The Employment Rights Act 2025: Key changes and practical guidance

Qualifying period

• The qualifying period for unfair dismissal protection is being reduced from two years to six months, with effect from 1 January 2027. Any employee hired from July 2026 onwards who has six months’ service by 1 January 2027 will be protected from unfair dismissal. If an employee’s employment is terminated without notice (or with less than statutory notice, which is one week between one month and two years’ service), the date on which employment is deemed to have terminated for the purposes of calculating the employee’s length of service for unfair dismissal protection is on expiry of the minimum statutory notice period running from the date of termination.
• Employers must ensure that they have robust recruitment and probation management systems in place to ensure that the right hiring decisions are made at the outset and that any unsuccessful hires are identified and removed from the business quickly.
• Fixed-term contracts: non-renewal of a fixed-term contract amounts to a dismissal, so it is important that there is a fair reason for dismissal and that a fair process is followed upon a contract’s termination if it is for a term of six months or more. It is vital to be clear about the specific and genuine purpose for the fixed term contract from the outset (e.g. maternity leave cover or a two-year training contract).

Uncapped compensation

• The cap on compensation in “pure” unfair dismissal claims (i.e. those not involving discrimination or whistleblowing) will be removed with effect from 1 January 2027. Currently the compensatory award is capped at £123,543.
• Removal of the cap is likely to increase the number of high earners motivated to assert or bring unfair dismissal claims. It is expected there will be a knock-on effect on settlement negotiations, as higher earners will have less incentive to settle for sums that they consider do not adequately reflect their loss.
• Well-managed exit processes will become key, particularly given the 25% uplift for unreasonable failure to comply with the ACAS Code on disciplinary and grievances.

Practical guidance

• Employers should use the lead-in period to review and strengthen recruitment practices and probation arrangements to mitigate risk, including:
  • Reviewing job descriptions to ensure they accurately reflect role requirements and competencies;
  • Reviewing contractual documentation to ensure offer letters and contracts clearly set out the length of the probationary period, performance and conduct expectations, and notice provisions during and after probation;
  • Ensuring pre-employment checks are robust and verification of references, right-to-work checks and any other relevant check is carried out before commencement of employment.
  • Considering whether current probation periods (often three to six months) remain fit for purpose. Where a six-month probation is used, be mindful of the fact that the employee will qualify for unfair dismissal protection at the end of their probation period; and
  • Ensuring that employee appraisal structures are adequately set up to detect and record any issues that arise early on in a new employee’s probation period and that managers are trained to identify and deal with these issues appropriately.

Sexual harassment

• Since October 2024, employers have had a positive duty to take reasonable steps to prevent sexual harassment of their workers in the course of employment. From 30 October 2026, this standard will be elevated to taking all reasonable steps to prevent sexual harassment at work – a much higher threshold to
• This duty extends to sexual harassment by third parties (discussed in more detail below).
• It is not a standalone claim, but if an employee succeeds in a discrimination claim and is awarded compensation, an employment tribunal can increase compensation by up to 25% if it determines that the employer failed to comply with that The Equality and Human Rights Commission also has power to take direct enforcement action.
• The Government has indicated that regulations clarifying what all reasonable steps means are expected in 2027/2028 (ie. after the enhanced duty comes into force). In the meantime, employers should consider taking the following practical steps:
  •  Continuing with risk assessments;
  •  Ensuring policies are updated and clearly set out obligations and consequences of a breach;
  •  Communicating with staff on how to report concerns and ensuring that they feel comfortable doing so;
  •  Providing specific and tailored training to managers to ensure they know how to react when a concern is raised; and
  •  Continuing ongoing monitoring and evaluation of the organisation’s culture.

Third-party harassment

• From 30 October, employers will also be under a duty to take all reasonable steps to prevent third-party This includes harassment by clients, contacts, suppliers and other third parties.
• Critically, the third-party harassment duty is not limited to sexual harassment – it extends to harassment on the basis of all protected characteristics (e.g. race, sexual orientation, disability, etc.).
• Under the previous third-party harassment rules (in force 2008–2013), a ‘three strikes’ rule applied, requiring employers to be aware of two prior incidents before they could be liable for the This will no longer be the case – a single incident of harassment which occurs during the course of employment where the employer has failed to take all reasonable steps to prevent it will suffice.
• Employees will be able to bring a stand-alone harassment claim against their
• If an employer fails to comply with the preventative duty in respect of sexual harassment and an employee succeeds in a discrimination claim, the Employment Tribunal can increase compensation by up to 25%.

Practical guidance

• Terms of business with third parties should be reviewed and wording include regarding harassment of employees not being tolerated.
• Managers should receive training on third-party harassment, including how to identify, handle, and respond to complaints involving harassment by third parties, particularly clients.
• It is also important to recognise that these obligations will apply in both Corporate clients will owe similar duties to their own employees, and employers should be mindful of this when interacting with clients. Staff should be regularly reminded of the standards of conduct expected of them when dealing with third parties, including clients, contacts, suppliers, and other external stakeholders.

• The use of non-disclosure agreements (NDAs) – including confidentiality clauses within settlement agreements – has come under increasing scrutiny in recent years, particularly in cases involving allegations of sexual There are already restrictions on the use of confidentiality provisions / non-disclosure agreements:
  • Since 1 October 2025, NDAs have been unenforceable against victims of crime (or those who reasonably believe that they are a victim of crime) in relation to the disclosure of information about relevant criminal conduct to certain specified groups and for certain specified purposes (e.g. to victim support services for obtaining support in relation to the conduct; or to the victim’s close family for the purpose of obtaining support).
  • From 6 April 2026, disclosures regarding sexual harassment (i.e. that sexual harassment has occurred, is occurring or is likely to occur) are now expressly included in the list of wrongdoing in respect of which disclosures may fall within whistleblower protection under the Employment Rights Act 1996.

Anticipated changes under the ERA 2025

• The trend of narrowing the scope of potential NDAs is Under the ERA 2025, the applicable provisions (once they come into force) will render void any provision in an agreement between an employer and a worker in so far as it attempts to prevent the worker making:
  • an allegation or disclosure relating to discrimination or harassment (both as defined in the Equality Act 2010); or
  • an allegation/disclosure relating to the response of the employer to discrimination/harassment or to an allegation/disclosure made about such discrimination/harassment.
• This will be subject to “excepted agreements” provided they meet the conditions determined by the Secretary of State in secondary A government consultation took place and closed on 8 July 2026.
• The new restrictions are likely to mean that it will be much more difficult for confidentiality to be secured for either party, including in relation to actions taken by the employer in relation to concerns raised involving allegations of discrimination/harassment.

Practical guidance

• Settlement agreements will need to be amended to reflect the incoming Consider including carve-outs that specifically reference the relevant legislation.
• Careful consideration should be given before including a non-disclosure agreement in a settlement agreement. Employers should be clear about the information they are seeking to protect and assess whether the proposed restrictions are appropriate and compliant with the new rules, as well as any relevant regulatory requirements.

Anticipated changes under the ERA 2025

• The planned changes to dismissal and re-engagement (fire and rehire) practices were originally due to take effect in October 2026 but have been delayed until January 2027.
• The current position is that employers can dismiss and re-engage employees on new terms, subject to compliance with existing unfair dismissal legislation and the Statutory Code of Practice on Dismissal and Re-engagement (in force since July 2024), which requires meaningful consultation and treats dismissal as a last resort. Failure to comply with the Code can result in a compensation uplift of up to 25% in unfair dismissal claims.
• Under the new rules, it will be automatically unfair to dismiss an employee:
  • Where the sole or principal reason for dismissal is that the employee did not agree to a “restricted variation” of their employment contract (e.g. changes to pay, working hours, time off, shift patterns in certain circumstances, or variation clauses); or
  • To enable the employer to employ another person or re-engage the employee under a varied contract to carry out the same or substantially the same duties, where one or more of the differences between the two sets of terms is a “restricted variation”.
• A consultation on the scope of “restricted variation” was launched on 4 February 2026 (closed 1 April 2026). The Government sought views on:
  • Which shift changes should fall within the definition of “restricted variation” – the Government’s preference being to limit this to shifts changing from day to night (or vice versa) and from weekend to weekday working (or vice versa); and
  • Which expenses and benefits in kind should be excluded from the definition – the Government’s preference being to exclude all changes to expenses and payments or benefits in kind.
• These changes will fundamentally restrict the practice of fire and rehire and employers should review any planned restructuring or contract variation exercises in light of the incoming rules.

Practical guidance

• This is a difficult area to manage so it will be important to take advice which is tailored to the particular situation you are dealing with.
• Audit employment contracts, checking for flexibility clauses (and considering whether they are and/or will be effective once the new changes come into force) and identifying which terms remain contractual. It is worth noting that it is often not possible to rely on flexibility clauses for any change other than very minor
• Employers should consider whether they need to take any action in relation to staff terms and conditions to the extent they relate to a “restricted variation” before the stricter conditions come into force (i.e. lawfully make those variations now).
• Train senior managers to ensure they are aware of the changes coming in and that it will be much harder for them to rely on fire and re-hire as a way of varying employment terms in future.
• Strengthen “entire agreement” / “no oral variations” clauses to protect against arguments that non-contractual provisions have become contractual terms.

Nikola Southern advises on the full range of contentious and non-contentious employment law. She acts for employers, LLPs, senior executives (including directors), partners and consultants from a broad range of (often regulated) sectors including the legal, professional, financial, higher education, medical, retail, and media sectors.

Kirsty Churm is a Partner in the Employment Department. She advises both employers and senior employees on all aspects of employment law and employee relations issues, including contentious and non-contentious matters.