Employment Rights Bill receives Royal Assent, becoming the Employment Rights Act 2025

At a glance

• The Employment Rights Bill (ERB) will receive Royal Assent today, 18 December 2025, becoming the Employment Rights Act 2025 (ERA).
• Key changes include removal of the cap on unfair dismissal compensation and new restrictions on non-disclosure agreements.
• Day one unfair dismissal rights were dropped; a six-month qualifying period will apply from January 2027.
• Collective redundancy rules tightened, with higher protective awards and new threshold tests.
• Additional measures cover fire and rehire restrictions, guaranteed hours, bereavement leave, and extended tribunal time limits.

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The ERB will receive Royal Assent today, 18 December 2025, becoming the ERA.

When the ERB was first laid before parliament in October 2024, it was promoted as 'the most extensive overhaul of workers’ rights in generations'. Although the core of many of the key provisions remain unchanged, wide-ranging amendments were made in both the House of Commons and House of Lords, including some significant concessions from government in areas such as day one unfair dismissal rights, collective redundancy thresholds and fire and rehire provisions. Meanwhile some entirely new provisions were introduced, most notably a controversial last-minute measure to remove the cap on unfair dismissal compensation, the introduction of bereavement leave following a pregnancy loss and new restrictions on non-disclosure agreements. Here we explain some of the most important changes to the ERB as it progressed through Parliament.

Day one unfair dismissal rights abandoned

At the 11^th hour the government reversed its commitment to introduce day one unfair dismissal protection with an 'initial period of employment' with simplified dismissal procedures. The House of Lords had refused to vote through the day one right, insisting instead on a six-month qualifying period.

The government’s intention for the six-month qualifying period is that it will apply from 1 January 2027 with no transitional provisions. Employers will need to assess which employees will gain protection when the qualifying period changes and ensure that decisions are made about continuing employment in good time.

The ERA also removes the statutory power to change the qualifying period by order, which means that future changes would need to be made through primary legislation.

Cap on unfair dismissal compensation removed

As part of the compromise agreed to break the deadlock on the unfair dismissal qualifying period, the government unexpectedly introduced last-minute amendments to remove the compensation cap on unfair dismissal claims. Currently, compensation is capped at either 52 weeks’ gross salary or GBP118,223, whichever is lower. 

Removal of the cap is a significant change which could substantially increase the cost of dismissals, especially in respect of high earners. The timing of this change is unclear, although it seems most likely that the government plans for it to take effect for dismissals from 1 January 2027, at the same time as the change in qualifying period.

This has the potential to be one of the most impactful measures in the ERA. It will make it considerably more difficult and expensive to negotiate settlements for very highly paid employees, which will further increase the burden on already over-stretched employment tribunals.

Collective redundancies

The ERB initially proposed removing references to the 'at one establishment' test from collective consultation measures. Under the current law, employers proposing 20+ redundancies 'at one establishment' within a period of 90 days must engage in collective consultation before making any redundancies. 

The 'at one establishment' test was reinstated, but the ERA now also introduces a different threshold test, with details to be set out in further regulations. The alternative threshold is likely to be based on redundancies across the UK employing entity as a whole and could be a percentage, or a higher number of proposed dismissals (eg the lower of 10% or 100 employees across the business as a whole). 

The ERA will also double the maximum protective award for failure to collectively consult on redundancies, from 90 to 180 days. This will materially increase the risks associated with collective redundancies.  

Relaxation of fire and rehire

As we reported in August 2025 (Changing employment terms: Revised fire and rehire rules under the Employment Rights Bill) the measures on so-called 'fire and rehire' were revised in July. The ERA now makes the practice of fire and rehire automatically unfair only for 'restricted variations' ie changes to certain core terms, including:

• Pay.
• Working hours.
• Pension.
• Shift times and length.
• Time off.

Dismissals to impose a new flexibility clause covering the above changes are also covered. Other restricted variations may be defined in regulations.

The measures were extended to cover 'fire and replace' (the replacement of employees with self-employed independent contractors, workers who are not employees, agency workers or any other individuals who are not employed by the employer) if the replacement will be doing substantially the same work. 

Changes to other terms and conditions, including place of work, will not be automatically unfair but will remain subject to the usual unfair dismissal test. However, tribunals will need to take account of the reason for the variation, any individual or collective consultation and anything the employee was offered in return for the change.

There is an exception in situations where the business is in extreme financial distress. In those circumstances, an employer would need to comply with the Code of Practice on dismissal and re-engagement. 

The restrictions are due to come into effect from October 2026. Employers should review contracts and consider whether to include flexibility provisions prior to that date.

Guaranteed hours and shifts provisions increasingly complicated

The ERB set out detailed and complex rules which would require employers to make an offer of guaranteed hours to a qualifying worker after the end of every reference period (likely to be 12 weeks but subject to consultation), if the hours regularly worked exceed the minimum number set out in their contract. Much of the detail of who will be covered by the new regime is unknown, with consultation and secondary legislation to follow.

A broader category of workers will also have a right to reasonable notice of a shift, as well as notice of any changed or cancelled shift. Once again, crucial details (such as what is 'reasonable' notice) are yet to be determined.

Multiple amendments were made to the guaranteed hours and shift regime during the legislative process. The core principles remain unchanged, but technical amendments have added more complexity to an already labyrinthine process.  

One of the most notable amendments was the extension of the scope of the guaranteed hours and shift provisions to cover agency workers. The detail of how this will work in practice will be set out in regulations.

An amendment was also made introducing a right to contract out of the rights in a collective agreement; the employer and an independent trade union can reach an agreement that excludes the new rights and replaces them with something else, provided these new terms are incorporated into the contract. This may provide some scope to make the regime more workable.

Regulations will provide for potential exceptions to the duty to offer guaranteed hours to balance the benefit to the workers of receiving the offer against preventing the guaranteed hours regime from having a 'significant adverse effect' on employers who are dealing with 'exceptional circumstances'. 

Bereavement leave for pregnancy loss

The original version of the ERB introduced a new right to at least one week of unpaid bereavement leave. This will now cover employees and their partners who have a pregnancy loss before 24 weeks (losses over 24 weeks already qualify for maternity and paternity leave). In October the government issued a consultation seeking views on who should be eligible for this right, when the leave can be taken and any notice and evidence requirements.

Restrictions on non-disclosure agreements

New provisions restricting the use of non-disclosure agreements were introduced fairly late on in the parliamentary process. Any agreement preventing a worker from making allegations or disclosures about harassment or discrimination will be void. This is wide enough to cover any alleged discriminatory conduct, and also appears to cover allegations about harassment by a third party. A further amendment extended these provisions to expressly cover a failure to make reasonable adjustments. The Bill does not expressly refer to victimisation, but it does cover the employer's response to the incident, allegation or disclosure.

These provisions are seemingly directed at settlement agreements, but further regulations are expected which will define 'excepted agreements' which will not be void. It is possible that this will allow agreements which are made at the employee's request with prior independent legal advice, as in Ireland. 

This measure was not introduced until after the publication of the government's implementation roadmap, so it is not yet clear when it will be brought into force.

Employment tribunal time limits increased

An early amendment to the ERB extended primary time limits for bringing tribunal claims from three months to six months. This is expected to take effect in October 2026.

Fair Work Agency's remit extended plus new powers

The ERA will create a new enforcement agency, the Fair Work Agency (FWA). This brings together existing enforcement functions, including minimum wage and statutory sick pay enforcement, labour exploitation and modern slavery, and adds holiday pay enforcement. The ERA also includes powers to add other areas of enforcement.

As the ERB progressed throughout Parliament, amendments have significantly increased the FWA’s remit. The FWA will have extensive powers to enter premises (including homes), require information and enforce failure to make statutory payments (including holiday pay) combined with significant powers to impose penalties.

What happens next?

Very few provisions come into force in the short term. Two months after Royal Assent, many of the trade union measures will take effect. However, the vast majority of changes require commencement regulations before they come into force and many also require substantive regulations setting out further details of the new measures, preceded by consultation.