Employment law update- December 2025

Employment Rights Bill

The Employment Rights Bill (the “Bill”) received royal assent on 18 December 2025, becoming the Employment Rights Act 2025. Significant changes to employment law will be introduced over the next few years.

Unfair dismissal rights

In a U-turn decision, the Government has recently abandoned its commitment to offer all workers the right to claim unfair dismissal from their first day of employment. This had previously been a major sticking point between the House of Commons and the House of Lords, but it has now been agreed that the qualifying period for unfair dismissal will be 6 months. The qualifying period is currently 2 years. It is expected that this change will come into effect from 1 January 2027.

Currently, the compensatory award for unfair dismissal is capped at the lower of (i) a year’s salary or (ii) £118,223. The House of Commons has proposed that this cap is lifted entirely and has agreed to publish an impact statement on the implications of this change prior to introducing regulations to that effect. The House of Lords have withdrawn their objection to this, allowing the Bill to pass. This change is also expected to come into effect from 1 January 2027, where the compensatory award will be unlimited. . The basic award remains capped at £21,570.

Zero-hour contracts

The House of Lords has backed down on their insistence that workers on zero hour contracts should have the right to request an offer of guaranteed hours, rather than an obligation on employed to provide this. This means that qualifying workers and agency workers will need to be offered guaranteed hours at the end of every reference period (which is still to be defined but is likely to be 12 weeks). Qualifying workers  will include those on a zero hours contract and those on a ‘low hours’ contract.  The Government have put forward amendments which require consultation to take place before regulations relating to guaranteed hours are implemented.

The House of Lords had requested a clear definition of seasonal work to be included in the Bill. The Government viewed this amendment as unnecessary but have put forward amendments requiring that before relevant regulations are introduced, the Secretary of State must consult with the relevant persons. This amendment was passed so will be included in the Bill.

Trade union reform

The House of Lords have agreed to the removal the 50% threshold requirement for industrial action to be voted on by a trade union is an unnecessary burden on unions, which they were initially insisting on.

Similarly, the House of Lords have accepted the Government’s amendments relating to trade union political funds reform. The Government’s amendment sets out that trade union members will contribute to political funds unless they opt out. These opt-out notices would have effect from the earlier of 1 January of the year after they have been provided, or on a date set out in the union’s rules.

Updates following the Autumn Budget 2025

The Autumn Budget brought a range of measures which will have wide-ranging consequences for both employers and individuals. Below is a summary of the key changes from an employment perspective:

National Minimum Wage

It was announced that from April 2026, the National Minimum Wage will increase as follows:

• National Living Wage (all adults ages 21 and over): £12.71 per hour
• Aged 18 to 20 inclusive: £10.85 per hour
• Aged under 18 (but above compulsory school leaving age) £8 per hour

Apprentices (but only if the apprentice is aged under 19, or 19 and over and in the first year of their apprenticeship): £8 per hour.

Pension salary sacrifice cap

From April 2029, National Insurance relief on salary sacrifice pension contributions will be capped at £2,000 per employee per year. Currently, these contributions are treated as employer contributions, meaning that they are exempt from both employer and employee National Insurance charges.

Employment entitlement updates

The Government has recently published plans to increase several statutory payments, with effect from April 2026. The proposed rates remain subject to final approval by the Government, but it is anticipated that approval will be granted. Below is a summary of the key anticipated changes:

Statutory sick pay

Statutory sick pay (“SSP”) will increase to £123.25 per week. This coincides with the expansion of the SSP system which will see statutory sick pay being payable from day one of sickness and to include all employees.

Family friendly payments

Maternity pay, maternity allowance, statutory adoption pay, statutory paternity pay, statutory shared parental pay, statutory neonatal care pay, and statutory parental bereavement pay are set to increase to £194.32 per week.

The minimum amount employees need to earn to qualify for these payments (except maternity allowance) will increase from £125 to £129 per week. The threshold for maternity allowance is set to remain at £30 per week. Those employees who do not earn the qualifying amount will not be eligible to receive these payments.

Acas early conciliation extension

Employees who wish to bring a claim to an employment tribunal must first notify Acas, who will offer a period for early conciliation. The period for early conciliation has been increased from 6 to 12 weeks for any case notified to Acas for early conciliation on or after 1 December 2025. This is an attempt to increase the opportunity for parties to settle and allow for meaningful engagement. The Government plans to review this increased period in October 2026 to determine whether they should revert to a shorter period or whether 12 weeks is appropriate.

Non-compete clauses reform

On 26 November 2025, the Government published a working paper on options to reform the use of non-compete clauses in employment contracts, in light of concerns that they may impact growth. The working paper suggests alternative policy options, including:

• a statutory limit on the length of non-compete provisions;
• a ban on non-compete clauses other than for high earners;
• a statutory limit on the length of non-compete provisions linked to business size; and
• a complete ban on any form of non-compete clauses.

These are currently just suggestions for reform. Whether any of these proposals will become law is currently unknown. The closing date for responses is 18 February 2026

How we can help

We would be happy to advise you further to include how to protect your position (as an employer, employee or worker), please contact Holly Milne-Peasey or a member of our Employment Law team.