including arrangements for access by unions and access to facilities and facility time for trade union representatives), so as to prepare for these rights being expanded.
• Prepare for unfair dismissal changes: Although the right itself is not due to come into effect for a year, it will affect anyone hired from mid-2026. Employers should reflect on their hiring, probation, and performance review processes and ensure that they have robust systems in place which are understood and applied across the business.
• Update policies and procedures: Employers can prepare now for some of the changes that are due to come into force in April 2026 (such as "day 1" paternity leave and unpaid parental leave and changes to statutory sick pay) by ensuring that policies, procedures and HR systems are ready for these changes.

Ashurst's employment team will be keeping abreast of the consultation and regulations as they develop, so look out for our further updates and webinars, and please feel free to contact us if you would like to discuss what the changes mean for your business.