Employment Rights Act 2025 – Construction Sector Key Developments

January 13, 2026
Key Developments

1. Unfair dismissal qualifying period

Summary

The government has confirmed a six-month qualifying period for unfair dismissal. While this is not the day-1 protection they initially planned, it still represents a significant reduction from the previous two‑year threshold and materially strengthens early employment rights. This might be more challenging when it comes to site or project based employee

Impact on the construction sector

  • Reduced flexibility to terminate short-term and/or site-based hires after the first six months.
  • It may be difficult to balance the increased importance of structured onboarding, probation management and documentation with site or project based employees.
  • Greater risk exposure where performance issues do not arise in the first 6 months or where other issues are discovered later down the line

Practical steps

  • Prepare line managers to manage performance and conduct issues ideally from day 1 but from 6 months onward at the latest!
  • Put in place robust probation processes tailored to site or project based roles and will need to ensure that they are followed.

2. Compensation cap abolished

Summary

The Act removes the statutory cap on unfair dismissal compensation, aligning claims with discrimination and whistleblowing. This increases the financial exposure associated with standalone unfair dismissal claims, however those claims are more unusual. Discrimination claims have also been uncapped for years, and it hasn’t increased the amount of claims being brought. So, there may not be as big a change as you might expect!

Impact on the construction sector

  • Increased financial exposure in unfair dismissal disputes, particularly on large projects with senior or specialist staff.
  • Greater litigation risk for poorly managed exits or informal site dismissals.

Practical steps

  • Support line manager to ensure performance management or any other formal or informal process is documented and supported.
  • Make sure that dismissal decision-making procedures are up to date, clear and in line with employment law.
  • Factor potential increased liability into settlement and dispute strategies (if necessary).

3. Employment status and “false self-employment”

Summary

The Act strengthens scrutiny of employment status, particularly where individuals are labelled as self employed but operate as workers or employees in practice.

Impact on the construction sector

  • Increased risk of labour-only subcontractors, CIS operatives and long-term site-based contractors.
  • Potential challenges to existing contractor models.
  • Greater exposure to backdated claims (Holiday pay, sick pay, pension contributions).

Practical steps

  • Ensure contracts and working practices align, particularly around control, substitution and mutuality of obligation, as well as with what is actually happening on the ground.
  • Audit working practices across sites (control, substitution, integration).
  • Review long-term contractor engagements.

4. Agency workers and zero-hours arrangements

Summary

Measures aimed at improving predictability and security of work may affect sectors, like construction, which are more reliant on agency labour and variable hours.

Impact on the construction sector

  • Possible restrictions on zero-hours arrangements commonly used to manage fluctuating project demand.
  • Increased obligations to offer predictable working patterns.
  • Greater compliance requirements when using agency labour.

Practical steps

  • Forward-plan workforce requirements across projects including greater due diligence when using agencies.
  • Review agency contracts and assignment structures.
  • Prepare for increased administrative compliance

5. Statutory sick pay and family friendly-rights

Summary

Enhanced statutory sick pay and expanded family-friendly rights are likely to increase costs and administrative obligations.

Impact on the construction sector

  • Higher payroll costs, particularly for SMEs and subcontractors.
  • Operational challenges managing absence on live projects.
  • Greater disruption risk to project delivery timelines.

Practical steps

  • Forward-plan workforce requirements across projects including greater due diligence when using Build contingency planning into project resourcing and review absence management process.

6. Enforcement and penalties

Summary

The Government has indicated a more proactive enforcement regime, with increased penalties for non compliance.

Impact on the construction sector

  • Increased risk of inspections and enforcement action.
  • Greater exposure where pay, status or working time breaches occur.
  • Reputational risk where breaches occur on high-profile projects.

Practical steps

  • Ensure consistent compliance across all sites.
  • Maintain clear records of status, pay and hours.
  • Prepare for regulatory scrutiny.
5-Step Employment Rights Act Readiness Plan for Construction Sector Employers:
  1. Conduct a full audit of workforce models across all sites and projects.
  1. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
  1. Update contracts, policies and onboarding documentation to reflect increased risk.
  1. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
  1. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.

Construction businesses that rely on flexible or informal labour arrangements will face increased scrutiny and risk. Ultimately, proactive review and planning will be essential to managing cost, compliance and continuing of projects. Of course, if you have any concerns, contact us to seek specialist employment law advice at the earliest opportunity!

Cassie Blackledge
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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