Implementation challenges and unintended consequences in the Employment Rights Act 2025

The Employment Rights Bill has completed its long journey through Parliament and has become the Employment Rights Act 2025.  But the story is far from over.  

We have written extensively about the Employment Rights Bill as it developed (see our initial analysis here and our update on the amendments here). Now that the Act has received Royal Assent, this article focuses on the practical implementation challenges facing both government and employers in the coming months and years.

The Government's modification of the unfair dismissal qualifying period — no now requiring six months rather than day-one protection — illustrates the tension between ambitious policy objectives and practical implementation realities. Yet this concession addressed only one dimension of a far broader implementation challenge.

The Act introduces the most significant overhaul of UK employment law in decades. We have covered the detail of the Act's provisions in our earlier articles, but the key changes include: a six-month qualifying period for unfair dismissal protection (replacing the previously signalled day-one model); extensive new rights for zero-hours and low-hours workers; modernised trade union access and recognition processes; strengthened pregnancy and family-leave protections; expanded collective redundancy duties; new constraints on "fire and rehire" practices; and extended time limits for many claims from three to six months.

The primary implementation risks arise from:

• extraordinarily high legal and operational complexity, particularly in the third party harassment, zero-hours workers and shift regimes;
• onerous recurring obligations that smaller employers may struggle to observe;
• staffing constraints and a real risk of claims from shift-notice provisions;
• tribunal capacity constraints exacerbated by doubled limitation periods; and
• industrial relations strain from union access and recognition rules.

The Government has opened multiple consultations and signalled further secondary legislation to specify key definitions, timeframes, compensation bands, and sectoral exemptions. Much of the detail that will make the Act workable in practice remains to be determined.  We set out below key areas where we have identified particular issues relating to the implementation or unintended consequences of the new legislation.

Workers on zero-hours or low-hours contracts will be entitled to request guaranteed hours contracts that reflect their actual working patterns. Employers must make offers after each reference period to qualifying workers whose actual hours meet conditions to be specified in regulations. The offers must reflect worked hours and patterns, meet strict content requirements, and preserve overall terms or justify any less favourable terms. Employers can be excused in narrowly defined circumstances, but must proactively inform workers likely to qualify within tight initial windows.

Employers could well face claims for a failure to offer the new contracts, defective offers, manipulation of hours to reduce offers or avoid qualification, missing or incorrect notices, and information failures. Compensation is subject to a capped maximum set by regulations.

The administrative burden is particularly acute for smaller employers lacking sophisticated HR information systems. A café employing 15 casual staff must now track reference periods individually, calculate whether each worker's hours trigger an offer obligation, draft compliant offers reflecting worked patterns, issue proportionality notices where terms differ, and maintain audit trails - all whilst managing day-to-day operations. For many SMEs, this represents a step-change in HR complexity.

Key implementation questions remain unresolved pending secondary legislation: what will constitute a "low-hours" worker who could be entitled to the guaranteed hours offer?  It could be anywhere between two and 24 hours per week.  Further, we are still awaiting clarity as to how guaranteed hours should be calculated; how to evidence reference period patterns; when limited-term contracts are "reasonable", what constitutes reasonable shift notice; and how compensation should be scaled. Without this detail, employers cannot build compliant systems.

The Act includes a statutory definition of "seasonal work", but further regulations must "have regard to" this definition. Does a university catering service employing term-time staff qualify for seasonal exemptions? What about event venues with predictable but irregular peaks? Without regulatory clarity, employers face a binary choice: over-comply and bear unnecessary costs, or risk tribunal claims for under-compliance.

“The administrative burden is particularly acute for smaller employers lacking sophisticated HR information systems.”

The statutory "reasonable notice" baseline with presumptions (for example, notice given less than a specified time is presumed unreasonable) creates particular complications for emergency cover arrangements. Workers receive compensation for short-notice changes on a formula basis that can equal the full value of lost hours. Multi-worker requests are expressly covered, widening exposure when contacting larger rosters.

The emergency cover dilemma illustrates the practical friction. An employee calls their manager the night before to say that they are unwell and unlikely to make it into work the following day.  The manager knows that they will need to find cover, and so contacts ten staff members that evening to see if any of them is available and willing to work the following day's shift.  Each contacted worker who receives less than the specified notice period enjoys a statutory presumption of unreasonable notice. If a shift is cancelled, moved, or curtailed at short notice, each contact triggers a payment obligation - even though only one worker ultimately accepts the shift. The employer must either pay compensation to all contacted workers or issue compliant exception notices.

The statutory framework appears to assume that shift changes are employer-initiated management decisions rather than operational necessities. A hospital facing sudden staff sickness must choose between contacting multiple staff and incurring cascading payment liabilities, contacting staff sequentially and risking delays in securing cover, or maintaining expensive standby pools with guaranteed payments. Each option imposes costs that may exceed the value of the shift itself.

These payments are elevated to preferential debts in insolvency, potentially impacting rescue financing and distributions. While the chances are that the liability for shift-payment compensatory awards is likely to be small in most cases, the preferential debt status could create particular complications for businesses in financial distress. Lenders providing rescue financing must account for potentially substantial shift-payment liabilities ranking ahead of their security, whilst administrators face complex calculations to quantify preferential claims across multiple low-hours workers. The interaction with company voluntary arrangements (CVAs) is equally problematic: whether shift-payment debts can be compromised, or whether their preferential status requires full payment as a condition of CVA approval, remains unclear. It's hard to see the rationale behind the way in which these payments will be treated: if it's that important to protect them, why not also protect employment tribunal awards for arguably far more serious wrongdoing such as discrimination?

Immediate actions for employers and how we can help

Without timely and pragmatic secondary legislation and improved tribunal capacity, the risk is a wide compliance gap - particularly among smaller employers - paired with heightened litigation and enforcement exposure. Employers must act now to prepare for these changes, and specialist legal guidance will be essential for to complying with the complex implementation period ahead.

The Government's modification from day-one rights to a six-month qualifying period acknowledges employer concerns about hiring risk, but creates its own implementation challenges.

Employers may be tempted to dismiss underperforming staff just before the six-month threshold - precisely the "cliff-edge" behaviour the initial period regulations aim to prevent. This could lead to employers being forced to make a decision about an underperforming employee in circumstances where remedial action (training or performance management processes) has not yet had a chance to deliver results.  Employers will need to be proactive with their probationary periods, ensuring concerns are addressed quickly and effectively.

More significantly, the wholesale removal of the cap on compensation for unfair dismissal will be enormously significant to higher earners and employers alike. While it may make for simpler claims, as employees are less likely to shoehorn claims of whistleblowing or discrimination into their tribunal applications to avoid the current cap of around £118,000, there is a real risk that employers looking to dismiss anyone in their senior leadership team will hesitate before doing so. As was mentioned in the House of Lords debate shortly before they eventually approved the Bill, this will have the effect of granting the directors of failing water companies a windfall if they are dismissed. Few companies will be willing to undertake a lengthy 'fair' performance procedure prior to deciding to terminate the employment of the CEO of a business in significant trouble. But they will now be faced with the possibility of a seven figure claim if they fail to do so. 

The removal of the cap, however, will not only affect the directors of the largest companies: it will also mean that employees in schools and local governments who may be approaching retirement will be able to claim very significant compensation for the loss of their defined benefit pension schemes.  Similarly, anyone with share options will now have more incentive to bring a claim: in the past, the value of the options may far outstrip the cap.  As a result, remedy hearings may become significantly more complicated, with expert evidence required for the valuation of both pension loss and share options.

It is not yet clear whether the removal of the cap will apply to dismissals that occur prior to the Act taking effect, but in our view it is unlikely that this will be the case for two reasons.  First, it would be unfair for employers who made a decision as to whether to dismiss based on the likely costs they would face to now be confronted with significantly increased liability.  Certainty is important for business.  Second, compensation caps change yearly and the new caps have always applied only for dismissals that take effect on or after the date on which the compensation changes.  Presumably, this will be no different.

Finally, there is a real risk that the prospect of an unlimited cap on compensation will have a chilling effect on recruitment.  Employers who had previously been able to take a commercial view as to the limits of the risk of hiring someone new may be very worried that a bad decision could lead to an award of damages that could be fatal to a small or medium sized business. Even if the reality is that the average award for unfair dismissal is in the low thousands, the prospect of unlimited damages for failing to follow a fair procedure will spark fear in the hearts of many employers.

The Act will reintroduce employer liability for third party harassment for the first time since October 2014, and it appears that employers will have less than a year before this comes into force. 

Presumably, the only defence available to employers will be that they have taken reasonable, or all reasonable steps to prevent the harassment from taking place, but this is far more complicated than preventing sexual harassment from colleagues over whom the employer has a degree of control. The duty to prevent sexual harassment came into force in October 2024. Employers were given 12 months to prepare for the new duty, and many have yet to take reasonable steps – let alone 'all' reasonable steps – to prevent harassment. 

The new duty covers all of the relevant protected characteristics, and the harassment could come from customers, clients, suppliers or members of the public.  Employers will need time to prepare for this through training their staff, drafting policies and procedures, notices and protocols.  Guidance from EHRC will be very important, and there is a risk that the guidance will not be forthcoming for some time yet.  Given the potentially significant compensation available to those subjected to harassment, putting appropriate measures in place will need to be a priority for employers.

“The scale of change is unprecedented.”

The Act extends limitation periods for employment tribunal claims from three to six months across multiple causes of action, directly increasing claim volumes. The Act also creates multiple new causes of action (zero-hours offers, shift notice failures, manipulation of hours, defective notices), each with bespoke six-month limitation and compensation parameters.

At the same time as introducing the new claims, the removal of the cap on unfair dismissal compensation is likely to increase the number of claims brought by high earning individuals. 

To add to the pressure on tribunals, the Government's proposed ban on non disclosure agreements (NDAs) could well mean that employers will feel compelled to fight claims rather than face the risk of settling a claim only to be judged in the court of public opinion when the individual airs their complaints on social media. 

The tribunal capacity crisis threatens to undermine the Act's enforcement architecture. Doubling limitation periods will increase the pool of potential claims, and new causes of action will add to case volumes. If even five per cent of the UK's estimated 1.5 million zero-hours workers bring claims in the first year, tribunals would face approximately 75,000 additional cases.

The timing mismatch between harm and hearing creates perverse outcomes. A worker denied a shift-payment of, say, £100 in January 2026 may not secure a tribunal hearing until late 2027 or early 2028. The compensation recovered, even if successful, may not justify the time and stress of litigation, particularly for unrepresented claimants. This practical deterrence may encourage employer non-compliance: if the risk of enforcement is low and delayed, why invest in complex compliance systems?

The Government has indicated that the Fair Work Agency will complement tribunal enforcement, but the Agency's model remains undefined. Will it have proactive inspection powers? Can it impose administrative penalties without tribunal proceedings? How will it prioritise cases across multiple new rights? Without answers, employers cannot assess their true enforcement risk.

“Without timely and pragmatic secondary legislation and improved tribunal capacity, the risk is a wide compliance gap.”

We have written about the collective redundancy changes in our earlier articles. The key implementation challenge is tracking headcounts and thresholds across multi-site operations: further regulations to define the 'threshold number of employees' (which cannot be set below 20) are pending.

A retail chain planning to close 15 stores, each employing 18 employees, might previously have avoided collective consultation obligations on an establishment-by-establishment basis. Under the Act's aggregated approach, the total headcount of 270 may well trigger enhanced consultation duties. More challenging, however, will be where the dismissals are harder to track. If the same retail chain employing 20,000 people nationally allows each store to make decisions as to its own staffing requirements; based on local demand, and a total of 50 employees are dismissed by reason of redundancy by 30 different stores, all acting independently, this could also trigger collective consultation obligations that lead not only to the increased protective awards of 180 days' gross pay for each affected employee, but also potential criminal liability if a duty to submit the HR1 form is also missed. It will also be hard to see the benefit of a collective consultation process in this instance, given that the dismissals may be brought about by very different circumstances.

We have covered the trade union provisions in detail in our earlier articles. The key implementation challenges arise from compressed timelines and new enforcement mechanisms.

Trade unions now have a statutory right to request workplace access. An employer receiving an access request must assemble legal advice, consult internally, formulate a response, and potentially negotiate terms within days. The alternative is the imposition of terms by the Central Arbitration Committee (the CAC) by way of an "access agreement" that may not reflect operational realities. Breaches trigger CAC variation orders and escalating monetary orders for repeated violations. This will be a particularly acute problem in workplaces with significant confidentiality and intellectual property concerns – allowing third parties onto site may well present material risks to their businesses.

Similarly, the route to statutory recognition has been made considerably simpler for the unions, and employers are constrained from engaging in 'unfair practices' designed to frustrate union recognition. The sanction - direct CAC declaration of recognition - is severe. Yet it is not always clear where the line between open communication and unfair practices is drawn. Risk-averse employers may curtail legitimate communications, whilst others may inadvertently cross the line.

Employers who are nervous about the idea of trade union involvement in their businesses may wish to think about alternative mechanisms for ensuring that the voice of their workforce is heard - we have written about this here. If they have not already started to implement employee forums, this would now be a very good time to start.

Finally, the requirement to notify employees of their right to join a union is not as straightforward as it may first appear. Consultation is currently underway as to whether the notification needs to be repeated as often as every six months, which could create administrative burdens on employers who need to track the dates on which employees were last provided with the notice.

Are you listening? Worker voice in modern employers

Worker voice represents more than traditional grievance channels or suggestion boxes. It encompasses the various mechanisms through which employees can influence organisational decisions, from strategic planning to operational improvements. 

Read more

We have written about the enhanced pregnancy protections in our earlier articles. The Act empowers the making of regulations concerning dismissal (not only redundancy) during and after pregnancy, specifying procedures, evidence requirements, consequences, and interactions with pay calculations. Parallel changes extend dismissal-protection across maternity, adoption, shared parental and neonatal contexts.

However, it is clear that absolute protection against dismissal during pregnancy is both undesirable and unworkable: it would prevent employers from dismissing in cases of gross misconduct, fundamental breach of trust and confidence, or criminality. Pregnancy dismissal exceptions and procedures must therefore carve out permissible grounds whilst maintaining robust protection against discriminatory dismissals. Striking this balance through secondary legislation will be challenging.

Part of the problem here is that much is already covered by discrimination law, and it is hard to see the particular mischief that the Act seeks to cure. Implementation must carefully codify exceptions and evidential rules to prevent overreach or confusion. Consultation on "specified circumstances" for permissible dismissal, start and end of protection, and coverage of other family leaves is ongoing, with implementation expected in 2027.

The interaction with existing discrimination law under the Equality Act 2010 creates potential for confusion and satellite litigation. Pregnancy and maternity are already protected characteristics, with established case law on direct discrimination, unfavourable treatment, and reasonable adjustments. The Act's new dismissal protections will operate alongside - not replace - these existing frameworks. Claimants may pursue parallel claims under both regimes, whilst employers must work with overlapping procedural requirements and evidential standards.

In addition to the above specific dismissal protections, the Government has started a wide ranging consultation on parental leave and pay, with a view to making significant changes in due course. 

We have written extensively about the fire and rehire restrictions in our earlier articles. The implementation challenges are now becoming clearer, particularly around geographic mobility and business restructuring.

The Act deems a dismissal unfair where it is connected to an employee's refusal of "restricted variations" (for example, pay reductions, changes to hours or shifts, pensions, or reduced time off), unless the employer meets a stringent necessity test. For private employers, the test requires demonstrating that the variation is necessary for going-concern survival or financial sustainability and that the outcome is inevitable. Even where the necessity test is met, the employer must demonstrate fair process. The Act similarly deems unfair a dismissal to replace an employee with a non-employee (outsourcing or contracting-out), subject to equivalent narrow financial-distress exceptions.

A balance needs to be struck between an employer ruthlessly pushing through measures designed to maximise profit at the expense of its employees with the employer's legitimate right to sensibly restructure its business and correct earlier poor or outdated decisions.

The geographic mobility constraint is particularly acute. An employer with operations in London may be thinking of opening a branch in, say, Hartlepool in order to reduce property and labour costs. Employees refusing relocation may previously face dismissal for "some other substantial reason", with tribunals assessing reasonableness, or redundancy. Under the Act, such dismissals could be deemed to be automatically unfair unless the employer can demonstrate that the relocation is necessary for going-concern survival - a far higher threshold than commercial efficiency.  This would have a chilling effect on companies wishing to assist in the regeneration of parts of the UK.

The rescue and restructuring impediments are equally concerning. Company voluntary arrangements, schemes of arrangement, and pre-pack administrations often require rapid workforce restructuring to preserve value and save jobs. The Act's 'inevitability' test may be difficult to satisfy in rescue scenarios where multiple restructuring options exist, each with different workforce implications. Insolvency practitioners may find that the constraints reduce the universe of viable rescue options, increasing the likelihood of terminal liquidation.

The Government has committed to extensive consultation over the coming months. In the short term (to the fourth quarter of 2026), in addition to the ongoing consultation about parental leave and pay, expect consultations on union right-to-inform statements, union access timelines and exclusions, and a Code of Practice on union access, with implementation targeted for October 2026.

In the medium term (to 2027), rules on enhanced dismissal protections for pregnant women and new mothers, and bereavement leave scope and duration. The continuing programme will cover: zero-hours workers calculation mechanics; reasonable notice thresholds and compensation bands; flexible working default mechanics; a fire-and-rehire Code of Practice; SSP calculation and records; Fair Work Agency powers and penalties; day-one and six-month probation framework; electronic balloting; modernised recognition and anti-unfair-practice frameworks; sectoral exemptions (seasonal, hospitality, retail, health and social care, agriculture); and enforcement penalty guidance.

The consultation timeline creates acute pressure for both government and employers. The Government must draft, consult upon, finalise, and lay dozens of statutory instruments across 2025 to 2027, whilst maintaining political momentum and stakeholder confidence. Employers must track multiple parallel consultations, assess impacts, submit representations, and prepare for implementation - all whilst managing existing operations. Multi-jurisdictional employers face additional complexity if devolved administrations adopt different commencement dates or regulatory approaches.

The sequencing risk is particularly acute. If zero-hours workers calculation mechanics are not finalised until the third quarter of 2026, but the primary legislation commences in October 2026, employers face a narrow window to build systems, train staff, and achieve compliance. Late changes to draft regulations may require costly system redesigns.

Finally, the length of time it took for the Government to pass an Act that it famously introduced within the first 100 days of coming into power does not bode well for the speed with which the measures will actually be implemented.  Few could have predicted that it would take more than a year to reach this point, and fewer still would have thought that so little progress would have been made in relation to the supporting legislation that was inevitable with a framework Act such as this.  The risk is that some of the key provisions of the Act will only come into force shortly before the next election.  If Labour fail to win a second term, the incoming administration could repeal parts or all of the Act before it properly takes its first steps.

 Conduct comprehensive compliance audits
Review all current employment practices against known Bill requirements, with particular focus on third party harassment, zero hours contracts, shift scheduling arrangements, dismissal procedures, and collective redundancy tracking systems. Identify gaps between current practice and anticipated obligations.

 Engage actively in government consultations
Participate in ongoing consultations on zero-hours workers calculation mechanics, reasonable notice thresholds, union access timelines, and sectoral exemptions. Consultation responses should be evidence-based and demonstrate practical operational constraints.

 Review and restructure zero hours and low hours arrangements
Audit all workers on zero hours or low hours contracts to understand potential guaranteed hours obligations. Assess whether current HR systems can track reference periods, calculate averages, and generate compliant offers within statutory deadlines.

 Prepare for enhanced union access and recognition
Develop strategies for responding to union access requests within compressed statutory timelines. Review employee communications to ensure compliance with unfair practices prohibitions whilst maintaining legitimate business engagement.

 Map multi-site operations for redundancy aggregation
Implement tracking systems to monitor dismissals across the organisation over rolling 90 day periods.

 Assess restructuring plans against fire and rehire constraints
Review any planned business restructuring, geographic consolidation, or contract variation programmes to determine whether they fall within restricted variation categories. Evaluate whether financial distress exceptions might apply and what evidence would be required.

 Compliance audits and gap analysis
We conduct detailed audits of current employment practices, identify compliance gaps, and provide prioritized action plans with risk assessment matrices tailored to your business operations and sector.

 Zero hours and shift work advisory
We provide contract review and restructuring advice, HR system requirements specification, reference period calculation methodology design, and seasonal work exemption assessments to ensure compliance with guaranteed hours and shift notice obligations.

 Industrial relations strategy
We provide union access agreement templates and negotiation support, unfair practices compliance training, CAC procedure guidance and representation, and employee communication strategy development.

 Redundancy and restructuring planning
We offer risk mitigation strategies, and cross-jurisdictional coordination for multi-site employers.

 Tribunal capacity and enforcement preparation
We conduct litigation risk assessment and budgeting, and develop early resolution and settlement strategies.

 Pregnancy and family leave enhancement
We update policies for enhanced pregnancy protections, analyse discrimination law interactions, design procedures for permissible dismissal exceptions, and provide training on overlapping legal frameworks.

 Regulatory intelligence services
We provide ongoing regulatory tracking and alert services, impact assessment for new statutory instruments, implementation timeline management, and cross-reference analysis of overlapping requirements.

The Act's ambition - to rebalance employment rights whilst maintaining labour market flexibility - depends critically on secondary legislation that translates statutory frameworks into workable operational requirements.

For managers and HR professionals alike, the immediate priorities are clear: engage actively in ongoing consultations to shape pragmatic regulations; audit current practices against known requirements; and build internal capability to ensure that they are ready for the imminent changes. The scale of change is unprecedented, creating significant opportunities for employers who prepare early and engage specialist legal advisers to assist them in complying with the complex new rules.

Active participation in consultations and early operational redesign are essential to mitigate unintended consequences and to shape workable regulations before the main commencement wave in 2026 to 2027. The coming months will determine whether the Employment Rights Act delivers its transformative promise or becomes mired in complexity and enforcement failure. The outcome depends not only on the Government's regulatory drafting but on the quality of stakeholder engagement and the pragmatism of implementation design. Finally, there are significant advantages to be gained by employers who prepare as much as possible in advance of the regulatory changes.  We invite you to contact us to discuss how our comprehensive advisory services can support your organisation through this period of unprecedented employment law transformation.