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Most business owners have heard of the Employment Rights Act 2025. According to a 2026 survey*, around 80% are aware of it; but only 4% describe themselves as experts. So with 20% unaware and 96% lacking expertise, it’s hardly surprising that few businesses are adequately prepared for what’s coming.
Chances are, you’re in that 96% – and that’s understandable. It received Royal Assent in December 2025. The headlines were dramatic, the detail was dense, and with everything else going on (think rising costs, commercial pressure, a recruitment market that still hasn’t fully settled, global conflict – the list goes on) it was easy to put it in the “deal with it later” pile.
But the problem is that later is getting closer – and in some cases, it’s right now.
The Act doesn’t come into force all at once. Many provisions roll in gradually over the next two years. But the most significant changes, the ones that will fundamentally alter the risk profile of every employment decision you make, are already on the calendar or in place already. If you’re currently hiring, some of them already apply to people you’re bringing on board today.
So what actually matters, and what do you need to do about it?
The three changes that will affect you most
1. The qualifying period for unfair dismissal is being cut from two years to six months
Under the current rules, employees need two years of continuous service before they can bring an unfair dismissal claim. That two-year window has historically given businesses room to manage underperformance, address poor fit, or exit someone from probation without significant legal exposure.
From 1 January 2027, that qualifying period drops to six months.
This means the “we have two years” mindset that many managers, and many businesses, have quietly relied on is no longer a viable strategy. A fair reason and a fair process will be needed much sooner. Earlier intervention, clearer objectives, and proper documentation will matter from the start of someone’s employment, not six months down the line.
Here’s what makes this urgent right now, not in January 2027: anyone you hire from 1 July 2026 onwards will gain unfair dismissal protection the moment the legislation takes effect.
The hiring decisions you’re making this summer are decisions you need to make with the new framework already in mind.
2. The compensation cap has been removed
This change arrived quietly and carries the most financial weight. Previously, unfair dismissal compensation was capped at the lower of £118,223 or 52 weeks’ gross pay. From 1 January 2027, that cap is gone entirely, bringing unfair dismissal in line with discrimination and whistleblowing claims, where compensation has always been uncapped.
For businesses that have historically factored a known worst-case figure into their risk calculations, this changes the calculus entirely. The cost of getting an exit wrong – or of allowing inconsistent management behaviour to go unchecked, or of letting a difficult situation drift – is now genuinely open-ended.
This matters more in the current climate than it might have done previously.
Ministry of Justice data shows employment tribunal single claims have already risen 57% year-on-year. Whistleblowing claims are up 104%. Disability discrimination claims up 80%.
The system is under serious strain — and with both the pool of eligible claimants widening and the compensation ceiling removed, the financial exposure attached to a successful claim has no upper limit.
3. Statutory sick pay and flexible working: the administration burden grows
The waiting days for statutory sick pay have been removed, meaning SSP now applies from day one of sickness absence. The lower earnings limit for SSP eligibility has also changed, bringing more of your workforce into scope. For businesses where absence hasn’t historically been a significant cost, this may feel manageable. For businesses with shift-based workforces or high volumes of lower-paid roles, it’s a cashflow reality that needs to be modelled now.
Meanwhile, flexible working is now a day-one right and the obligations on employers to respond meaningfully to requests have increased. Having a policy that says “we’ll consider it” is no longer sufficient. You need a process that’s consistent, documented, and defensible.
The thing most businesses are missing
The changes in the ERA are often more about behaviour than paperwork (although documentation is also important in order to evidence any claims or provide adequate defence)
The most common source of tribunal claims isn’t a missing policy or an outdated contract; it’s management behaviour that doesn’t match the policies you already have. Inconsistent decisions, off-the-cuff comments, informal messages that create an undocumented record of the real reason someone was let go. A probation process that was never actually designed to work.
With unfair dismissal compensation now uncapped and qualifying periods down to six months, the margin for error in everyday management decisions has shrunk significantly. The businesses that will navigate this well aren’t necessarily the ones with the most sophisticated HR systems or the most comprehensive policies. They’re the ones where leaders understand what’s expected of them and model the right behaviours, where difficult conversations happen early and are handled properly, and where the people data – exit interviews, engagement surveys, 1-to-1s – is actually used.
That early warning system works best when it’s built in advance, not bolted on after a problem emerges.
What good looks like from here
If you’re a business with between 30 and 250 people (or more), the ERA 2025 probably isn’t something you can manage by adding it to someone’s existing to-do list. The combination of new legal obligations, shifting risk profile, and the need for consistent management practice across your teams requires someone who understands both the commercial context and the employment law landscape – and who can translate that into practical action at every level of your organisation. As our recent webinar [link to recording] highlighted, this is not simply an HR or legal problem – it’s a whole-business issue which requires expert handling, long-term commitment, and behavioural change.
The businesses that come out ahead from the ERA 2025 won’t be the ones who waited to see what happened; they’ll be the ones who used it as a catalyst to do what they should have been doing anyway.
Not sure where you stand? Download the Business Readiness Assessment here for a quick sense-check of where you’re at.
Missed the webinar? You can watch it here.
*Statistics were sourced from a 2026 survey by employment law firm Freeths as reported by Personnel Today
A note on sourcing: Employment tribunal statistics in this article are drawn from Ministry of Justice Tribunal Statistics Quarterly (Q2 and Q3 2025/26). ERA 2025 provisions reflect the Act as published following Royal Assent in December 2025. Implementation dates are subject to secondary legislation and government confirmation — we recommend checking current guidance or speaking to a specialist for the most up-to-date timeline.