The Employment Rights Act and the 2026 employment law shift

2026 looks to be a transformative year for UK employment law practitioners as they must navigate some of the most far-reaching, politically motivated and socially challenged changes to worker rights we have seen in over a decade. 

The volume and complexity of reform is significant. Practitioners must prepare clients for legislative change, but in a volatile geopolitical climate marked by shifting sentiment towards diversity and inclusion, tight labour markets, and divergent policy trajectories across jurisdictions - all against the backdrop of rapidly advancing workplace technologies and AI adoption.

The new Employment Rights Act 

The government’s flagship Employment Rights Act (formerly the Employment Rights Bill, passed by Parliament on 16 December 2025 and received Royal Assent on 18 December 2025) sits at the centre of its reform agenda, with a cluster of new rights coming into force in 2026 and further measures and upgrades of worker rights expected throughout 2027.

Whilst the goal posts around this reform agenda and its implementation timetable continue to move following the Act’s contested journey through Parliament to Royal Assent, it is driven by the government’s determination to prioritise worker rights and represents Labour’s attempt to deliver on its “Make Work Pay” manifesto commitments. 

The Act covers a suite of employment law reforms, along themes of enforceable predictability for insecure workers, stronger collective rights, and modernised family leave and benefits. Many of these reforms require further consultation and will be implemented following secondary legislation. Flagship proposals include: 

• Changes to unfair dismissal: This marks one of the legislation’s most contentious areas. Initially, the government promised to make unfair dismissal a day-one right, removing the existing two-year qualifying service requirement. This was hotly contested between the Commons and the Lords. More recently, a pivotal compromise broke the parliamentary deadlock as the government agreed to a new six-month qualifying service requirement. The government will also remove the compensation cap for unfair dismissal, and “lock” the qualifying period so it can only be varied in the future by primary legislation. This represents a formal U-turn from the manifesto’s day-one pledge, as ministers cite Lords opposition and business concerns as drivers of the six-month qualifying period to keep the wider reform package moving.

  However, the recently agreed removal of the statutory cap on compensation represents a potentially more fundamental shift in employment law. While this may result in streamlining litigation by potentially reducing the number of associated discrimination and whistleblowing claims that are often pleaded alongside unfair dismissal (as such claims do not have compensation limits), the overall number of claims before the employment tribunals may increase – at a time when the tribunal service is already overstretched, under resourced and navigating a backlog of claims. 

  This change may also fundamentally change how higher earners are hired and fired. Typically, unfair dismissal claims for higher earners have not been as common due to the statutory cap on compensation and companies willing to absorb the financial cost of such claims as part of strategic settlements and exits. But without a cap, litigation and settlement figures could increase significantly, changing the risk appetite and strategy for senior exits and appointments in the future.

• Trade unions and industrial action: The government is proposing a range of reforms to union rights and industrial action. The repeal of the Strikes (Minimum Service Levels) Act 2023 sits alongside other trade union reforms, including quicker industrial action timelines, stronger access rights, and a new duty to inform workers of the right to join a union.
• Changes to family leave and sickness absence benefits: From day-one paternity leave rights to day-one statutory sick pay entitlement, the government proposes changes to family leave and sickness absence benefits. The government also intends to strengthen pregnancy and maternity dismissal protections alongside new family bereavement rights.
• The Fair Work Agency: The government will create a new Fair Work Agency to consolidate and expand enforcement of worker rights, including state enforcement of holiday pay and other matters, including statutory sick pay, minimum wage and contingent labour practices.
• Fire and rehire: Changes to the way in which employers are able to lawfully change terms and conditions of employment will be introduced, with a view to limiting ‘fire and rehire’ practices. This includes limiting the ways in which employers may fairly make dismissals for refusing to agree to contractual changes, with stricter rules applying where the variations are to key terms, such as pay, hours, shifts, and time-off rights.
• Zero-hours reforms and a right to receive a guaranteed hours offer: Another hotly debated area between the Commons and the Lords, the government initially promised to end exploitative zero-hours contracts. Employers will be required to provide reasonable notice of shift changes and compensation for cancellations, with agency workers in scope, and will be subject to a duty to offer guaranteed hours to workers reflecting regular patterns of work (including for agency workers), which will fundamentally reshape flexible workforce models.

Although the Employment Rights Bill received Royal Assent on December 18, critical details for many of the legislation’s proposals will be resolved in secondary legislation and extensive consultation is expected on many aspects. Practitioners should monitor parliamentary progress and subsequent consultations closely, as timing and detail remain subject to change.

Beyond the Employment Rights Act: A change in sentiment towards DEI and further legislative reform on the way

Over the past year, sentiment towards corporate and workplace diversity, equity and inclusion initiatives and related governance and reporting has changed in light of geopolitical events and a heightened risk of legal challenge. Alongside this evolving landscape, the UK legislative agenda promises further change with the government’s proposals in its long-awaited Equality (Race and Disability) Bill (the “Equality Bill”).

The Equality Bill will introduce, amongst other measures: (i) mandatory ethnicity and disability pay gap reporting for employers with 250 or more employees; (ii) an extension of the right to bring an equal pay claim on grounds of race and/or disability; and (iii) a right for outsourced workers to bring equal pay claims comparing their terms with directly hired employees.

A draft of the Equality Bill was promised before the end of 2025 but is now expected in early 2026. Responses are awaited from the government following consultations and calls for evidence on matters designed to inform the process of developing and drafting legislation to be included in the draft Equality Bill. 

Sexual harassment and workplace investigations 

2026 also promises further change to the law and practice relating to sexual harassment and investigating misconduct in the workplace. In recent years, workplace investigations have increased as attitudes towards workplace conduct, behaviour, and accountability have shifted within workplaces, socially, and amongst regulators, investors and legislators.

In October 2024, a legal duty requiring employers to take reasonable steps to prevent sexual harassment in the workplace came into force. This is an anticipatory duty, requiring employers to proactively take “reasonable steps” to prevent such behaviour. It shifts the focus from a historically reactive approach by employers to responding to instances of sexual harassment to requiring employers to consider and identify risks and take steps to mitigate them. It also requires employers to take reasonable steps to prevent sexual harassment by third parties.

This duty will be strengthened further in 2026 to “all” reasonable steps. While the difference from “reasonable steps” to “all reasonable steps” might seem like a nuanced technical change for lawyers to argue over, it has the potential to be significant in practice. “All reasonable steps” suggests a much higher bar for employers. If challenged by a tribunal, an employer would need to demonstrate that there were genuinely no further steps it could reasonably take to prevent the sexual harassment from happening.

Worker status and non-compete reform 

The reform story for UK employment law does not end with the new Employment Rights Act. Two other critical areas will dominate the agenda for employment law practitioners in 2026:

• Worker status reform: The government intends to revisit a fundamental, highly litigated and often complex aspect of UK employment law: worker status. It promised a consultation by the end of 2025 (which, as at the time of writing, is still awaited). Practitioners should anticipate fundamental changes in the coming years to the employment status architecture that has underpinned UK employment law for decades.
• Non-compete clause reform: The Department for Business and Trade has opened a working paper seeking views on options to reform non-compete clauses in UK contracts of employment, ranging from statutory caps (with variants by employer size) to full bans, salary-thresholds, or hybrid models. The consultation, running to 18 February 2026, cites concerns over mobility, competition and innovation, while recognising training-investment counterarguments. In the meantime, key unanswered questions remain for employment law practitioners and employers to consider in how reform might work and the extent to which it might fundamentally reshape employment law practices and the market for talent in the UK.

The AI revolution

Perhaps the most profound challenge facing employment practitioners in 2026 and beyond is not legislative change, but technological. The rise of AI in the workplace and, more recently, the use of digital employees and the deployment of agentic AI in workplace decision-making are creating fundamental tensions with employment law principles developed for human decision-makers in analogue workplaces.

The core principles of fairness, reasonableness and transparency in employer decision-making are fundamental to many employment law frameworks across the globe. These principles are not merely aspirational - they are baked into the legal tests that determine employees' rights and employers' duties. In the UK, for instance, the Employment Rights Act 1996 requires employers to act reasonably and carry out a fair process when dismissing an employee. 

These frameworks assume that human decision-makers can articulate their reasoning, that processes can be scrutinised, and that employees can understand — and challenge — the basis for decisions affecting them. The mutual term of trust and confidence that must exist between employer and employee in many of these legal frameworks serves as the lynchpin of the employment relationship, requiring transparency and open communication.

As businesses adopt AI tools, use agentic AI and embrace digital employees to enhance efficiency and reduce costs across the organisation, a critical question arises: how do we reconcile the autonomous, often opaque nature of AI with the fundamental principles that underpin employment law, particularly when deployed in HR decision-making?

2026 and beyond: a new era for employment law 

After a decade of relative stasis, we are entering a new era of employment law: one characterised by enhanced worker protections, stronger collective rights, and the collision of twenty-first-century technology with twentieth-century legal frameworks. The 2026–2027 period will test employers' ability to operationalise sweeping legislative change whilst responding to seismic shifts in technology and society. Those who treat 2026 as merely another year of incremental change may find themselves and their clients reacting to rather than embracing change. Those who recognise this as an inflection point and prepare accordingly will be well-positioned to navigate the transformative changes ahead.

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