Employment Rights Act 2025

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 for employees. 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, site-based or fixed-term employees once they have six months’ service from 1 January 2027 onward.  Therefore, consideration must be given to onboarding and recruitment from 1 July 2026.
• Construction employers will need stronger onboarding, probation management and dismissal documentation for site and project based employees.
• There will be greater risk exposure where performance, conduct or project fit concerns are not identified and addressed within the first six months.

Practical steps

• Prepare line managers to manage performance and conduct issues from day one, with particular focus on the period leading up to six months’ service.
• Put in place robust probation and fixed-term contract review processes tailored to site- and project-based roles, and ensure that they are followed consistently.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers:

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.

Summary

As of 6 April 2026, the compensation cap for unfair dismissal claims is 52 weeks’ gross pay or £123,543.  From 1 January 2027, the compensatory cap for ordinary unfair dismissal will no longer apply.  This significantly increases the potential value of serious unfair dismissal claims, particularly for higher earners and specialist staff in line with discrimination and whistleblowing awards.

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 managers to ensure that performance management, consultation and any other formal or informal process is properly documented and supported.
• Make sure that dismissal decision-making procedures are up to date, clear and legally robust well before 1 January 2027.
• Factor increased liability into settlement, insurance and dispute-management strategies where appropriate.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.

Summary

The Act does not itself rewrite the legal tests for worker or employee status. However, it strengthens enforcement through the Fair Work Agency, brings umbrella companies within regulatory scope and confirms that the Government will continue to assess options for improving the employment status framework.  In practice, this is likely to increase scrutiny of labour-only subcontractor, CIS and long-term contingent labour models.

Impact on the construction sector

• Increased scrutiny is likely for labour-only subcontractors, CIS operatives, umbrella arrangements and long-term site-based contractors.
• Existing contractor and labour-supply models may face greater challenge if the contractual position does not match day-to-day working practices.
• There is greater exposure to backdated claims and enforcement action in areas such as holiday pay, SSP, national minimum wage and pension contributions where status has been miscategorised.
• Employers will be under a statutory duty to keep holiday pay and leave records for 6 years.

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.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.

Summary

The Act introduces rights aimed at tackling one-sided flexibility, including guaranteed hours for qualifying zero-hours and low-hours workers, reasonable notice of shifts, payment for shifts cancelled, moved or curtailed at short notice, and corresponding rights for agency workers. Most of these changes are expected in 2027, with further detail to be set out in regulations.

Impact on the construction sector

• Employers will need to offer guaranteed hours to qualifying zero-hours, minimum hours and irregular hours workers whose working patterns are sufficiently regular, although workers will be able to decline those offers if they wish.
• Workers will gain the right to reasonable notice of shifts and any changes/cancellations (with minimum notice periods to be set by regulations).
• Workers will be entitled to compensation for short notice cancellations where they reasonably believed they would be working.
• There will be increased obligations around shift planning, notice and compensation for short-notice changes to working patterns.
• There will be greater compliance requirements when using agency labour and project-based resourcing models. For agency workers, notice obligations will be shared between the agency and hirer and cancellation payments must be made by the agency with a recovery option from the hirer.

Practical steps

• Forward-plan workforce requirements across projects and carry out greater due diligence when using agencies and flexible labour models.
• Review agency contracts, assignment structures and shift-allocation practices.
• Prepare for increased administrative compliance, including record-keeping around hours worked, shift notice and cancellations.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.

Summary

Some family-friendly and sick pay changes are already in force. From 6 April 2026, SSP is payable from day one and the lower earnings limit has been removed.  Paternity leave and unpaid parental leave are now day one rights, and paternity leave can be taken after shared parental leave.  Further changes, including unpaid bereavement leave and stronger dismissal protection for pregnant workers and those returning from statutory family leave, are expected in 2027.

Impact on the construction sector

• Higher payroll costs and administrative burdens are likely, particularly for SMEs, subcontractors and labour-intensive projects.
• Operational challenges managing absence on live projects.
• Greater disruption risk to project delivery timelines.
• Those earning less than the lower earnings limit will be entitled to SSP at a rate of 80% of weekly earnings. 

Practical steps

• Forward-plan resourcing across projects, budget for increased SSP and family leave administration, and review absence reporting, cover arrangements and return-to-work processes.
• Ensure contracts and policies are updated to align with the changes.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.

 

Summary

The Act has moved the UK towards a more proactive enforcement model. The Fair Work Agency was established on 7 April 2026 and can enforce a broader range of rights, including holiday pay and statutory sick pay. Employers must also keep annual leave and holiday pay records for at least six years from 6 April 2026, and most employment tribunal time limits are due to increase from three months to six months in October 2026.

Impact on the construction sector

• There is an increased risk of inspections, civil enforcement action and claims being brought over a longer tribunal time window.
• There is greater exposure where holiday pay, SSP, pay, status, working time or record-keeping breaches occur.
• Reputational risk where breaches occur on high-profile projects.
• Workers will gain the right to reasonable notice of shifts and any changes/cancellations (with minimum notice periods to be set by regulations).  Workers will be entitled to compensation for short notice cancellations where they reasonably believed they would be working.
• The Fair Work Agency will also regulate umbrella companies in the same way as recruitment agencies.
• Notices of underpayment can be issued to employers by the Fair Work Agency, specifying the amount payable within 28 days.  This is combined with a penalty of 200% of the sum due, payable to the Secretary of State.
• The Fair Work Agency will be able to bring proceedings on behalf of a worker and provide assistance for claims.

Practical steps

• Ensure consistent compliance across all sites.
• Maintain clear records of status, pay and hours.
• Prepare for regulatory scrutiny, longer claim windows and more detailed requests for records.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour‑only subcontractors and long‑term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment law compliance and early‑stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into tendering, pricing and project planning.
6. Construction employers should also monitor the 2027 reforms on collective redundancy and fire and rehire. The maximum protective award for failure to collectively consult has already doubled to 180 days’ pay, and a further organisation-wide redundancy threshold is expected to be introduced by regulations. In addition, dismissing and re-engaging employees to impose certain core contractual changes will become automatically unfair in most cases unless a narrow financial-distress exception applies.

Employee Incentive Schemes (EMIs) are a strategic initiative implemented by a company to reward, retain and recruit its employees for achieving specific goals, improving performance, or contributing to the overall success of the business.

How can we help?

• Enterprise Management Incentive (EMI) Scheme
• Setting up an EMI scheme
• Long Term Incentive Plan (LTIP)
• Company Share Option Plan
• Growth Share Schemes
• Schemes for Startups

The implementation of an EOT involves the transfer of shares in a trading company, from the original owners, to a trust. The trust then holds the shares on behalf of the employees of the company.

Herrington Carmichael have a specialised team who have represented many clients in various EOT transactions.

We are able to advise on all stages of the EOT process, including:

• providing initial guidance on whether the relief requirements as set out in s236H(4) TCGA 1992 are likely to be satisfied to allow CGT relief to be obtained;
• preparation of the HMRC clearance letter;
• management of the due diligence process;
• assisting in the explanation of the EOT process to employees;
• advising on the trust composition;
• drafting and negotiating transaction documents; and
• advising on post-completion requirements.

Our Franchise Solicitors regularly advise on:

• Reviewing and negotiating franchise agreements
• Advising on establishing franchise networks
• Drafting and reviewing operations manuals
• Disputes between franchisors and franchisees
• Franchise contracts and employment advice
• Franchise data protection
• Franchise sub-lease agreements

Our expertise in franchising enables us to provide our clients with up to date market advice and solutions which are proportionate to the business risks posed to them as well as ensuring that they are within budget.

Our bespoke service provides our clients with invaluable assistance in negotiating a franchise on favourable terms, whether we’re acting for the franchisee or the franchisor, rather than merely just attending to drafting the legal documentation.

Our corporate insolvency team has vast experience in both the contentious and non-contentious aspects of insolvency, recovery and restructuring, regularly helping clients through difficult distressed situations.

Herrington Carmichael provides its expert advice to licenced insolvency practitioners, private companies, individuals and creditors on a full suite of insolvency, recovery and restructuring arrangements.

How can we help?

• Administrations
• Company Voluntary Arrangements
• Creditor Claims
• Debt recovery
• Directors in insolvency
• Distressed M&A
• Enforcing security
• Insolvency disputes
• Liquidations
• Regulatory Advice 
• Statutory Demands
• Winding-up Petitions

Our International Legal Services continue to support our business growth and our network of clients and referrals worldwide.

Herrington Carmichael has a diverse client-base covering international organisations, entrepreneurial businesses and individuals. We regularly provide and coordinate advice on international legal projects across a range of jurisdictions.

We are a long-standing member of the IR Global network having established relationships with over 160 firms in all major jurisdictions across Asia, Africa, the Americas and Europe, meaning we are well equipped to provide international legal advice and support that’s tailored to your requirements.

We also support our client’s international requirements by working with like-minded independent law firms around the globe or their existing counsel. We work with firms that share our values and provide expert advice. We have invested considerable resources establishing relationships within our network so that we can be transparent and work without interruption to support your needs.

International Services:

• Business Lawyers 
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• UK & International Property Lawyers
• Private Wealth & Family Lawyers
• Expat Legal Advice 

Our M&A team provides pragmatic, commercially-relevant and bespoke advice at all stages of M&A transactions. Whether it’s structuring a data room for a vendor-led staged process bidding process, negotiating on your behalf during an all parties meeting or advising on a sale or acquisition, our team will provide their commercially relevant knowledge throughout the transaction. We advise clients in all stages of their business lifecycles, ranging from rapid-growth start-ups to listed corporates allowing us to provide tailored corporate advice relevant to the unique circumstances of each of our clients.

The M&A team cover a wide range of transaction types, ranging from smaller transactions to multi-million pound, complex deals. One section of the team specialises in complex M&A which involves intricate consideration mechanisms, multiple phased transactions, reorganisation of group structures pre-acquisition and often in tandem with our overseas colleagues where the transactions have international elements.

Yavan Brar leads the complex M&A team, using his particular understanding of the law and his skillset in translating the clients’ desired commercial outcomes into the drafting.

Some recent M&A Corporate deal highlights:

• DataOps.Live – advice on their £70 million Series Seed funding round led by the west-coast US venture capital investor, Anthos Capital alongside co-investor, Snowflake Ventures
• $60 million – New York Stock Exchange listed SatixFy Communications Ltd advised on sale of SatixFy Space Systems UK Limited
• £21.2 million sale of national financial advisory business to market consolidator
• £10.5 million sale of self-storage asset to US private equity fund
• £8.2 million sale of market-leading travel agency
• £5.3 million trade sale of multi-generational steel business to key supplier
• £2.7 million acquisition of independent financial advisor business by expanding financial advisory network
• £400k sale of UK manufacturing branch of US-based private equity backed label business
• £250k pre-pack sale of the business and assets of a national EV station installer in administration
• £100k sale of the business and assets of an insolvent regional audio-visual installer during liquidation

Private Equity or Venture Capital firms often have strict rules that companies need to adhere to if they want to take the investment and so the drafting of the legal documents is complex and comprehensive work. Herrington Carmichael have a large team of lawyers who have expertise in dealing with private equity firms and venture capital funds.

Our expertise extends to navigating the intricate regulatory landscape for private equity and venture capital houses and their investors. We assist in establishing tax-efficient funds, collaborating with tax advisors to devise structures that align with contemporary practices in private equity.

In the UK, Private Equity (PE) and Venture Capital (VC) investments necessitate careful consideration of various regulatory factors to ensure adherence to local laws and regulations. Consideration of these UK-specific regulatory factors is crucial for successful PE and VC investments, especially when engaging with entities like NS&I. Collaborating with legal professionals well-versed in the UK regulatory landscape is essential to navigate these complexities effectively. Here at Herrington Carmichael, we have the necessary skills and experience to assist you completing these types of transactions successfully and efficiently.

At Herrington Carmichael, we understand the intricacies of corporate restructuring in the UK landscape. Trust us to tailor legal solutions that align with your business goals, enabling you to navigate changes effectively and emerge stronger. Your success is our priority.

Our expertise in corporate restructuring ensures your business navigates transformative changes seamlessly. Our tailored solutions encompass demergers, Employee Ownership Trusts (ETOs), mergers and acquisitions (M&As), and the strategic separation of property from trading operations.

Demergers
When businesses need to realign their structures, our legal team facilitates demergers, ensuring a smooth separation of entities to optimise efficiency and focus.

EOTs
EOTs empower businesses by facilitating the transfer of ownership to employees, fostering a sense of shared responsibility and commitment. We have extensive experience with these types of corporate structure allowing favourable outcome for owners, shareholders and employees.

Mergers and Acquisitions
Navigating the complexities of M&As demands legal finesse. Our experts guide clients through every stage, from due diligence to post-transaction integration, ensuring a seamless process.

Separation of Property from Trading
Efficiently separating property assets from trading operations is crucial. We provide strategic counsel to safeguard your interests and maximise operational effectiveness.

Core Business and Ancillary Separation
Identifying and separating core business functions from ancillary operations requires precision. Our team ensures a streamlined process, protecting your core assets and promoting sustained growth.

At Herrington Carmichael we have specialist SEIS and EIS lawyers who can assist with implementing your plans.

As companies look to grow, external investment is often turned to by businesses through the provision of extra capital to fund growth plans. However, many external investors are reluctant to invest in a business until they fully understand the consequences of doing so, which includes the taxation impact of the investment.

The Enterprise Investment Scheme (“EIS”) and the Seed Enterprise Investment Scheme (“SEIS”) are tax-efficient government-backed schemes which allow qualifying businesses to fundraise from investors who are tax-resident in the UK.