The Employment Rights Act 2025: What Public Sector Employers Need to Know

Many of these changes will have a significant operational and financial impact on public sector employers, particularly local authorities and schools, where large workforces, high levels of unionisation and public accountability increase exposure to risk.

This article highlights some of the most significant reforms and, importantly, what they mean in practice for in-house local government legal and HR teams.

• Unfair Dismissal
• Qualifying period reduced from two years to six months

What is changing and when?

From 1 January 2027, employees will be eligible to bring an unfair dismissal claim after six months’ continuous service. This represents a significant reduction from the current two-year qualifying period (although it stops short of introducing full day-one protection which was originally planned by the UK Government).

This change is expected to bring millions more employees within scope to bring claims, meaning that dismissals which previously carried limited legal risk may now be challengeable.

Impact on public sector employers

• Greater exposure to claims: A much larger proportion of the workforce will have unfair dismissal protection, increasing litigation risk across all services, including schools and frontline roles.
• Recruitment and onboarding: Employers should ensure recruitment processes are robust and defensible. Poor recruitment decisions will carry greater downstream risk if issues arise within the first year of employment.
• Probation management: Employers should review the structure and use of probation periods. In practice, this is likely to mean:
• actively managing performance from the outset; and
• considering shorter, more actively managed probation periods (e.g. 3–4 months), rather than relying on a six-month review point, so that fair probation decisions can be made in good time before an employee does acquire qualifying service;
• ensure probation management is fully documented, and that decisions can be justified if there is any scrutiny of decisions in litigation
• Removal of the compensatory award cap

What is changing and when?

Currently, the compensatory award for unfair dismissal is capped at the lower of £123,543 or 52 weeks’ gross pay (subject to annual uprating). From 1 January 2027, this cap will be removed, meaning compensation will no longer be limited to one year’s pay.

This brings unfair dismissal closer in line with discrimination and whistleblowing claims, where compensation is already uncapped.

Impact on public sector employers

• Increased financial exposure: Employers face significantly greater and less predictable financial liability, particularly in cases involving senior or long-serving employees, and an unfair dismissal claim will become a much more valuable claim for more senior employees.
• Settlement strategy: The removal of the cap is likely to affect how employers and claimants approach settlement discussions and risk assessment, especially in higher-value claims.
• Procedural robustness: There will be an increased need to ensure that dismissal processes are fair, well-documented and consistently applied. Investment in manager training and clear procedures will be critical to reducing risk.

• Restrictions on “Fire and Rehire”

What is changing and when?

Section 28 of the ERA 2025 introduces significant restrictions on the practice of dismissal and re-engagement (known as “fire and rehire”), an issue brought into sharp focus following the events involving the actions of P&O Ferries against its staff in 2022.

From 1 January 2027, it will be automatically unfair to:

• dismiss an employee for refusing to accept certain contractual changes; or
• dismiss and replace them with another individual on substantially the same role but less favourable terms.

“Restricted variations” include changes such as reduced pay, altered working hours or patterns, reduced holiday entitlement, and pension changes.

A narrow financial difficulty exception applies. For public sector employers:

• most must demonstrate serious financial difficulties affecting the sustainability of statutory functions; and
• local authorities must show that a formal “relevant intervention direction” has been issued by central government.

In all cases, employers must also demonstrate that the changes could not reasonably have been avoided.

Impact on public sector employers

• Reduced flexibility: Employers will have significantly less scope to impose contractual changes unilaterally, even in challenging financial circumstances. In practice, the exception for permitting fire and rehire will be very rarely met, meaning employees and their union representatives have stronger collective bargaining positions
• Workforce planning: Organisations may need to rely more heavily on alternative approaches, such as restructuring or redundancy, rather than contractual variation with no changes to job roles or numbers.
• Contract drafting: While flexibility clauses may assist, they must be carefully drafted and applied to be enforceable and are unlikely to provide a complete solution.

• Strengthened Duty to Prevent Harassment (Including Third Parties)

What is changing and when?

Section 20 of the ERA 2025 strengthens the duty on employers to prevent sexual harassment. The current requirement to take “reasonable steps” will be replaced with a more onerous duty to take “all reasonable steps”. In addition, employers will be liable for harassment by third parties who have contact with employees (e.g. service users, parents, contractors) where they have failed to take all reasonable steps to prevent it. These changes are expected to come into force in October 2026. Further statutory guidance is anticipated, but may not be available until after implementation.

Impact on public sector employers

• Third-party risk: This is particularly relevant in the public sector, where employees frequently interact with members of the public, including in social care, housing, education and customer-facing roles.
• Proactive risk management: Employers should:
• carry out and regularly review risk assessments;
• identify high-risk roles and environments; and
• implement much more robust and pro-active preventative measures (e.g. reporting mechanisms, signage, behavioural policies for service users).
• Training and culture: Staff training will be essential, both to prevent incidents and to ensure appropriate responses where issues arise. Codes of good conduct for service users and other third parties may also need to be considered

• Flexible Working: Additional Requirement of “Reasonableness”

What is changing and when?

Under the ERA 2025, employers will not only need to rely on one of the prescribed statutory grounds for refusing a flexible working request (set out in section 80G ERA 1996), but must also demonstrate that the refusal is reasonable.

This change is expected to come into force in 2027.

Impact on public sector employers

• Higher threshold for refusal: It will become more difficult to reject flexible working requests, requiring more careful consideration and documentation.
• Decision-making processes: Employers should ensure that:
• decisions are evidence-based;
• alternatives are genuinely considered, and trial periods are used more frequently; and
• clear reasons are recorded.
• Consistency: Given the scale of public sector workforces, consistency across departments and services will be key to managing risk.

• Strengthened Trade Union Rights

What is changing and when?

The ERA 2025 introduces significant reforms to trade union law, including the repeal of much of the Trade Union Act 2016 and the Strikes (Minimum Service Levels) Act 2023.

Key changes include:

Since February 2026:

• reduced notice period for industrial action (14 days to 10 days);
• simplified ballot requirements;
• extended industrial action mandates (6 to 12 months); and
• strengthened protections relating to union activity.

From April 2026:

• simplified statutory recognition thresholds; and
• removal of the requirement for 40% of eligible voters to support recognition.

From October 2026:

• a new duty on employers to inform employees of their right to join a trade union;
• protection against detriment to employees which is short of dismissal for participating in industrial action; and
• a statutory right for trade unions to access workplaces (via an “access request” process).

Electronic balloting will also be introduced from August 2026 onwards.

Impact on public sector employers

• Increased union activity: Given the high level of unionisation in the public sector, these changes are likely to lead to more recognition applications and greater union presence, and early forceful attempts by unions to assert these new statutory rights in the workplace.
• Greater likelihood of industrial action: Easier balloting and longer mandates may result in more frequent and sustained industrial action, and will increase union’s bargaining positions.
• Operational impact: Employers should prepare for high probabilities of industrial action and disruption, and ensure contingency planning is in place.
• Engagement strategies: There will be a greater need for proactive and constructive engagement with trade unions, particularly in managing workplace change.
• Policy updates: Employers should review policies and documentation to reflect new obligations, including the duty to inform employees of their right to join a union and processes for handling access requests.

Conclusion

The ERA 2025 represents the most significant shifts in UK employment law in generations, with key reforms taking effect throughout 2026 and 2027. For public sector employers, the combination of increased employee protections, enhanced trade union rights and greater financial exposure will require a more structured and proactive approach to workforce management.

Early preparation will be critical. Legal and HR teams should work together now to review policies, train managers and identify areas of risk, ensuring their organisations are well-positioned to respond as these changes come into force.