Employers are being urged to act now to avoid significant legal and financial exposure following the Employment Rights Bill receiving Royal Assent on 18 December 2025.
The legislation, now the Employment Rights Act 2025 (ERA 2025), introduces the most far-reaching overhaul of employment law in decades, with key provisions coming into force between April 2026 and January 2027.
Acuity Law has warned that businesses which delay preparation risk being “caught badly off guard” by the scale and pace of reform.
One of the most significant reforms is the reduction of the qualifying period for unfair dismissal claims from two years to six months from January 2027. While the UK Government stepped back from making unfair dismissal a day-one right, Acuity says the impact on employers will still be substantial.
Chris Aldridge, Senior Employment Partner at Acuity Law, said:
“This is a clear signal from Government that the balance of power in the workplace is shifting. Employers who continue to rely on informal probation processes or weak documentation are exposing themselves to serious risk. Six months passes quickly, and many businesses are simply not set up for that reality.”
The financial stakes will rise further with the removal of the cap on unfair dismissal compensation from January 2027. Currently awards are limited to the lower of 52 weeks’ pay or £118,223. Under the new regime, tribunals will be able to make unlimited awards.
Summer Pearce, Trainee Solicitor in Acuity Law’s Employment Team, said:
“Removing the compensation cap fundamentally changes how dismissals need to be approached. A poorly handled exit will no longer carry a predictable level of risk. Employers will need to ensure managers are trained, processes are consistent and decisions are defensible.”
The Act also introduces strict new restrictions on ‘fire and re-hire’ practices. From October 2026, dismissing employees who refuse substantial contractual changes will be automatically unfair unless there is no alternative to save the business as a going concern.
Employers will be required to consult meaningfully, consider alternatives and provide clear written justification.
Worker protections are also being expanded, including day-one Statutory Sick Pay, new guaranteed hours and shift-scheduling rules, and extended bereavement leave for pregnancy loss.
Enforcement will be significantly strengthened through the creation of the Fair Work Agency in April 2026, with powers to conduct unannounced inspections and issue penalties of up to 200 per cent of underpayments going back six years.
Chris Aldridge added:
“The combination of stronger rights and tougher enforcement is a wake-up call. This is not something employers can park until the end of 2026. The time to prepare is now.”
