Employment Law Update - December 2025

As 2025 comes to an end, our team brings you a sleigh-full of insights to keep your workplace compliant and prepared for the year ahead. In the spirit of the season, let’s unwrap the key changes you need to know before the new year begins!

Key Updates Following the Autumn Budget 💷

The Autumn Budget on 26 November introduced measures affecting employers and employees, including updates to the National Minimum Wage and salary sacrifice pensions. From April 2026, minimum wage rates will rise to:

• £12.71 for ages 21 and over (up from £12.50).
• £10.85 for ages 18-20 (up from £10.00).
• £8.00 for under 18s and apprentices under 19 or in their first year of an apprenticeship (up from £7.55).

From April 2029, salary sacrifices above £2,000 per year into pensions will attract National Insurance Contributions, reducing NIC savings for both employers and employees.

News 📰

On 17 November 2025, the Employment Rights Bill returned to the House of Lords, after peers reiterated their demands for amendments to key provisions of the bill. The Lords are seeking changes such as introducing a six-month qualifying period instead of the proposed day-one right to claim unfair dismissal, and allowing zero-hour workers to opt out of guaranteed hours, while carving out an exception for seasonal workers under the new zero-hour contract framework.

In an attempt to break the deadlock, on 27 November 2025, the government announced its decision to abandon its manifesto pledge for day-one unfair dismissal rights. By 4 December 2025, it confirmed plans for a six-month qualifying period from 1 January 2027, and to make compensation for unfair dismissal unlimited.  On 5 December 2025, the Commons issued an amendment paper confirming the government's final positions on all outstanding issues between the Commons and the Lords.

On 8 December 2025, the bill returned to the House of Commons to consider the Lords' amendments. The Commons accepted major government amendments including:

On 10 December 2025, the House of Lords agreed to a six-month qualification for unfair dismissal and dropped several earlier objections to the bill. However, peers rejected the government's proposal to remove the cap on unfair dismissal compensation, which currently stands at the lower of £118,223 or one year's salary.

This ongoing "ping pong" between the Lords and the Commons showed continued disagreement until agreement was finally reached on 16 December 2025!

In brief, the Employment Rights Act 2025 will mean that:

1. Employees will be able to bring an unfair dismissal claim after 6 months of qualifying service on or after 1 January 2027. Until then the existing 2-year period applies.
2. The 52-week/£118,233 cap on compensation for unfair dismissal will be abolished (we believe with effect from 1 January 2027, but confirmation is awaited).
3. Employers’ ability to fire and re-hire will be significantly restricted, so that (unless the employer is acting in response to likely insolvency otherwise), fire and re-hire will be automatically unfair if the reason for dismissal is that the employee did not agree to the employer’s attempt to vary these terms, or because the employer intended to employ another person on varied terms to carry out substantially the same role. This also applies to dismissals aimed at imposing new flexibility clauses covering protected terms. It is expected that this will be effective from October 2026.
4. Collective redundancy consultation will apply where 20+ redundancies are anticipated across one establishment or if another threshold is met across all sites/workplaces (detail not yet known) It is expected that this will be effective at some point in 2027. The maximum protective award will also double from the current 90 days to 180 days, and this comes into effect from April 2026.
5. On zero hours reform, employers will have a duty to offer qualifying workers a contract that reflects the hours regularly worked over a reference period. These provisions will extend to agency workers. There are detailed exceptions, including that the offer can be a fixed-term contract if that is reasonable, which may include when there is a “temporary work need” or when the worker is needed for a specific task. Consultation will take place in 2026 to fine-tune the detail, which will then come into effect in 2027.
6. Workers will have the right to reasonable notice of their shift, including the time, day and how many hours are to be worked. This duty will apply to workers employed on a zero hours or minimum hours basis, as well as workers who do not have a set working pattern. Again, consultation will take place in 2026 to fine-tune the detail, which will then come into effect in 2027.
7. Employees will have stronger rights to flexible working, and the employer will now have to explain on which of the eight grounds a request is refused and why the employer says that is reasonable. This will come into effect in 2027.
8. In addition to publishing annual gender pay gap reports, employers with 250+ employees will be required to publish ‘equality action plans’ including gender pay gap action plans (with penalties in default) and including menopause action plans – voluntarily from April 2026, but then on a mandatory basis from 2027.
9. Employers will have to take all reasonable steps to prevent workplace sexual harassment with effect from October 2026. They will also be responsible for all types of third-party harassment (e.g. by customers, suppliers), unless they tool all reasonable steps to prevent this. Disclosing allegations of sexual harassment will expressly count as a potential qualifying disclosure (subject to meeting the whistleblowing tests).
10. Any agreement (‘NDA’) preventing a worker from making allegations or disclosures about harassment or discrimination, including disclosures about the employer's response to such allegations, will be void. No timeframe for implementation has yet been set.
11. Trade unions will have a wider right to access workplaces for recruitment, organisation and collective bargaining purposes, and employers will be required to give workers a written statement that they have a right to join a trade union, expected to be effective from October 2026.
12. Dismissal of women (for redundancy or other reasons) will be banned if the woman is pregnant, on maternity leave and during a six-month return to work period, except in specified circumstances. This may be extended to other new parents (e.g. those who have adopted). This is expected to be effective in 2027.
13. The right to bereavement leave is likely to be extended as a day 1 right to one week of bereavement leave for employees (including for pregnancy loss before 24 weeks), albeit on an unpaid basis, effective in 2027.
14. From April 2026, the one-year qualifying period will be revoked so that parental leave will be a day 1 right.
15. Probably from April 2026, the 26-week qualifying period will be revoked so that paternity leave will be a day 1 right.
16. From April 2026, statutory sick pay will be payable from day 1 of sickness. The lower earnings limit will be removed, so that all eligible employees, regardless of earnings, will be entitled to SSP. Those earning less than the lower earnings limit (currently £123 a week) will become entitled to SSP at a rate of 80% of weekly earnings.
17. There will be a new obligation on all employers to keep records demonstrating compliance with holiday entitlement, including the amount of leave and pay for six years. Failure to comply will be a criminal offence punishable by fines. No timeframe for implementation has yet been set.
18. The time limit for bringing a tribunal claim will be extended from 3 months to 6 months, expected to take effect from October 2026.
19. A Fair Work Agency will be set up in April 2026 to enforce failure to comply with many employer obligations, to provide legal assistance to employees, and to recover their own enforcement costs.

The Employment Rights Act does not make any provision for:

1. Ethnicity or disability pay gap reporting, and extension of equal pay rights. These are likely to be dealt with in the Equality (Race and Disability) Bill, expected in early 2026.
2. Pay transparency measures as required by the EU Pay Transparency Directive.
3. The ‘right to switch off’. It is expected to be progressed in a statutory Code of Practice.
4. Workplace surveillance technologies and associated union and staff consultation provisions – this will be subject to consultation.
5. Unpaid internships - this is under consultation.
6. The 3-tier system for employment status – self-employed, employed or worker – to be replaced with a two-tier system. This remains under consultation.

ACAS early conciliation extends from 6 weeks to 12 weeks

Early conciliation begins when an employee notifies ACAS of their intention to make a claim to the employment tribunal. This process pauses the three-month limitation period for submitting a claim. As such, the period of early conciliation extends the time limit for bringing the claim to a later date. The government has now extended the maximum early conciliation period from six weeks to twelve weeks. This new change applies to all cases where the early conciliation form is submitted to ACAS on or after 1 December 2025. The intention of this change is to help ease the backlog pressure faced by ACAS and the Employment Tribunal system.

For employers, the key point is that this change provides additional time for both claimants and respondents to explore settlement of a potential employment tribunal claim. However, it also means that the timeframe for bringing a claim will be extended, and in some cases, the respondent may not receive the claim for more than six months.

Case Law Update 📢

B Cochrane v Neerock Ltd trading as Woodheads 6000762/2024

Mr Cochrane, a Health & Safety Specialist at Neerock (Woodheads), alleged that he was unfairly dismissed and subjected to sexual harassment. He resigned after discovering a team chat threat featuring a sexually explicit "Secret Santa" mug and comments he believed referenced him, arguing this created a humiliating and hostile environment.

The Employment Tribunal dismissed his claims, finding Mr Cochrane was not a credible witness and that the conduct was not directed at him. Importantly, the case pre-dated the Worker Protection (Amendment of Equality Act 2010) Act 2023, which introduced a new employer duty to take reasonable steps to prevent sexual harassment.

Had the claim been brought today, the Tribunal would likely have scrutinised whether the employer complied with his proactive duty. Employers must demonstrate that they have taken reasonable steps to prevent sexual harassment in the workplace. A failure to do so could significantly increase liability.

Key takeaway for Employers: This case serves as an important reminder of employers' obligations to prevent sexual harassment in the workplace. To comply with the proactive duty introduced by the Worker Protection (Amendment of Equality Act 2010) Act 2023, employers should ensure they have taken reasonable steps to safeguard staff.

When the new Employment Rights Act is effective, the duty on employers will go even further, encompassing them taking all reasonable steps.

Essential actions include to:

• Implement a standalone anti-harassment and sexual harassment policy.
• Conduct risk assessments to identify potential harassment risks.
• Deliver regular training for all staff, with clear guidance on workplace banter and its risks.
• Review compliance and consider whether refresher training is appropriate. It has been over a year since the new duty came into force.

In the run-up to the festive season, Christmas parties etc, it is important that employers ensure they are compliant with their obligations to prevent sexual harassment in the workplace.

Lockwood v Cheshire and Wirral NHS Foundation Trust and others ET/2401211/2024 and ET/2407178/2024

In this case, the Employment Tribunal dismissed harassment claims brought by a non-binary employee under the Equality Act 2020 because they did not meet the definition of having the protected characteristic of gender reassignment.

The claimant changed names and pronouns but did not intend to change sex from female to male, which the tribunal ruled is required under the Act. This decision aligns with the Supreme Court's ruling in For Women Scotland Ltd v The Scottish Ministers which held that "sex" under the Equality Act means biological sex and is binary.

Key takeaway for Employers: Non-binary identity is not protected under "gender assignment" in the Equality Act, but employers should still respect names and pronouns to avoid other discrimination risks.

Pimlico Plumbers Ltd v Smith [2018] UKSC 29

In Pimlico Plumbers Ltd v Smith [2018] UKSC 29, the Supreme Court ruled that Mr Smith was a worker, not a self-employed contractor. Despite indicators of self-employment (through being VAT registered, self-assessed for tax purposes), the reality showed an obligation of personal service with no substitution right and significant control by Pimlico (e.g. uniform requirement, branded van with tracker, ID card etc). As a worker, Mr Smith was entitled to rights such as holiday pay and sick pay.

Recently, Pimlico lost another "worker status" case (Pimlico Plumbers Ltd v Rose, not yet reported). Although Pimlico changed their contracts after the Supreme Court decision in Smith, working practices remained largely unchanged. The tribunal found that requiring engineers to operate through limited companies was an attempt to avoid liability. Mr Gideon Rose was not running an independent business; Pimlico was not his client but his employer in substance. The tribunal held that Mr Rose was part of Pimlico's core operations and therefore entitled to statutory worker protections.

Key takeaway for Employers: This case illustrates that simply revising contracts is not enough to avoid worker status claims: tribunals will look at the reality of working practices. If control and integration remain, individuals may still qualify as workers (or even employees) and be entitled to statutory rights.