UK Employment Rights Act 2025 - what do Heads of Internal Audit need to know?
UK Employment Rights Act 2025 - what do Heads of Internal Audit need to know?
The Employment Rights Act 2025 (UK) (“the 2025 Act”) is a major reform of employment law (building on the Employment Rights Act 1996), with significant changes coming into force during 2026 and 2027. The key provisions are set out below:
Zero hours contracts and agency worker provisions
The 2025 Act increases the rights of individuals employed under zero hours or low-hours contracts. This is particularly relevant to the hospitality and retail sectors where such contracts are widespread. The increased rights will also apply to agency workers, where most of the obligations will fall upon the end-hirer.
Previously, employers were not required to provide any minimum working hours under such contracts. From 2027, employers will be required to make a guaranteed hours offer (“GHO”) to zero-hours workers, if they worked during a specified period and completed a specified number of hours. The offer must constitute a new contract or variation that requires the employer to provide work for the individual in line with the hours actually worked in the specified period. Where agency workers are concerned the GHO must match the most favourable pay the agency worker received in the reference period or the pay or a comparable worker.
Individuals employed under zero hours or low hours contracts will be entitled to reasonable notice from their employer of shifts and changes to or cancellations of shifts. They will also have the right to be paid if a shift is cancelled, rescheduled or reduced by their employer without sufficient notice. For agency workers the payment is to be made by the employment agency.
At this stage, much of the detail behind these principles is subject to further consultation and will require secondary legislation. The key areas that still require confirmation include reference periods, qualifying conditions, guaranteed hours offer requirements, reasonable notice standards, shift payment provisions and compensation limits.
Organisations will need to introduce new administrative processes so they are able to monitor the hours worked by each qualifying individual, track reference periods and shift changes as well as issuing GHOs promptly. If they do not get this right, employers could face a claim in an employment tribunal.
Unfair dismissal rights
All employees have a statutory right not to be unfairly dismissed by their employer. Some reasons for dismissal are considered to be “automatically unfair” such as making a flexible working request, being pregnant or on maternity leave, wanting to take family leave/ time off for dependents, trade union participation, asking for a legal right or doing jury service. From 1 January 2027, dismissing someone then rehiring them on worse terms and conditions (“fire and rehire”) will also become an automatically unfair dismissal in most cases. Some reasons for dismissal are considered “wrongful.” These include dismissal without notice or notice pay, not giving the full notice period or not following a contractually binding disciplinary or redundancy procedure. Dismissal for reasons of race, sex or other protected characteristic is discrimination under the Equality Act 2010. Regardless of how long an individual has worked for an organisation, they are entitled to make a claim to an employment tribunal under any of these circumstances.
Wider protections against unfair dismissal are available to employees that have worked for an organisation for a specified period of time. These protections entitle the individual to make a claim to an employment tribunal even if their dismissal is not automatically unfair, wrongful or discriminatory. This includes a broad range of scenarios such as misconduct, capability (including under-performance) and redundancy. The tribunal will find against the employer in these circumstances, if there is not a valid reason for dismissal, the decision is not balanced, consistent and fair and the employer has not followed a full and fair procedure – for example the ACAS Code of Practice.
From 1 January 2027, these wider protections will be available to any employees who have six months continuous service, compared with the two year qualifying period previously set out in the legislation. In addition to this, the cap on compensation for unfair dismissal has now been removed. Previously, the maximum compensation that could be set by the tribunal was the lower of a year’s gross pay or £123,543. There is now no limit to the compensatory award which means there is potentially uncapped liability for the employer. Polkey v AE Dayton Services Limited (“Polkey”) deductions - where the individual would have been dismissed even if a fair process had been followed - and contributory fault arguments will assume greater significance as employers look to limit liability where possible.
Finally, employees now have more time to make a claim to a tribunal for unfair dismissal. From October 2026, the time limit will be extended from three to six months minus one day from the date their employment ended.
HR procedures may therefore need to be strengthened, with a greater focus on onboarding, probation and performance management processes to enable employers to identify and address any issues before the six month period elapses and to ensure that they can demonstrate that they have treated any employees leaving the organisation fairly.
Day one rights
Since April 2026, paternity leave and unpaid parental leave have become day one rights under the 2025 Act. Previously employees were required to have worked for 26 weeks to be eligible for statutory paternity leave and 52 weeks to be eligible for parental leave.
Statutory Sick Pay (SSP) is now payable from day one of sickness at a rate of the lower of either the annually fixed flat weekly rate or 80% of weekly earnings. Previously the entitlement to SSP began after four days of sickness. The lower earnings limit has been removed and all employees are entitled to SSP.
HR systems, policies, procedures and contracts will all need to be updated and training put in place for managers so that they understand and apply these changes appropriately.
Harassment
Since October 2024 employers have been required to take ‘reasonable steps’ to prevent sexual harassment of their staff. This shifted the emphasis, requiring them to adopt a more a proactive approach involving active measures to prevent harassment, including updating policies in respect of conduct, risk assessments, action plans, taking steps relating to the reporting of sexual harassment, complaints handling and employee training.
The 2025 Act extends these responsibilities from October 2026 and employers will need to take 'all reasonable steps' to prevent sexual harassment. At this stage, the UK Government has not provided a definition of “ all reasonable steps” so businesses will need to rely on best practice guidance such as the UK’s Equality and Human Rights Commission (“EHRC”) guidance which includes measures such as those described above.
From 6 April 2026, sexual harassment is a 'qualifying disclosure' under whistleblowing law. This means whistleblowers making a sexual harassment disclosure have protection from detriment and unfair dismissal.
From October 2026, employers will also be liable for any harassment of their employees from third parties, for example customers or clients, unless they have taken all reasonable steps to prevent it happening. Employers will need to consider external risks and review and update where necessary the policies and procedures that they have in place to protect their employees from harassment beyond their direct control. This will be especially significant where employees are dealing with clients, customers, suppliers or members of the public.
Non-disclosure agreements
Although this matter is still subject to ongoing consultation, from 2027 onwards it is proposed that any non-disclosure provision in an agreement between an employer and an employee will not be valid if it aims to restrict disclosure by the employee of an allegation of harassment or discrimination or how the employer responded.
This will be a significant change. Confidentiality clauses in employment contracts, settlement agreements and other documents will need to be reconsidered. Internal policies on how harassment allegations are investigated, reported and resolved may also need to be revised recognising that employees will be able to make public the allegations and the employer’s response.
What this means for Heads of Internal Audit
If they have not done so already, organisations in the UK need to get to grips with the consequences of the 2025 Act quickly. If they do not, they may find themselves exposed to an increasing number of employment tribunal claims and uncapped liability in the event of an unfair dismissal claim.
For those with employees on zero hours or low hours contracts, new systems and processes will need to be put into place to meet the requirements of the legislation. It is also essential that onboarding, probation and performance management processes are reviewed and training provided to line managers before 2027 when unfair dismissal rights become available to employees after six months.
Increased responsibilities for employers in respect of harassment and discrimination and improved protection for employees means that in this area too, procedures and training need to be carefully reconsidered.
Heads of Internal Audit should therefore be ensuring that this matter is high on the agenda of the Audit Committee and assessing whether assurance is required in their annual internal audit plans.