Blog: Friday 16th January - Capsticks, Corporate Partner: Employment law reforms in 2026 – is your authority ready?

Employment law reforms in 2026 – is your authority ready?

On 18^th December 2025 Royal Assent was given for the long-awaited Employment Rights Bill. Having finally received approval from the House of Lords, The Employment Rights Act 2025 sets out a long list of important changes for lawyers, HR professionals and managers.

This is undoubtedly the biggest change to employment law in a generation, and the changes are particularly significant for the local government sector, which is already facing significant upheaval with Local Government Reorganisation (LGR).

The Act itself is 331 pages, with 30 different “topics” of reform. It is critical that Councils are well advised on what exactly is coming into force, when, and how to prepare for and resource these reforms.

The scale of change is perhaps underlined by the response of the LGA (18 December 2025), which noted: “Costs flowing from employment reforms must be matched by increased funding to councils for the reforms in the new Act to be effective.  Changes will affect directly employed staff, outsourced workers and the whole adult social care sector... Local Government needs to be engaged by Government on how the Act is implemented, otherwise the resultant bureaucratic and legal burdens on councils will mean public money is diverted from vital local services.”

We don’t disagree with any of those points. We would add that many of the changes which will impact the sector most are coming into force during this year.

Key dates

• From 1 April 2026 we will have the new Fair Work Agency, which will have powers to undertake its own investigations of employers, and impose fines to enforce employment law, e.g. around minimum wage and holiday pay.
• 1 October 2026: Perhaps the most significant date whereby:
  • Employment Tribunal time limits will be extended from three to six months;
  • New rules restricting use of “fire and rehire”/replace with associated liabilities;
  • New rules on sexual harassment including a duty to take ‘all reasonable steps’;
  • Employer liability for third party harassment of employees and workers;
  • New rules on public sector outsourcing regarding “equality of terms”; and a raft of new rules relating to trade unions and related employment rights.

We set out below one key change in particular for your 2026 agenda.

Unfair dismissal compensation claims

We now know that we will have a new qualifying period for unfair dismissal claims – six months’ service, rather than the current two years. This is somewhat more manageable than the promised “day one rights”. However, a last minute change to unfair dismissal compensation was added to the Bill in the weeks prior to the passing of the new Act.

To set the scene: for decades, we have been used, to an overall cap on the compensatory award. The cap on the compensatory award rose annually with inflation, and is currently £118,223, or 52 weeks’ pay (whichever is lower). This meant that in unfair dismissal claims, regardless of the individual’s salary, and how long it might take that individual to find another similarly-paid job, unfair dismissal “exposure” was quantifiable, and generally not more than £135,000 (including the basic award). However, such certainty is about to disappear, as the cap will be removed from 1 January 2027. This means it will be much more attractive for employees to bring unfair dismissal claims as they may seek larger sums, for example for a long period of seeking employment, plus potentially lost benefits/bonus, and future pension loss. There is simply more to fight for. Expert evidence on such losses may be required. This will be particularly important where Claimants have a health concern (and the dismissal is not related to health/disability) or are older, particularly those individuals who are nearing retirement age. Unfair dismissal claims may take longer to resolve, in a context where Tribunal claim numbers are rising, and with claims already often waiting more than two years for a hearing.

The Government’s Economic Analysis of the Act (January 2026) has anticipated that health and social work, education, and public administration will have the highest number of employees who will be covered by the act in absolute terms. Coming back to the LGA’s warning, it will be imperative that your authority is appropriately advised and resourced for the increased “bureaucratic and legal burdens”.

Government has also expressly recognised the potential for “unintended consequences” flowing from the Act, and to mitigate this, will open a number of consultations during 2026. The consultation on the Fair Pay Agreement process in Adult Social Care closed today (16 January 2026), and the Government intends to establish the “Adult Care Negotiating Body” and introduce fair pay agreements for the adult social care sector in October 2026.

What to watch out for now

We expected consultations in Autumn 2025 on a number of areas, including: fire and rehire, ending the exploitative use of zero hours contracts, trade union measures, collective redundancy and flexible working. We don’t yet have dates for these consultations, but given that some relate to reforms which will be implemented in October 2026, we expect the consultation papers to be published soon.

Do contact us for our resources on the full list of reforms in the ERA 2025, with key dates, and our expert guidance on how to prepare. (880)