In a significant reversal of the 2024 Employment Tribunal judgement, the Employment Appeal Tribunal (EAT) has held in Next Retail Limited and another v Thandi and others that recruitment and retention pressures can justify a pay differential that disproportionally impacts workers of one sex as compared to another. The decision, which will be a major set-back for claimants in other ongoing equal pay litigation, has wider implications for employers setting pay in light of challenging market conditions or facing equal pay claims involving comparisons between different roles.
Background
The long-running litigation was brought by thousands of predominantly female retail sales consultants. The claimants were paid less than warehouse operatives, a workforce with a higher proportion of men, whose work an Employment Tribunal found to be of equal value. To justify the pay differential Next relied on the “material factor” defence under section 69 of the Equality Act 2010, arguing that it had to pay the higher warehouse rate to recruit and retain sufficient staff to maintain the warehouse service.
The Employment Tribunal accepted that market conditions required higher warehouse pay, but found that the driver for the pay differential disproportionately impacted women. On that basis, Next’s defence depended on it being able to establish that its aims in paying different rates were legitimate and the measure proportionate to those aims. The Tribunal considered that Next’s failure to raise retail consultants’ pay was based on cost alone because the business could have afforded to match the warehouse rate – it being established that relying on cost factors alone is not legitimate. Next appealed the point to the EAT.
The decision
The EAT upheld Next’s appeal on basic pay.
The EAT held that the relevant question was why differential had arisen in the first place, not why it had not been corrected – in other words, the question was why warehouse operatives were paid more, not why the retail consultants had not been given the same uplift. On the Tribunal’s own findings, the higher warehouse rate reflected genuine market pressure and the need to recruit and retain staff; it was therefore not a “costs only” aim.
The EAT also held that the differential was proportionate. Without paying the market rate, Next risked being unable to operate its warehouses effectively, while the same recruitment and retention pressure did not apply in its stores. In short, Next paid what it needed to pay for sound business reasons. However, the ruling was not a complete victory: findings concerning some other terms, including night and overtime premiums and paid rest breaks, were not overturned.
The claimants have indicated that they intend to appeal the basic pay decision, so we may see further movement on this important point.
Practical implications for employers
The decision does not give employers a blank cheque to rely on “the market”, but it provides some comfort (for now) to employers setting pay in the face of strong and diverging market pressures.
Employers should continue to be alive to equal pay risks and scrutinise pay structures for unexplained disparities, particularly where different roles show gender-biases. Where pay differentials for work that may be considered of equal value are identified, these must still be explained by a genuine material factor, and any indirectly discriminatory effect must be objectively justified. Employers relying on market pressures, including recruitment and retention issues, should keep contemporaneous evidence of labour-market conditions, vacancies, turnover and the operational consequences of paying less. They should also assess each element of remuneration separately: a justification that succeeds for basic pay may not justify premiums, breaks or bonuses.
If you would like to discuss the implications of the decision for your organisation, please contact a member of our Employment team.
The ruling has wider significance because the question of whether “market forces” can justify paying different rates for work of equal value is central to other long-running claims against some of the UK’s biggest retailers, including supermarkets Tesco, Asda, Morrisons and J Sainsbury.
The government has confirmed its intention to bring the new trade union access rights into effect on 30 October 2026 and we now have finalised details on how the new rights will initially operate. This article provides a quick primer on the new access right, what it may mean for your business and what you can (or should) be doing to prepare.
What is the new access right?
Under the new access right, any trade union with a certificate of independence will be able to request access to any workplace (subject to limited exceptions, see below) for the purpose of meeting, representing, recruiting or organising workers or facilitating collective bargaining. Unions cannot use these access rights to organise industrial action.
Access can be physical, with trade unions attending workplaces to meet with workers in person, and/or digital. Digital access could, for example, involve an agreement by the employer to disseminate trade union communications by email, or the employer hosting a virtual meeting on the employer’s communication platform.
Can unions request access to any workplace?
The access right will apply to most workplaces, and will apply regardless of whether the employer recognises the trade union, or whether the union has members among the workforce. It may therefore affect employers outside traditionally unionised environments.
Employers with fewer than 21 workers will be exempt from statutory access procedures, so access for very small employers would be voluntary. However, associated employers will be taken into account for these purposes, so only very small businesses will be exempt. There are also no access rights in relation to private dwellings, and other narrow exemptions (for example where access would pose national security concerns) apply.
When will this be coming into effect?
The new access rights are expected to take effect on 30 October 2026.
What happens when a trade union makes an access request?
A union may approach an employer informally to discuss access arrangements. These discussions, and any resulting access agreement, will sit outside the statutory framework.
If the trade union makes a statutory access request, the statutory process will be engaged and any resulting access agreement will be a “statutory access agreement”. An access request must be in writing and must include certain prescribed minimum information, including a statement that it is made under the relevant legislation (section 70ZB of TULRCA 1992), so it will be recognisable to employers. The Code of Practice appends a standardised form – while unions are not required to use this, it is likely that most requests will be in this form.
Employers will have 15 working days to respond to an access request. Responses must provide prescribed information, and there is a standardised template appended to the Code of Practice to support employer with this. Engagement within this timeframe will trigger a 25 working day negotiation period which can be extended by agreement with the trade union.
Any access agreement reached through the statutory process will need to be notified to the CAC.
If the parties fail to reach agreement during a negotiation period, or if the employer does not respond within the 15 working day response period, the trade union can apply to the CAC.
The CAC will be guided by a presumption towards access, but may refuse access where the statutory refusal grounds or other relevant factors apply. It may refuse access, for example, where there is a statutory access agreement in place with another trade union or there is a live request or recognition process.
What might an access agreement look like?
The government has indicated ‘model’ access terms which would ordinarily be held to be reasonable by the CAC, though of course it is open to the parties to agree other arrangements. Model terms provide for up to weekly access, though email communications would not count toward this. Unions would, as standard, be required to give at least two working days’ notice for access (more for a first visit).
The Code also indicates that facilities offered to the union should be based around the employer’s own practice, that access arrangements should not be arranged so as to materially disrupt the employer’s operations, and that the privacy of a union’s meeting with workers should be ensured.
What happens if you fail to comply?
Failure to comply with an access agreement reached on a purely voluntary basis, outside the statutory process, does not carry a sanction – though, practically, if voluntary agreements are not honoured, that may trigger a statutory request.
Failure to comply with a statutory access agreement can ultimately lead to the CAC imposing financial penalties, but only after the CAC has first upheld a complaint or made an order requiring compliance. If there is a further breach within 12 months, or a breach of a CAC order, the CAC may impose a penalty of up to £75,000 for a first penalty order, up to £150,000 for a second penalty order under the same access agreement, and up to £500,000 for third and subsequent penalty orders. In multi-site agreements, breaches may be treated cumulatively, so penalties can escalate quickly. Maximum fines are deliberately set high to act as a deterrent, though the CAC will in practice determine the fine taking the full circumstances into account.
What are your key takeaways?
There are two key takeaways for employers who currently operate outside unionised environments:
Access requests will be difficult to resist in most circumstances. For the most part, where you are approached by a trade union, the best way forward is therefore to look to negotiate mutually acceptable access arrangements on a voluntary basis (before the statutory process is initiated), rather than agreeing access arrangements through the statutory process or having a statutory access agreement imposed by the CAC.
Strict timelines apply in relation to statutory access requests (as for recognition processes), and failure to meet these timelines may result in an application to the CAC and the imposition of a statutory access agreement. If you receive a written access request or are otherwise approached by a trade union, you should take advice on your next steps immediately.
What should you be doing now?
The practical impact of the changes remains to be seen. Trade unions do not have unlimited resources to devote to holding recruitment or engagement meetings in workplaces, so we are unlikely to see a wave of requests outside traditionally unionised sectors on day 1. That being said, it is relatively easy for trade unions to scale up digital communications across multiple workplaces within a sector, so we may well see digital access requests in spaces where we have not had union engagement previously.
There are a few steps you can sensibly do to prepare if you think an access request is likely, either because you recognise a union, or because you are in a heavily unionised sector or have had interest in the past. If you have a relationship with a union, you may wish to engage proactively to agree access arrangements outside the statutory framework. Alternatively, it would be sensible at a minimum to review the Code of Practice and give thought to what a sensible access arrangement might look like, and what the key concerns for the business would be around access. In that way, you will be ready to respond constructively to a union approach. You may also want to look more broadly at your workforce engagement: where unions have regular access, it will be more important than ever to maintain good lines of communication.
Otherwise, as outlined above, the key takeaway for all businesses is that, if you are approached by a trade union, it is very important to engage constructively and to take advice immediately. In that way, you may be able to agree arrangements before a statutory request is triggered. This is nothing new, but it is worth re-emphasising the point to managers and ensuring that internal escalation routes are clearly communicated.
The Supreme Court decision in Bluecrest: attention all LLPs
The Supreme Court recently handed down its decision in HMRC v BlueCrest Capital Management (UK) LLP. The decision is the only published decision on the substance of the salaried member rules, the tax rules that determine whether an LLP member is taxed as a self-employed partner or as an employee. The case gives important guidance on the operation of the rules and is highly significant for UK professional partnerships – particularly, in our experience, for private equity firms operating through LLP structures, as well as professional partnerships in the legal and accounting spaces.
This article gives a brief overview of the key points and the practical implications. Professional partnerships operating through LLPs should review their governance arrangements and ensure that the tax treatment of their members remains correct in light of this decision.
The salaried member rules
The presumption is that individual members of a UK LLP will normally taxed as self-employed – UNLESS three conditions are met. In other words, an individual LLP member will be taxed as self-employed, provided that they ‘fail’ one of the following conditions:
Remuneration. This condition looks at the extent to which an individual’s remuneration is fixed (on the basis that fixed remuneration, very broadly speaking, is an indicator of employment for tax purposes). The condition is met if it is reasonable to expect that at least 80% of the member’s remuneration over a specific forward-looking period will be fixed or otherwise not genuinely linked to the LLP’s overall profits or losses.
Influence. This condition looks at the level of influence the individual has over the LLP, with a lack of influence effectively treated as an employment marker for tax purposes. The condition is met if “the mutual rights and duties of the members of the [LLP], and of the [LLP] and its members, do not give [the individual] significant influence over the affairs of the [LLP]”.
Capital at risk. The final condition looks at an individual’s capital contribution to the LLP in proportion to their remuneration. Broadly, the condition is failed (i.e. an individual will be taxed as a self-employed partner) where the capital contribution amounts to at least 25% of any ‘disguised salary’ in any given year. Disguised salary, very broadly, is remuneration that is not variable by reference to the profits and losses of the LLP.
The Bluecrest case concerned the application of Conditions A and B to portfolio managers – it is the Supreme Court’s decision on Condition B that is of particular relevance to LLPs and their members.
The decision
On Condition A, the appeal concerned the treatment of portfolio managers’ discretionary allocations. These were calculated by reference to profits generated by their individual portfolios or desks. A cap based on the LLP’s total profits did not turn those allocations into a share of overall partnership profits: the remuneration remained analogous to an individual performance bonus and was “disguised salary”.
On Condition B, the Supreme Court confirmed that only influence derived from legally enforceable rights and duties was relevant to applying the condition – in other words, to ‘fail’ the condition and be taxed as a self-employed partner, and individual had to have an enforceable legal right to influence the affairs of the LLP. It was not sufficient (as was the case here) that an individual had de facto influence, derived for example from the revenue generated for the LLP or from personal relationships. Those rights will usually be found in the LLP agreement, but may also arise through delegated authority or a formal appointment traceable back to it. The Supreme Court further clarified that to fail the Condition, the individual must have a voice in important decisions affecting the LLP’s affairs as a whole; that influence is likely to be managerial or strategic and must have practical and commercial substance. Day-to-day operational authority over one part of the business, however important or profitable, will generally be insufficient.
What this means for LLPs and their members
LLPs should review both their constitutional documents and how governance operates in practice. Where tax treatment depends on a member failing Condition B, the LLP agreement and any valid delegations should confer meaningful rights to participate in decisions affecting the firm as a whole; status, authority and profit-sharing provisions should tell a coherent story. Firms should also test remuneration arrangements against Condition A: rewards linked mainly to individual or team performance will not become partnership profit share merely because overall profits impose an ultimate cap. The analysis is member-specific and prospective, so LLPs should revisit it on admission, promotion, changes in role, amendments to governance or remuneration, and other material changes. Members should understand the rights they actually hold—not simply the influence they exercise—and firms should ensure that their tax and payroll treatment follows that legal reality.
If you’d like to learn more about the case, please do also listen to our tax specialist colleagues Elizabeth Small and Heather Corben discuss the case in Talking Tax: When is a partner not a partner?
Victimisation protection: Wider than you might think
Victimisation under the Equality Act 2010 arises in an employment context where an employee does a protected act (or the employers believes they have done or may do so), and their employer subjects them to a detriment for that reason. Most HR and employment law practitioners will typically encounter victimisation allegations where the protected act consists of the employee alleging that their employer has breached the Equality Act or bringing proceedings under the Act – i.e. generally in the context of a grievance or Employment Tribunal proceedings in relation to a discrimination or harassment allegation. Two recent EAT decisions serve as a useful reminder that the statutory concept of a ‘protected act’ is broader, and captures an employee “doing any other thing for the purposes of or in connection with [the Equality Act]”. We therefore need to be alert to victimisation risks in a wider set of circumstances.
In Shah v Home Office, the claimant applied for a role under the Home Office’s Guaranteed Interview Scheme, which entitled disabled applicants who met the minimum criteria to a guaranteed interview. The employer believed that he had dishonestly claimed to be disabled in order to access the scheme and instigated a disciplinary investigation. The Tribunal rejected his victimisation claim, holding that ticking a box on the application form to confirm the candidate was disabled and to opt into the scheme was not a protected act. The EAT disagreed. The question was not whether he had complained about discrimination, but whether what he had done was “for the purposes of or in connection with” the Act. Under the circumstances, the EAT held that the Tribunal had failed to consider whether the claimant’s application was connected with the Equality Act’s positive action provisions.
Leighton v Renfrewshire Council makes a similar point, albeit on more unusual facts. The claimant worked in an autism support service and, during the pandemic, helped a disabled tenant move out of temporary accommodation while repairs were carried out. This was outside his normal duties and required line manager approval. He argued that providing this support was a protected act because it was done to prevent disability discrimination and to support the council’s compliance with its public sector equality duties. The EAT held that the Tribunal had not properly engaged with that argument. Although the claim ultimately failed on causation, the judgment underlines that practical steps taken to support compliance with the Equality Act may, at least arguably, fall within the protected act definition. The facts are obviously unusual, but the case illustrates how flexible the catch-all category describing a protected act can be, and the range of circumstances in which we need to be alive to the victimisation provisions.
What does this mean in practice? Employers should be cautious about taking a narrow view of victimisation risk. A protected act is not limited to an employee saying “you have discriminated against me” or issuing Tribunal proceedings. It may include accessing a positive action scheme, asserting eligibility for an adjustment or benefit linked to a protected characteristic, or taking practical steps to help an employer meet its equality obligations. That does not mean that every act involving a protected characteristic will qualify, or that any later detriment will automatically be unlawful: the employee must still show the required causal link. But where the conduct in question is connected with Equality Act rights, positive action, reasonable adjustments or equality duties, employers should pause before treating it as ordinary misconduct or viewing it in isolation from the equality context.
Holiday pay is notoriously complicated and this is an area rife with accidental non-compliance by the most well-intentioned of employers. Up until now, it has been up to individual workers to enforce holiday pay claims in the Employment Tribunal. While this has resulted in isolated high-profile cases, the complexities around holiday pay mean that non-compliance around more technical points often goes unchallenged. This is likely to change.
The Employment Rights Act 2025 (the Act) will add a state enforcement mechanism alongside the individual claims route, with holiday pay enforcement to come within the remit of the new Fair Work Agency (FWA) from 2027. The involvement of a specialist enforcement body may increase the practical risk of holiday pay arrangements being challenged and, where there is a challenge, an employer’s financial exposure will be significantly increased, with liabilities extending to underpayments in relation to whole classes of workers (rather than individual claimants), and the prospect of additional civil penalties. The move toward state enforcement is therefore a significant one, and employers with any complexity in their pay arrangements should treat this is as material risk area, monitor developments with care and take steps to prepare.
The consultation
The Act sets out a default framework for holiday pay enforcement, but provides flexibility for regulations to support divergence from this default approach where appropriate. The government has now published a consultation setting out the proposed enforcement approach in relation to holiday pay. In headline terms, businesses may take some comfort that the approach promises (at least initially) to be more supportive and less punitive than the enforcement of National Minimum Wage on which it is modelled. However, the risks attached to non-compliance will nonetheless increase considerably.
The FWA enforcement mechanism in outline
The FWA holiday pay enforcement mechanism is expected to mirror the existing enforcement of National Minimum Wage. Where the FWA investigates an employer and finds that holiday pay has been underpaid, it may order payment of arrears to affected workers. Additionally, it may impose a civil penalty of 200% of the arrears (subject to a minimum of £100 and a maximum of £20,000 per worker). Where all arrears and half of the civil penalty (so 100% of arrears) are paid within 14 days, the civil penalty is treated as discharged. The FWA can investigate underpayments going back up to six years, though – importantly – it will not be able to address underpayments before 18 December 2025 (the date the Act received Royal Assent).
The government is also consulting on expanding the ‘naming and shaming’ scheme, familiar from the National Minimum Wage context, to cover holiday pay non-compliance. However, this would be a measure the government would look to introduce in the future and we do not expect the naming scheme to operate from the outset.
Proposed enforcement approach
Acknowledging the complexities around holiday pay, the indication is that the FWA will work with businesses to support and encourage compliance before moving to enforcement action. In most cases, an employer could therefore expect to receive a ‘nudge’ from the FWA in relation to any concerns about holiday pay compliance. Provided an employer responds quickly, corrects any non-compliance and voluntarily pays out any arrears owed, the organisation would not ordinarily face a civil penalty in this scenario.
Implications for your business
The proposed enforcement approach largely follows the model we expected to see. There are two elements of the proposals from which employers can take some comfort: first, the stated intention to take a supportive approach and give employers the opportunity to rectify errors and pay out arrears to avoid a civil penalty, and secondly (and perhaps more importantly) the FWA’s inability to apply a look-back beyond 18 December 2025. Together, these measures will limit exposure in the early stages of enforcement action.
However, it would be a mistake to deprioritise the issue as a result. The further we move away from 18 December 2025, the higher a potential arrears bill becomes and, while the FWA’s proposed ‘nudge’ approach will allow businesses to avoid civil penalties, the requirement to voluntarily pay out all arrears owed means that businesses may still face significant financial liabilities.
What you can do to prepare
Holiday pay can be very complex and difficult to manage correctly in practice where a business engages workers on irregular hours arrangements, or where pay is made up of multiple variable components (and not simply a regular basic salary). If there is any complexity in your pay or working arrangements, we strongly recommend that you take the opportunity now, before the FWA’s enforcement powers commence, to audit your holiday pay arrangements. If that audit reveals any issues, it would be prudent to take remedial action now, though a note of caution is appropriate here: it is not unusual for issues to crystallise at the point at which an employer tries to address them. Any measures taken to address non-compliance in this area, together with the associated employee communications, should be handled thoughtfully to avoid triggering disputes or causing unnecessary disruption to your business.
How we can help
We advise businesses of all sizes and across a range of sectors on complex holiday pay arrangements. We can give you a clear risk assessment and, if necessary, support you through any remedial steps. Our practical, commercial approach helps clients manage risk in this area while minimising business disruption.
Acas consults on a revised Code of Practice: The first step in reforming employment disputes?
Acas has launched a consultation on a substantially revised draft Code of Practice on disciplinary and grievance procedures.
For decades, the Acas Code of Practice on disciplinary and grievance procedures has shaped how workplace disputes are managed. As the title suggests, it sets out the procedures employers and their staff should follow when handling disciplinary matters and grievances, with the aim of ensuring that issues are dealt with fairly and consistently. A failure to follow the Acas Code does not give rise to a standalone claim, but may affect the fairness of a dismissal and result in an uplift (or reduction) of up to 25% on compensation awarded by an Employment Tribunal.
The revised draft introduces several substantial changes, and consultation on the revised Code is now open. The most significant is a new, strong emphasis on informal resolution. The current Code deals only with formal disciplinary and grievance procedures. The revised draft includes new sections on informal resolution and mediation, places clear obligations on both employers and staff to look to resolve issues early, and requires documents commencing formal procedures to record the steps taken towards informal resolution. It also encourages employers to provide training for managers and staff on effective early dispute resolution. If the changes are implemented as proposed, Employment Tribunals would, for the first time, have the power to adjust compensation where there has been no genuine, constructive attempt to resolve a workplace dispute.
The proposals are particularly significant in the context of wider calls to reform the legal framework for employment disputes. Against the backdrop of worsening Tribunal backlogs, the Employment Lawyers’ Association recently brought forward a range of reform proposals, which included revising the Acas Code to shift the focus towards informal resolution, as well as wider reforms to early conciliation and employment litigation. The revised Code may therefore be only the first step in a fundamental overhaul of the employment disputes landscape.
Other proposed revisions to the Code include new sections on reasonable adjustments and suspension, a shift towards a less adversarial tone and the replacement of references to ‘employees’ with ‘workers’. Interestingly, the consultation also invites proposals on whether, and if so how, the Code should address the use of generative AI in employment disputes. Generative AI, particularly in the preparation of grievances, presents a growing challenge for managers and HR professionals, with the 60-page grievance becoming an increasingly familiar phenomenon. Clear, practical parameters for its use in this context would therefore be a welcome addition to the Code.
The consultation closes on 23 September 2026. We will provide further guidance about the practical implications once the revised Code is finalised.
Does the change in government spell change for employment law reforms?
With Andy Burnham MP now firmly installed in Number 10 and his cabinet shake-up complete, we are still awaiting any official announcement about the future of ongoing employment law reforms.
However, all signs point toward continuity. The cabinet shake-up has seen the return of Angela Rayner and Jonathan Reynolds, the key architects of the Employment Rights Act 2025, to cabinet, with Jonathan Reynolds returning to his role of Secretary of State for the newly expanded Department for Business, Innovation, Science and Trade (formerly the Department for Business and Trade, or DBT). We have also seen the promotion of Kate Dearden, who oversaw the employment rights brief within DBT under the Starmer government, to Minister of State. We would therefore be surprised to see any significant departure from existing proposals.
It is possible that we may see delays in the implementation of some of the more complex reforms slated for 2027, as government priorities are re-evaluated and the disruption of yet another departmental merger (of DSIT and DBT) settles. However, that is speculative and employers should, for now, proceed with preparations based on currently anticipated timeframes.
Employment Rights Act implementation: More clarity on timing, less clarity on tipping
The government has published an update on the implementation timeline for the reforms phasing in under the Employment Rights Act 2025. The changes clarify the timing of reforms scheduled for October 2026 implementation, which will now be coming into effect as follows:
1 October 2026: time limits for bringing claims in the Employment Tribunal to extend from three months to six months. You can read more about these changes here.
30 October 2026:
Changes affecting trade union laws, including the duty to inform workers of their trade union rights and new trade union access rights. You can read more about the new access right here – final detail of the information duty remains to be confirmed.
Changes to the legal framework relating to harassment, including the enhanced duty to take “all reasonable steps” to prevent sexual harassment (read more here) and the reintroduction of third-party harassment (read more here)
Changes to the law on tips allocation, which will introduce new requirements to consult with staff on tips allocation policies, were previously expected to come into force in October. However, that timing has slipped, with changes now expected to take effect “by the end of 2026”. At the same time, a draft Code of Practice on fair distribution of tips, updated to reflect the new consultation obligations, was withdrawn following strong trade union pushback. While the core terms of the consultation duty are set out in the Act and are therefore unlikely to change, the change in timing may signal a shift in the finer detail of the new tipping rules. If your business is likely to be affected, we suggest maintaining a watching brief for now. We will update you as more information becomes available.
When lines are crossed: Are you prepared for third-party harassment liability?
The Employment Rights Act reintroduces third-party harassment liability for employers, making your business potentially liable where staff are on the receiving end of an angry tirade from a frustrated client, or an inappropriate comment from a customer. This is a significant new risk – particularly for businesses in “high contact” industries, such as retail, hospitality, healthcare or the service sector.
This article takes you through the essentials – what does the new liability regime look like, what are the risks, and what can you do to prepare your organisation?
What is the current position?
Staff are protected from harassment in the workplace: if a worker is harassed by a colleague or someone acting on their employer’s behalf, they can bring a claim against both the harasser and their employer.
Harassment in this context is a technical term referring, broadly, to acts or comments related to a protected characteristic (such as age, race, religion or belief or sex) with the purpose or effect of violating a person’s dignity or creating an offensive environment for them. It is a wide concept, and conduct may amount to harassment even if no offence is intended.
Example: Dave regularly makes sexist jokes to his colleague Diana, suggesting that women are less competent than men. Dave regards this as “office banter” and means no harm – however, Diana is offended and stressed by the comments. She may have a claim for harassment related to sex based on the effect the comments are having on her.
Importantly, conduct may amount to harassment even where it is a one-off, and even where it is not directed at a worker and/or the worker does not share the protected characteristic to which the conduct relates.
Example: Dave overhears Diana making a homophobic joke to a colleague in the staff kitchen – both laugh. Dave, who is straight, feels deeply offended. Dave may have a claim for harassment relating to the protected characteristic of sexual orientation.
An employer will have a defence against a harassment claim where it can show it took all reasonable steps to prevent the harassment from occurring – if the employer shows it has done so, the individual committing the act of harassment will face liability alone.
What is changing?
The circumstances in which employers can be held liable for the harassment of their employees are expanding. Currently, an employer is only liable if their staff are harassed by a colleague or somebody acting on the employer’s behalf. In future, employers will be liable where their staff are harassed by any third party in the course of their employment. A third party is anyone who is not the employer’s employee, including clients, customers and suppliers.
The employer will not be liable if they have taken all reasonable steps to prevent the third-party harassment from occurring.
When are the changes coming into effect?
The changes are expected to come into force in October 2026.
What does that mean for employers?
This is a significant new source of risk for all employers, but particularly if the nature of your business means that workers will have regular contact with clients or customers. Employers in hospitality and accommodation, retail, healthcare and professional services, for example, can expect to be particularly impacted.
The most tangible risk is of Employment Tribunal claims, creating exposure to compensation awards, legal costs (unrecoverable in the Employment Tribunal) and operational disruption. Besides the legal risk, incidents of third-party harassment can heavily impact staff morale and retention if mishandled, and may give rise to reputational risk depending on the circumstances.
What should you be doing to prepare?
On the principle that prevention is better than cure (particularly where it comes with a statutory defence), you should take action to put protective measures in place. You will of course have much less influence over the behaviour of third parties than the behaviour of your own workforce – however, there will be steps you can meaningfully take to protect staff, and the limitations of the exercise do not provide an excuse for inaction.
You should begin with a risk assessment and consider where staff touchpoints with third parties are, review any issues raised in the past and survey or consult with staff on where they see the potential for conflict or inappropriate conduct. Based on that risk assessment, you can then consider what measures to introduce to address risks. What will be appropriate and effective will depend on your business and the risks you have identified, so there is no one-size-fits-all. However, areas to think about include the following:
Engaging with third parties to mitigate risk. What this will look like will depend on the nature of your business and your relationship, but you may want to look at codes of conduct and policies for third parties or, for particularly close working relationships, consider rolling out joint anti-harassment measures.
Contractual protections. Depending on the nature of your client, customer and supplier relationships, you may wish to include provisions in contracts to manage how incidents of cross-workforce harassment will be addressed and how liability will be apportioned. There may be commercial sensitivities here, so it is important to handle these discussions thoughtfully.
Signage and communications. Depending on the nature of your business, you may wish to introduce signage or other, subtler statements indicating a zero-tolerance stance in relation to harassment. Think about what works for you.
Bystander training. The reality is that you have limited control over third-party behaviour. If you cannot prevent an incident, you may still be able to avoid a claim (and a wider impact on the workforce) if managers witnessing the incident intervene sensitively in the moment and offer the proper support.
Reporting mechanisms and incident management. Where issues do arise and need to be dealt with more formally, you need to ensure that you have the mechanisms in place to manage them. There should be clear reporting channels and an effective process to ensure that concerns are addressed swiftly.
These are examples of areas to consider. Where your risks are and how best you can manage them will depend very much on your business, so it is important to give real thought to what is going to work for your organisation. It is important to emphasise that this cannot and should not be treated as a one-off compliance exercise – to be effective, preventative measures will need to be kept under review and embedded and reinforced throughout your organisation and in all your relationships on an ongoing basis.
How can we help?
We advise businesses of all sizes across a range of sectors on managing risks arising from these changes. Our practical, commercially focused approach helps organisations put robust preventative frameworks in place before issues arise.
Get in touch to discuss how we can help protect your business and stay ahead of the changes.
The Employment Rights Act 2025 will change the way businesses engage casual labour – directly or via an agency. The changes are expected in 2027, and a lot of the detail is still to be confirmed. The government has now published a consultation which gives us a closer look at how the regime may operate in practice.
There are more questions than answers, but some shape is starting to emerge. This article looks at what the consultation does – and doesn’t – tell us. If your business relies heavily on casual workers, now is the time to start assessing the potential impact of these reforms and considering how you will prepare as further details emerge.
Guaranteed hours
The Act will require employers to offer guaranteed hours contracts to workers on zero- or defined “low-hours” contracts (including agency workers), to reflect hours actually worked over a reference period. Where an offer is made to an agency worker, they will then become directly engaged by the hirer.
So what do we now know about how these rules will work?
Who will be eligible?
Workers will be eligible if they work under a zero-hours contract or have contractually guaranteed hours below a certain threshold. The consultation looks at what that threshold should be, indicating that the government is looking at a range of 8-20 hours per week. For agency workers, it is not yet clear whether the threshold will apply overall (i.e. looking at the hours offered by the agency) or will look at the hours guaranteed by each individual end-user.
What will the reference period be?
The consultation distinguishes between an “initial reference period” – proposed to be set at 12 weeks – and subsequent reference periods which might be longer (26 or 52 weeks). The government is also consulting on whether reference periods should be consecutive. A longer reference period may go some way toward addressing concerns about workability (including for seasonal businesses), though the devil will be in the detail.
What triggers the requirement to make an offer?
An offer must be made where the eligible worker “regularly” works more than their contractually guaranteed hours during the reference period. What “regular” means remains to be seen, with a proposal that the worker would need to work for/during a minimum proportion of the weeks within the reference period (e.g. 8 weeks out of the 12-week initial reference period, scaling up for longer reference periods). The government is also considering allowing some small margin above the guaranteed hours figure before an offer needs to be made.
Any more detail on what the offer would need to consist of?
The consultation considers whether the guaranteed hours offered should be based on a mean or median average of the hours worked. Whether employers should be allowed a small margin of adjustment (e.g. to align offers with standard shift patterns) and what flexibility employers should have to spread hours over a week, month or year. A more flexible arrangement will obviously be welcome from employers’ point of view, helping to make the new requirements more workable in practice.
5. How does the regime deal with short-term requirements?
The Act makes provision for ‘limited term’ contracts to sit outside the regime where they respond to a genuinely temporary need. The regime has drawn criticism for not addressing the needs of businesses with seasonally fluctuating demand. Apparently picking up on these concerns, the consultation seeks information on situations that may not be covered by the existing provisions for limited term contracts. The indication that the government is alive to these concerns will be welcome, but there are no concrete proposals, so we will need to keep a watching brief for now.
Will there be exemptions from the regime?
The consultation seeks input on whether certain types of workers (or agency workers) should be exempt from the regime, or whether employers/hirers should be exempt in certain circumstances (e.g. where a business is forced to close temporarily). The consultation does not include concrete proposals, but the indication is that any exemptions will be very narrow, and will be of limited assistance to businesses operating in the ordinary course.
Reasonable notice of shifts and payment for shifts cancelled, moved or curtailed at short notice
The Act will introduce a duty to give zero- and low-hours contract workers (including agency workers) reasonable notice of shifts, and to compensate workers where shifts are cancelled, moved or curtailed at short notice. For agency workers, the duty to give reasonable notice is shared between the hirer and the agency. The duty to pay workers for shifts cancelled, moved or curtailed at short notice will sit with the agency, though it will be able to recoup this cost from the hirer.
What do we know?
Who will be eligible?
As under the guaranteed hours regime, workers will be in-scope if they work under a zero-hours contract or if their contractually guaranteed hours are below a certain threshold. While there is no government proposal on where the threshold should be set, the indication is that it would be the same for all rules relating to shifts, but may be different from the guaranteed hours regime (see above).
What is “reasonable” notice?
That will depend on the circumstances, but there will be some guardrails. Regulations will set out what notice is “presumed” reasonable. Departures would need to be justified case-by-case. The consultation explores what “reasonable” notice should look like as a starting point, and proposals range from one to four weeks for directly engaged workers, and between ‘less than five days’ and four weeks for agency workers, giving us some idea of the range the government is looking at. The consultation also seeks input on circumstances where it might be reasonable to give longer or shorter notice, suggesting that some flexibility will be built into the system where, for example, a worker is being asked to cover an unforeseen absence.
What is “short” notice?
It will not be more than one week, so moving or cancelling a shift on more than seven days’ notice will not attract compensation. Beyond that, the consultation provides no more clarity, simply seeking views on how ‘short notice’ should be defined. It does suggest that (i) the government may create a distinction between ‘short notice’ and ‘very short notice’, with the latter attracting a higher payment, and (ii) the period could be set differently for directly engaged workers and agency workers.
What will employers need to pay workers?
The government indicates that the payment will be a percentage of the wages the workers would have earned – either at their normal rate of pay or at the applicable National Minimum Wage rate. The consultation gives a broad range on this percentage (between 10% and 80% for ‘short notice’ and between 30% and 80% for ‘very short notice’, if this option is taken forward), so the consultation does not provide meaningful clarity on the levels at which payments will be set. It does confirm that the payment will be calculated in the same way for directly engaged workers as for agency workers.
Will there be exceptions to the obligation to make short notice payments?
Maybe. The government is seeking views on whether it would be appropriate to include exceptions, for example where shifts are cancelled because of an extreme weather event.
How will short notice payments be enforced?
Primarily through the employment tribunals. However, the consultation also proposes giving the Fair Work Agency (FWA) powers to enforce short notice payments through the Notice of Underpayment regime. This regime (familiar from National Minimum Wage enforcement) would allow the FWA to issue an underpayment notice where necessary, together with a civil penalty which is proposed to be set initially at 50% of the underpayment amount. Bringing these obligations within the remit of FWA enforcement significantly increases the risk associated with underpayments, particularly where these result from errors replicated across a large population.
Final thoughts
The consultation contains more questions than answers, but the shape of the new regime in relation to zero- and low-hours contract workers is starting to emerge. A few things are clear:
These new rules are going to create significant operational challenges and new administrative requirements for businesses that rely heavily on casual labour, and there may be knock-on effects (for example around employment status) that will increase risk on the use of casual labour models. Any business affected should be keeping an eagle eye on the changes, assessing the business impact as more detail emerges and reviewing operating models to ensure they remain fit for purpose.
The changes will have a big impact on the relationship between hirers, agencies and agency workers. This is a complex, already quite heavily regulated, area and the government is consulting on whether the regulatory framework for agencies should be updated to take account of the new rules. In any event, however, if your business operates with a significant numbers of agency staff you should be auditing and reviewing your contracts with agencies, working through the potential implications of the changes and getting ready to renegotiate and update contracts to ensure that contractual protections are adequate.
The consultation will close on 25 August 2026 and we would expect concrete proposals later this year or early next. If you would like to discuss the potential impact of these reforms on your business, please get in touch with a member of our team.
Faced with charged debates touching on issues such as race and gender identity, employers are increasingly in the unenviable position of having to balance competing rights in the workplace. A familiar scenario involves an employee expressing a highly controversial belief touching on a protected characteristic, which a colleague finds deeply offensive. This leaves the employer with an uncomfortable choice: act and risk a belief discrimination claim or do nothing and face a harassment claim. These tensions have generated a steady stream of litigation testing the limits of the protection against belief discrimination. Most cases turn either on whether a belief is protected at all or, assuming it is, how far a particular expression (or manifestation) of that belief is protected. The EAT’s decision in London Ambulance Service NHS Trust v Garrett [2026] EAT 77 focuses on the connection between the two.
The claimant, an ambulance worker, was given a final written warning following incidents in which (among other things) he expressed the view that there was no systemic racism and that individuals should not ‘hide behind their race’. He brought claims including direct discrimination based on philosophical belief. In his claim, he framed his belief as the belief that all people should be treated equally and as one race. The Tribunal held that this belief was protected and went on to hold that his rejection of systemic racism was a manifestation of that belief, upholding his claim. The EAT disagreed. It held that the belief, as framed, was a normative belief (about how people should be treated), whereas the rejection of systemic racism was a factual or descriptive belief (about conditions existing in society). Those are different in kind, and one did not (and could not) “flow logically” from the other. As a result, the claimant’s comments were insufficiently linked to his belief to attract protection.
What does this mean in practice? First, it underscores how important it is to define the belief clearly and early. Had the claimant framed his belief in factual terms or simply sought to assert protection for his rejection of systemic racism, the case might have taken a different course. Employers should therefore seek clarity on the belief an employee is relying on as early as possible – for example in any disciplinary or grievance procedures – so that they can assess risk with confidence and challenge later attempts to reframe the belief. Secondly, the case is a helpful reminder to test the link between comments or conduct and any underlying belief – even if they appear at first sight to be connected, that may not mean that one flows logically from the other. In short, if the link does not hold, neither will the claim.
How can we help?
We are working with businesses of all sizes across a range of sectors to manage the risks associated with these changes. Drawing on our experience of market practice, we can support you in critically assessing and enhancing your preventative framework.
Get in touch to discuss the practical steps your organisation can take now to prepare.
Raising the bar on sexual harassment prevention: The enhanced duty explained
Employers are already required to take reasonable steps to prevent the sexual harassment of their staff. The Employment Rights Act will demand more: going forward, employers will need to take all reasonable steps. This article explains what that means in practice, including what the new standard requires, the consequences of failing to meet it, and practical steps employers should be taking now to prepare.
What is the current position?
Employers are under a duty to take reasonable steps to prevent the sexual harassment of employees in the course of their employment. Importantly, this includes sexual harassment of staff by colleagues, but also by individuals outside your organisation.
Breach of the duty does not create a standalone claim. However, if an employee brings a successful harassment claim involving elements of sexual harassment and the Tribunal finds the duty has not been met, it may uplift total Equality Act compensation by up to 25%. Breaches of the duty also fall within the enforcement remit of the Equalities and Human Rights Commission (EHRC). Besides the strict legal risk, sexual harassment allegations continue to pose wider risks for businesses in terms of staff morale and retention, operational disruption and reputational exposure.
What is changing?
The Act lifts the bar: the duty to take reasonable steps to prevent sexual harassment becomes the duty to take “all” reasonable steps.
In due course, the government is also expected to pass secondary legislation setting out steps that it would be reasonable for employers to take. Once these are passed, employers wishing to show that they have taken all reasonable steps will need to follow the steps set out in the regulations, as well as any further steps reasonable under the employer’s specific circumstances.
When are the changes coming into effect?
The enhanced duty is expected to come into force in October 2026.
The new regulations prescribing reasonable steps are not expected until 2027 or 2028, and will be subject to consultation, so employers will have plenty of time to adjust their approach in preparation.
What is the difference between “reasonable steps” and “all reasonable steps”?
The boundary between the two is often difficult to define. However, this will soon be academic: from October, if the employer has not taken all steps, it could reasonably be expected to take – in other words, if a claimant or Tribunal can point to one reasonable preventative measure the employer failed to put in place – it will have breached its duty.
What does that mean for employers?
The change makes the duty to prevent sexual harassment more difficult to discharge. From a financial perspective, that increases exposure in claims involving allegations of sexual harassment as it increases the likelihood of an uplift being awarded. From a reputational perspective, it increases the risk of a finding that an employer has failed to protect its staff.
But it is not all doom and gloom. It is an established defence under the Equality Act that an employer will not be liable for an employee’s acts where the employer has taken all reasonable steps to prevent them. This change aligns the preventative duty with the standard applied in this defence. That means that, if an employee brings a sexual harassment claim based on a colleague’s actions, and the employer can show that it took all reasonable steps to prevent sexual harassment in the workplace, then not only will the employer avoid any uplift being applied, but it will have a defence against the claim.
What should you be doing to prepare?
To meet your existing preventative duty, you should have already completed a risk assessment and implemented an action plan. It is now time to critically evaluate and build out your preventative framework. You should:
Critically review your risk assessment. This should go beyond a desktop exercise or piece of paper filed in your “compliance” folder — ensure you really understand your organisational culture and employees’ day-to-day experience to see where the risk areas are. Listen to staff. Consider conducting surveys, focus groups or targeted consultation.
Evaluate the effectiveness of existing measures. For example, you may have rolled out training – have colleagues engaged? Have you seen behavioural change, where necessary? Address concerns and refresh measures where necessary.
Familiarise yourself with the most up-to-date EHRC guidance (including its technical guidance and its ‘8-step guide’ to preventing sexual harassment) and ensure you are taking any steps recommended that are appropriate for your business. At a minimum, these should include robust anti-harassment policies, staff engagement and training, effective reporting and complaints management frameworks and ongoing review and monitoring. Brainstorm what is working well for your business and what more you could be doing to protect employees. Ensure that these discussions include stakeholders with a variety of perspectives.
If you have received complaints of sexual harassment, or complaints going more broadly to organisational culture, review them carefully. What is it about the organisation or working arrangements that made this possible? What could have been done to prevent these issues? Did reporting mechanisms work as they should? Were complaints managed appropriately?
While you can and should prepare for the upcoming legislative change, there is a trap here in treating this as a discrete exercise. Going forward, you should keep your preventative measures under continuous review. A healthy culture is not the result of a one-off compliance overhaul; it is something that must be embedded throughout the organisation, continuously nurtured and lived on a daily basis.
How can we help?
We are working with businesses of all sizes across a range of sectors to manage the risks associated with these changes. Drawing on our experience of market practice, we can support you in critically assessing and enhancing your preventative framework.
Get in touch to discuss the practical steps your organisation can take now to prepare.
Rethinking TUPE: Practical challenges and opportunities for reform
We’ve recently shared our views with Government as part of its call for evidence on TUPE reform, drawing on our clients’ experience working with TUPE on the ground and our experience advising on transactions across a broad range of contexts and sectors, and on litigation where things go wrong.
Our aim is simple: show where the rules aren’t working and suggest practical changes that reflect how businesses operate today.
What we told Government
We focused on a handful of areas where change would make a real difference:
Removing unnecessary complexity in property transactions
Addressing gaps and inconsistencies that create uncertainty in real estate deals.
Improving consultation processes
Moving away from a ‘tick-box’ exercise towards more meaningful engagement with employees in practice.
Allowing greater flexibility to align terms post-transfer.
Giving businesses more scope to integrate workforces effectively, while maintaining appropriate employee protections.
Simplifying rules for intra-group reorganisations
Introducing a more proportionate regime where there is little or no practical impact on employees.
What this means for clients
From what we see day to day, TUPE still creates real challenges in live transactions.
The rules can be hard to navigate. Questions often arise around when TUPE applies (and who transfers), how consultation should work, and what changes you can make after transfer. This can slow deals down, increase costs and, at times, force decisions based on risk rather than clarity.
The changes we’ve proposed address these issues head-on and if adopted, would make TUPE clearer, more predictable and easier to operate in practice – better aligned with how modern businesses run and better suited to supporting employees’ needs in practice.
This matters most if you’re involved in M&A, outsourcing or group restructurings, where TUPE is often critical – or, of course, if you are “TUPE’ed” to a new employer yourself.
Get in touch
If you have a question on TUPE or would like to hear more about our reform proposals and what they could mean for you or your business, reach out to our team, here.
Jo Keddie comments in the Financial Times on rising unfair dismissal risk for high earners
How are employers responding to the next wave of employment law reform?
The Financial Times has reported a clear shift in behaviour across sectors such as finance and tech, ahead of changes under the Employment Rights Act. From January 2027, the current £123,543 cap on unfair dismissal compensation will be removed – raising the stakes for employers managing senior talent.
We’re already seeing boards take a more proactive approach. With employees gaining protection after six months’ service, and the potential for uncapped awards, businesses are reviewing performance more closely and bringing forward decisions that could lead to exits ahead of the removal of the compensation cap next January.
Jo Keddie, Head of Employment, comments in the piece highlighting the growing urgency: “Any management or strategic decision that could lead to people being made redundant or removed will be accelerated.”
As Jo highlights, employers are focusing on performance and conduct issues now, acting ahead of the new regime.
The article underlines how quickly these changes have become a board-level priority, with employers balancing legal exposure against workforce strategy as the new regime approaches. Organisations are moving early to stay ahead of the change.
We are continuing to see increased demand from clients for support on redundancy exercises and collective consultation processes. With ongoing economic uncertainty and rising unemployment, that trend is unlikely to abate in the near term. The stakes are also higher than ever in light of changes implemented by the Employment Rights Act. Where an employer is proposing to make 20 or more redundancies at one establishment within a 90‑day period, it must collectively consult with employee representatives. From April 2026 the potential liability for getting this wrong is up to 180 days’ uncapped pay per affected employee (with failure to notify the Secretary of State carrying criminal risk). Getting the trigger point for consultation right therefore remains critical. A recent case serves as a salient reminder that a “proposal” arises before redundancies become inevitable.
In Ellard & ors v Alliance Transport Technologies Ltd (in administration) [2025] EAT 169, the employer, Alliance Transport Technologies (“ATT”) entered administration on 2 May 2023. The administrators made 15 employees redundant on that date, with most of the remaining workforce dismissed on 5 May once an attempt to complete a sale as a going concern to a single interested party failed. The question before first the Tribunal and then the EAT was whether a duty to consult arose in respect of the earlier dismissals – when business closure was already under consideration, but there were ongoing discussions with a buyer for the sale of the business as a going concern.
The EAT found that it did. It emphasised that the statutory question is whether the employer was “proposing to dismiss” 20 or more employees within a 90‑day period. That requires a forward-looking assessment of the relevant 90-day period, taking into account future events, even if uncertain. The duty is therefore triggered where there is a clear, albeit provisional, intention to effect redundancies within the relevant period, even if alternatives (such as a sale) are still being explored. In business closure cases, established case law confirms there is only a proposal when closure moves beyond being merely mooted to becoming a fixed (albeit provisional) intention. In this case, it was highly relevant that, by 2 May, the evidence showed that a going-concern sale was not realistically achievable (or unlikely) and closure was the likely outcome if the remaining interested party pulled out; that was enough to amount to “proposing” collective redundancies at that point.
Consistent with recent case law, Ellard confirms that the trigger for collective consultation obligations is inherently forward-looking, the decision confirms that Tribunals will take a broad, practical view of what amounts to a “proposal”, something more than a mere possibility but short of a final decision. In practice, employers cannot safely defer consultation until proposals crystallise and redundancy remains the only option on the table. Where the direction of travel is sufficiently established (even conditionally), the duty is likely already engaged. The case is also a reminder that attempts to segment dismissals into stages, or to focus narrowly on what is proposed “on the day”, are unlikely to withstand scrutiny. More broadly, it underlines the need to document contemporaneous thinking carefully and to keep the consultation trigger under continuous review, particularly in fast-moving situations such as restructurings or insolvency processes.
The Employment Rights Act 2025 (“ERA”) will extend the time limits for most employment claims from three to six months. Existing rules around the impact of mandatory ACAS early conciliation (which effectively stops the clock) are unaffected. Up until now, the implementation timing of this change has been unclear, with government guidance stating only that the change would take effect “no earlier than October 2026”.
While we are still awaiting the relevant ERA commencement regulations and the government has not updated its implementation timeline, we are now getting some more clarity – albeit by the back door. The ERA itself lists a number of claims for which it will be extending time. That list, however, is not an exhaustive list of all employment claims. The government has now published separate secondary legislation that will extend time limits from three to six months for various employment claims not included on the ERA’s list. These changes will be taking effect – drumroll, please – on 1 October 2026, giving us a pretty heavy hint that we can expect the wider extension of time limits (including for the claims listed in the ERA) to take effect on that date.
We expect the change (in relation to all claims) to be effective for causes of action arising on or after 1 October 2026, rather than for claims presented after that date. In other words, the applicable time limit will be determined by reference to when the thing complained of (or, if a series of things, the last thing in the series) happened, not when the claim was commenced. So, for example, if “Alfie” is dismissed on 30 September 2026 and wishes to challenge that dismissal as unfair, his claim will be subject to a three-month time limit – even if he brings the claim after 1 October 2026. If, however, Alfie is dismissed on 1 October 2026, the time limit will be six months. We do not, therefore, expect the change in time limits to resurrect claims that, as of 30 September 2026, are out of time.
There is nothing you need to do to prepare, and the full impact of the change remains to be seen. While some commentators suggest that the change will provide more breathing space for settlement discussions, we anticipate a potential increase in claims, as employees have longer to consider their position and take advice after an issue has been raised. Anything likely to drive up claims (and this is one of several such changes under the ERA) will put further pressure on an already struggling Tribunal system. We should therefore brace for even greater delays in claims being processed.
How we can help
Our Employment team is closely tracking the extension of employment tribunal time limits under the Employment Rights Act 2025 and what it means for employers. We support clients in adapting their approach to workplace disputes, helping to manage risk and navigate claims efficiently. Contact us to discuss how these changes may affect your organisation.
The changes to unfair dismissal are the centrepiece of the government’s Employment Rights Act 2025 (the “ERA”). They are likely to have a fundamental impact on your hiring and management decisions, and it is important to ensure that you fully understand the implications for your business and what you need to do to prepare.
In this piece, we look beyond the headlines and do a deep dive on the changes, looking at their likely impact on employers and on the employment law landscape more broadly, and giving you the tools to prepare. These changes will affect all employers, big or small.
What is the current law on unfair dismissal?
Employees acquire unfair dismissal rights on completion of two years’ continuous service. After that point, to dismiss an employee fairly, employers must show a fair reason (one of a prescribed set, e.g. underperformance, redundancy or misconduct) and follow a fair process, and dismissal must be reasonable in the circumstances. Employees with qualifying service can challenge a dismissal as unfair in the Employment Tribunal. If that claim is successful, they will be awarded a ‘basic award’ (calculated in the same way as a statutory redundancy payment) and compensation based (for the most part) on losses incurred as a result of their dismissal. This compensatory award has, up until now, been capped at the lower of a year’s pay and a set statutory amount, currently £123,543.
What changes is the ERA making to unfair dismissal?
The ERA will make two changes to the ordinary unfair dismissal framework.
Firstly, the period of continuous service required to bring an unfair dismissal claim will be reduced from two years to six months.
Secondly, the cap on compensatory awards will be removed.
When are the changes coming into effect?
The new regime will apply to dismissals on or after 1 January 2027. The relevant date will be the termination date rather than the date on which notice is served, so this may apply to terminations initiated before the end of the year.
Example – If Alfie (who started work on 1 January 2026) is given one month’s notice on 29 December 2026, his termination date will be 29 January 2027 and he will be able to bring an unfair dismissal claim under the new regime. His compensation will be uncapped.
Note that there is a technical trip-hazard here: where an employee does not work their notice (for example, because the employer makes a payment in lieu of notice, or “PILON”) the law operates to add an employee’s statutory (not contractual) notice to their actual service to determine qualifying service. This rule applies to determining qualifying service and calculating any basic award – but not the compensatory award. An employee with less than two years’ service has a one-week statutory notice entitlement, so you need to exercise caution with last-minute terminations.
Example – If, instead of being given notice, Alfie is paid a PILON of one month’s pay on 29 December 2026 and his employment terminates with immediate effect, his statutory notice entitlement will need to be taken into account to decide whether Alfie has qualifying service. Alfie’s statutory notice entitlement is one week, so his notional termination date for this purpose is 5 January 2027. He can bring an unfair dismissal claim, but his compensation will be capped in accordance with the current regime.
What does the reduction of the qualifying period mean for employers?
The practical effect of the current qualifying service requirement is that employers effectively have a two-year window to assess an employee’s suitability for the role. Within that window, employers can terminate at relatively low risk, and in any rate without any particular procedural requirements.
With these changes, that window will narrow considerably. You will need to make decisions about a new hire’s suitability much more quickly if you wish to take the opportunity to terminate at lower risk and with more limited process. That will put pressure on hiring processes – i.e. to get the decision right in the first place – and on probation periods.
There may also be implications for the management of fixed-term contracts. Slightly counter-intuitively, the termination of a fixed-term contract on expiry is, legally, a dismissal. Most fixed-term contracts are concluded for a duration of less than two years, so employers currently rarely face unfair dismissal risk on expiry of a fixed-term contract. However, with the reduced qualifying period that may well change, and employers will need to manage unfair dismissal risk by identifying a fair reason for the termination and following a fair process. To find out more about the changes to fixed-term contracts, including the key risks and how to approach terminations, read our article here.
What does the removal of the compensation cap mean for employers?
The practical effect of the compensation cap is that the employer’s maximum exposure in connection with a dismissal is quantifiable (absent additional risk factors that might engage uncapped compensation claims, such as discrimination or whistleblowing claims). Particularly for very high earners, that also opens up the possibility for unfair dismissal rights to be effectively bought out and terminations to be concluded on agreed terms, with employers paying a settlement sum negotiated on the basis of the maximum value of an unfair dismissal claim.
The removal of the compensation cap removes that quantifiable maximum. That does not automatically mean that the value of unfair dismissal claims will increase, as compensation will continue to be based on loss (which may anyway have fallen short of the cap). Compensation will also continue to be limited by existing rules – for example, the duty on claimants to mitigate their losses (and reductions where they fail to do so), reductions to reflect actions by the employee that contributed to the dismissal, and so-called Polkey reductions – reductions reflecting the likelihood that an employee would have been dismissed in any event. However, it does mean that:
Maximum exposure in relation to ordinary dismissals becomes more difficult to budget and provide for, which may impact internal risk management processes.
Exposure in some dismissals may increase considerably – for example, where individuals may struggle to obtain new employment and/or have very valuable benefits (e.g. generous pension schemes or share options).
We are likely to see the dynamics of settlement conversations change, as employees will expect higher pay-outs based on the publicity around “uncapped compensation”.
What should employers be doing to prepare?
In light of the reduction in the qualifying period, your first focus should be on tightening up hiring and probation procedures. The first hires acquiring qualifying service on 1 January 2027 (and therefore the first to benefit fully from the changes) will begin work on 2 July 2026 – so you should be aiming to bed any new processes in by 1 July.
We recommend that you take the following steps:
Impact assessment. Does your business have an issue with high turnover in the early years of employment? How much of that is down to dismissals? Are there areas of the business or particular job families that are particularly badly affected? Carrying out this impact assessment will help you understand how big an issue your business faces and what is driving early turnover. That will help you design effective processes to manage your risk.
Hiring. Guided by your impact assessment, the next step is to look at hiring. Where you have identified issues, think about how hiring processes can be enhanced to screen for particular competencies or red flags. This may be as simple as ensuring that key decision-makers are involved in interview processes, or it may require a more fundamental re-design.
Probation procedures. You will then need to review probation processes to ensure that they are effective in assessing new hires’ suitability for a role, and that timelines are managed so that early termination decisions are communicated before the new hire acquires qualifying service. Remember the trip-hazard around extension of service: you will want to make sure that decisions are communicated a few weeks clear of the six-month mark. You will also need to update employment documents (contracts and policies or handbooks).
You should also be looking at your use of fixed-term contracts. If you do use fixed-term contracts, you may need to review and update your internal processes around managing their expiry to mitigate any unfair dismissal risk in this area.
The removal of the compensation cap is more difficult to prepare for, but there are a few steps we recommend you take:
Review your performance management, disciplinary and capability procedures. Consider how they operate in practice and whether there are any updates needed to ensure procedures that may result in termination are run compliantly and smoothly.
Encourage managers not to delay exit conversations, but to manage any problem cases ahead of the 1 January 2027 changes.
With all these changes, it is important to ensure that managers are well-trained to manage front-line conversations with employees, so manager training across all of these areas should be refreshed. While employers are (rightly) focusing on updating their processes, the most effective risk mitigation is generally sensitive, “human” management that makes employees feel their concerns are being heard and engaged with. Empowering managers to deal with issues effectively, with a full understanding of the legal framework and their room for manoeuvre within it, should therefore be front and centre.
Do the changes have wider knock-on effects?
There is a lot of speculation about the wider implications of the changes. Ultimately, we will need to see how things play out as the new regime beds in, but we do foresee a few knock-on effects.
Employment status
Unfair dismissal rights are dependent on employment status, as only individuals classified as ‘employees’ benefit from them. Employment status is a complex area but, in brief, English employment law recognises three status categories – ‘employees’, who benefit from the widest employment protections, more casual ‘workers’, who benefit from basic protections, and the ‘self-employed’. The changes to unfair dismissal may impact this landscape in a few ways.
Firstly, as the government acknowledges[1], the increased unfair dismissal risk may tempt employers to look to meet more peripheral staffing needs with more casual ‘worker’ contracts. That may ultimately reduce job security in the market, particularly as the economic outlook remains uncertain and unemployment is rising.
Secondly, we may see a shift in the focus of employment status litigation which, in recent years, has been focused largely on the boundary between ‘worker’ and ‘self-employed’ status. With unfair dismissal claims becoming more widely available, and with the potential value of an unfair dismissal claim seen to be increasing, we may well see more litigation at the employee/worker margin. That trend may be reinforced by wider changes in the ERA, for example new duties on employers to offer casual workers guaranteed hours contracts in certain circumstances, which may lead to the employee/worker boundary becoming more blurred.
The government is planning to conduct a wider review of the rules around employment status, which may lead to a more radical transformation of the existing landscape. This, and the cumulative impact of the ERA changes on the discussion, will be an interesting area to watch over the coming months and years.
Employment Tribunals
The government acknowledges that the changes are going to result in an increase in Employment Tribunal claims[2]. However, the government also suggests that removing the compensation cap will remove the incentive for high earners to circumvent the cap by raising allegations that engage uncapped claims – e.g. discrimination or whistleblowing allegations. On that basis, the government posits that the changes may reduce the complexity of Tribunal claims and in fact lessen the burden on the system. We are sceptical. Firstly, in our experience, it is relatively unusual for entirely spurious discrimination or whistleblowing claims to be run all the way to hearing – while they may be raised in settlement negotiations, relatively few cases of this nature reach Tribunals and, where they do, Tribunals are skilled at distilling the core complaints at early stages. Secondly, even if we take a cynical view, there are other incentives to bring in complex allegations, for example, to raise the reputational risk for employers and push for settlement. We therefore expect that the changes will simply result in an increase in Tribunal claims and further strain put on a system that is already at breaking point.
How we can help
Our Employment team can help you navigate the changes introduced by the Employment Rights Act.
We work with businesses of all sizes to provide clear, pragmatic advice, from helping you assess the impact of the new unfair dismissal regime to strengthening processes across your organisation.
Fixed-term contracts are governed by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (“Regulations”), but there is little magic about them. Employees working under fixed-term contracts are employees (almost) like any other, and they therefore benefit from the full suite of employment protections afforded to employees.
While the Employment Rights Act 2025 (“ERA”) does not specifically refer to fixed-term employees, the ERA’s centrepiece reform – the changes to the unfair dismissal framework – will impact employers’ practice around the use, and crucially the termination, of fixed-term contracts. This is therefore a good opportunity to revisit fixed-term contracts, and particularly to remind ourselves of the pitfalls involved in terminating them.
What is a fixed-term employment contract?
Under the Regulations, a fixed-term employment contract is defined as a contract terminating on expiry of a fixed-term, completion of a particular task, or on the occurrence (or non-occurrence) of any other specific event[1].
Fixed-term contracts are used widely, for example, for work carried out in connection with a specific project, to cover seasonal requirements or for employees appointed to cover permanent staff’s sickness absence or family leave.
Pitfall 1 – early termination: incorrect notice
A common (and potentially very expensive) trap to fall into on early termination of a fixed-term contract arises from a failure to interpret notice provisions correctly – or, to go back to the root of the problem, a failure to draft notice provisions correctly.
In a permanent, indefinite contract, you will generally find specific notice provisions. If for any reason these are absent, the law implies a provision that the contract may be terminated on reasonable notice.
In our experience, employers often overlook the need to include clear notice provisions in a fixed-term contract, as the contract is concluded for a specific task or duration and the parties are generally not thinking about early termination. Where there are no specific notice provisions, early termination will be a breach of the contract entitling the employee to bring a wrongful dismissal claim. In this scenario, the employee will be entitled to damages designed to put them in the position they would have been in had the contract not been breached – in other words, loss of earnings for the remainder of the fixed-term.
To avoid this issue, you should take professional advice in drafting fixed-term contracts and ensure that early termination is expressly dealt with and appropriate notice provisions included. Once it comes to termination, if you are unclear on applicable notice provisions you should always take advice. You will then have clarity on the potential exposure before you make any decisions, and you may be able to explore alternative exit routes, such as a mutually agreed termination.
Pitfall 2 – termination on expiry: not treating the expiry of the contract as a dismissal
We frequently see employers treat expiry as a natural endpoint rather than a dismissal. That is understandable and, in many ways, intuitive, but incorrect. The expiry (and non-renewal) of a fixed-term contract is in fact a dismissal in law.
That means that, where the relevant fixed-term employee has the necessary qualifying service, they may bring an unfair dismissal claim where a fixed-term contract is not renewed and the employer has not followed a proper process. Up to now, this has often been academic: the qualifying period to bring an unfair dismissal claim is two years and, in our experience, the majority of fixed-term contracts are concluded for shorter periods. However, from 1 January 2027, the ERA will reduce the qualifying period to six months, which will bring unfair dismissal risk in connection with fixed-term contracts into much greater focus. Going forward, it will therefore be important to treat the expiry of a fixed-term contract in the same way as any other dismissal, by identifying a fair reason for the termination and following a fair process.
Pitfall 3 – termination on expiry: treating the expiry of the contract as the reason for termination
Linked to the above, even where employers are alive to the fact that the expiry (and non-renewal) of a fixed-term contract is a dismissal in law, they often fall into the trap of assuming that the expiry of the contract is, in itself, a valid reason for dismissal. That is, however, not enough: to dismiss fairly on expiry, you will need to drill down into the substantive reason why the employee will no longer be required. This may be redundancy (for example, where they were employed for a specific project which has concluded), or some other substantial reason (for example, where they were employed to cover a permanent employee’s family leave and that employee is returning) – but in any event, the simple fact of the expiry of the contract is not enough.
Pitfall 4 – (non-)termination on expiry: accidental extension
We often see situations where, as business needs evolve, fixed-term arrangements drift beyond their original term, or the expiry date is simply overlooked.
Where an extension is dealt with through an express, written, agreement to extend for a specified period, that is generally not an issue. However, where the parties do not clearly document the terms of the extension (or simply forget), the terms of the extension will be left unclear. Subsequent termination can then become very messy, as the employer will need to fall back on terms (and notice periods) implied by law.
To avoid this, you should keep records and implement systems to track the progress and expiry of fixed-term contracts. Where an extension is necessary, you should ensure that any extension is agreed (even informally) in writing. It would also be sensible to safeguard against this situation in the drafting of your fixed-term contracts, by providing for what notice period will apply in the event that the term is extended. This can of course always be amended by agreement, but it will protect your position where an expiry date is missed by accident.
Pitfall 5 – treating fixed-term employees as first in line for termination
It can be tempting to think of fixed-term employees as less integrated into the business than permanent employees, and to therefore put them first in line if headcount needs to be reduced. However, that can be risky. Under the Regulations, a fixed-term employee has the right not to be treated less favourably than a comparable permanent employee – that extends to dismissal decisions and it is generally unlawful to select a fixed-term employee for redundancy purely based on their status (though there are nuances here). The principle applies more broadly, for example in relation to termination payments and/or promotion or redeployment opportunities. To avoid creating a liability, you need to bear that in mind and, generally, avoid distinguishing between permanent and fixed-term employees based on that status.
While many of these risks are not new, they are becoming significantly more important for employers. The operation of fixed-term contracts is going to become higher risk in light of the changes to the unfair dismissal framework shortening the qualifying period and removing the cap on compensation.
How we can help
Ahead of these changes coming into effect on 1 January 2027, we recommend that you audit your use of fixed-term contract and carry out a general ‘health check’ on the terms themselves, and on how you manage fixed-term contracts and their expiry. Our Employment and Partnerships team are well-placed to support you prepare for these changes – please do get in touch to find out more.
Joe Beeston comments in The Banker on US investment bank sleep hours dispute
5 March 2026
Views
Joe Beeston, Partner in Forsters’ Employment & Partnership team, has been quoted in The Banker in relation to a high‑profile US employment dispute involving a junior analyst at Centerview Partners. The case centred on allegations that the analyst was dismissed after requesting a protected overnight sleep period of eight to nine hours as a medical accommodation for a mood and anxiety disorder. The claim focused on disability discrimination and whether constant availability is an “essential function” of investment banking roles. It was closely watched across the financial services sector and settled shortly before trial.
While the dispute took place in the US, Joe highlights why it resonates for UK employers. He notes that although investment banking is inherently demanding, criticising or penalising staff for raising concerns about rest and sleep can carry legal risk in the UK. Employees may have physical or mental health conditions requiring adequate downtime, and failure to accommodate this, depending on the circumstances, could trigger disability discrimination claims, including a failure to make reasonable adjustments.
It is also important to consider the FCA’s move to strengthen workplace culture: behaviours like bullying and violence (which are arguably more likely in a stressful and sleep deprived context) need to be stamped out.
Often it’s about setting boundaries and ensuring expectations are aligned, especially in the new workplace which can have five generations working together. Inevitably there will be busy periods and staff will need to work late, but trying to realistically plan for that (and prioritising key tasks) goes some way to alleviate the workplace tension which triggers these types of complaints.
Clearly working as an analyst in an investment bank is no easy task and hours can be punishing. However, criticising or punishing staff for suggesting they need to sleep can be a risky game.
