HR briefing - January 2026

Welcome to this month's briefing for HR teams and in-house employment counsel – bringing you this month’s employment law highlights in an easy-to-read package.

Employment Rights Act 2025

We’re going to focus this month on the new Employment Rights Act, passed at the end of last year. We have already flagged some of the most significant changes introduced by the Act, but it makes sense to set out an overview of the headlines (the Act runs to 160 sections and 12 schedules) and the anticipated start dates. Much of the legislation is extremely complex, and much of the detail will come down the line in further regulations. The full effect of the Act in some areas is therefore hard to judge with any degree of certainty. In other areas however, especially unfair dismissal, the impact is obvious and dramatic.

Unfair dismissal

By far the biggest change is the scrapping of the compensation cap that has been part of the unfair dismissal regime since its invention more than 50 years ago. The cap will cease to exist for dismissals from (likely) 1 January 2027 onwards. At the same time, the qualifying service period will be cut from two years to six months, significantly shortening the period in which employers can be (a little) more relaxed about the termination procedures they adopt. The existence of the compensation cap has always been a key factor in the high volume of claims in which either discrimination or whistleblowing is alleged, as those types of claims carry potentially uncapped damages. That as sometimes seen claimants try to characterise their treatment through a discrimination or whistleblowing lens, even where that is far-fetched, often to try to leverage a higher settlement. Whether or not settlement is reached, litigating discrimination and whistleblowing claims is usually an expensive business, so it is to be hoped that the removal of the statutory incentive to bring those types of claim will reduce costs to some degree.

Fire and rehire

It is fair to say that dismissing employees and then offering to re-engage them on materially different terms has a bad rep. The Government at one point indicated a desire to ban the practice outright, but the Act does not go quite that far. Instead, from October 2026 a dismissal will be automatically unfair where the aim is to vary contractual terms. Not every contractual term is caught but, in the vast majority of cases, that will not affect the restrictions facing employers. The only exception is where the employer is in severe financial difficulties and could not reasonably avoid trying to vary terms. That is likely to be a very challenging exception to meet in practice.

The antipathy towards fire and rehire also extends to a new provision designed to avoid employers dismissing staff and replacing them with contractors or consultants. The practical implications of this new provision, particularly in outsourcing scenarios, remains to be seen.

Collective redundancies

There are two changes to flag.

• The first is that the Government will have the power to introduce a new threshold for collective consultation, where a set number of redundancies are proposed across different establishments.That will sit alongside the current obligation to consult where 20 or more redundancies are proposed within a 90-day period. There is currently no indication of were the new threshold will be set.
• The second change is to the sanction for failure to consult properly. The maximum award at present is 90 days’ pay per employee. That will double to 180 days’ pay, effective April 2026.

Preventative duty

Readers will be familiar with the duty to take reasonable steps to prevent sexual harassment at work, introduced in October 2024. From October 2026 the duty will be subtly changed to require “all” reasonable steps to be taken. The Government will also have the power to prescribe what steps should count so, as is often the case, much will depend on how that power is used.

Flexible working

The existing system, as readers will know, allows an employee can make a flexible working request which the employer can only reject where it considers one of the statutory reasons applies. That fundamental structure is being retained, but a new requirement expected in 2027 will impose a reasonableness test on the employer’s considerations. That will potentially increase the likelihood of employees litigating any refusal.

SSP

At the moment, SSP is payable from the fourth day of sickness absence (after a waiting period of three days). That is being altered from April 2026 so that it will become payable from the first day of absence.

Zero-hours contracts

The basic concept behind zero-hours contracts (ZHCs) has come under increasing challenge, with campaigners alleging they are abusive to low-paid workers, extracting work in a one-sided bargain in which workers have no job security. The Government (like its predecessors) appears broadly to share those concerns, and so the Act introduces a highly complex new scheme under which, in essence:

• employers will have a proactive duty to offer workers on ZHCs (and workers with a low set number of hours) new contracts with guaranteed hours reflecting their average commitment over a reference period;
• the precise terms of the new guaranteed hours contracts will be highly constrained by legislation; and
• workers on ZHCs will also benefit from a new entitlement to receive reasonable notice of shifts, and compensation where a shift is cancelled or moved.

Trade unions and industrial action

As very few of our clients are unionised, this note does not set out the new measures related to trade unions and industrial action in any detail. Clients requiring fuller information should speak to their usual Macfarlanes contact. At a headline level, the new Act:

• abolishes the controversial minimum service levels rules, which allowed the Government to require minimum levels to be maintained in some public services;
• requires employers to advise staff of their right to join a union;
• allows unions greater access to premises to consult with their members;
• reduces the thresholds for trade union recognition and for industrial action; and
• enhances the protection available to workers taking industrial action.

We will be reaching out to clients over the coming months to help them prepare for the new employment landscape. If you have particular questions, or would like to discuss what training we might be able to offer your teams, please get in touch. The Government has also published a series of factsheets to help businesses prepare.