The Employment Rights Act 2025 has been described by supporters as a long-overdue modernisation of Britain’s labour market and by critics as a return to the rigid workplace rules of the 1970s. Both framings overstate the case. The legislation, which received Royal Assent in late 2025 and is being phased in through 2027, is neither a revolution nor a rollback — it is a broad package of incremental changes whose real impact will depend on the details of implementation.
What the Employment Rights Act 2025 actually changes
Employment lawyers who have tracked the bill through Parliament generally agree that it does not match the scale of the deregulation of the 1980s or the expansion of rights under the governments of the late 1990s and early 2000s. Instead, it adjusts many existing rules at once: statutory sick pay, unfair dismissal, zero-hours contracts, and protections against dismissal-and-rehire practices, among others.
The staggered timetable matters. According to guidance from Acas, some measures took effect in early 2026, a major tranche arrived in April 2026, and further changes — including the new unfair dismissal regime — are scheduled for 2027. Employers therefore face a rolling series of compliance deadlines rather than a single cliff edge.
The good: sick pay from day one
The strongest element of the package, from a public-health and low-pay perspective, is the reform of statutory sick pay. From 6 April 2026, sick pay is payable from the first day of absence rather than the fourth, and the lower earnings limit that previously excluded many part-time and low-paid workers has been removed. That brings the United Kingdom closer to the norms of other European economies such as Germany and Sweden, where waiting days are rare and coverage is broader.
The pandemic exposed the weakness of the old rules. Because unpaid waiting days encouraged people to work while unwell, the system had to be temporarily patched during Covid-19. Official research from that period found that care homes offering sick pay to staff were less likely to record Covid-19 cases than homes that did not — evidence that presenteeism among low-paid workers carries real costs for everyone.
The bad: uncertainty around unfair dismissal
The more contested change is to unfair dismissal. The qualifying period is due to fall from two years to six months from January 2027, and the cap on compensatory awards — most recently 52 weeks’ gross pay or £118,223, whichever is lower — is set to be removed. Removing the cap makes Britain an international outlier: compensation limits are standard in most comparable countries, including those with famously strong employment protection such as France and Spain.
In practice, most awards for ordinary workers fall well below the current ceiling, so the day-to-day effect may be limited. The larger concern raised by employment lawyers is behavioural: an uncapped regime can encourage inflated claims and longer disputes, adding cost and unpredictability for employers without materially improving outcomes for most claimants.
Other dismissal-related changes point the same way. Dismissing workers for taking part in lawful industrial action became automatically unfair in February 2026, and from January 2027 dismissing staff in order to rehire them on worse terms — so-called fire-and-rehire — will be automatically unfair in most circumstances.
The ugly: timing and the youth labour market
The hardest criticism of the reforms concerns timing rather than content. They arrive as employment taxes have risen sharply and youth unemployment sits in double digits. On top of that, the Low Pay Commission’s 2026 uprating raises the minimum wage for 18-to-20-year-olds by 8.5 per cent to £10.85 an hour from April 2026 — the third consecutive year that the youth rate has risen faster than the main National Living Wage, which itself increases to £12.71.
The Low Pay Commission says it has found no robust evidence that higher youth rates have driven the recent deterioration in young people’s labour-market outcomes. Sceptics counter that piling new employment rights, higher payroll taxes and faster wage floors onto employers at the same moment makes hiring inexperienced workers less attractive — precisely when young people most need a first rung on the ladder. Some European governments have paired stronger workplace rights with cuts to employment taxes; Britain has done the opposite.
Limitations and what to watch
Several aspects of this picture remain unsettled. Much of the Act’s practical effect depends on secondary legislation and consultations that are still in progress, so implementation dates and details could shift. The removal of the compensation cap and the shorter qualifying period do not take effect until 2027, and their real-world impact on tribunal volumes will not be measurable for some time after that. Estimates of how employers will respond — in hiring, in use of probation periods, or in reliance on agency staff — are projections rather than observed outcomes. Readers weighing the reforms should also note that assessments of “flexibility versus protection” vary widely depending on which comparator countries are chosen.
The balanced verdict is that the Employment Rights Act 2025 delivers genuine, needed improvements for workers at the bottom of the labour market — particularly on sick pay — while adding cost and uncertainty at a difficult moment for those still trying to get onto the ladder. How those two effects net out will be one of the defining labour-market questions of the next few years.
For related coverage of how technology and policy are reshaping work, see this site’s analysis of AI automation and freelance work in the Remote Labor Index and the impact of AI on jobs and opportunities in data.
