Employment law

Why it matters:

From 1 January 2027, the qualifying service period for unfair dismissal protection will reduce from two years to six months. This means that all current employees, as well as new recruits starting between now and 1 July 2026, will immediately have unfair dismissal protection from 1 January 2027. Also from 1 January 2027, the unfair dismissal compensation cap (currently the lower of a year's pay and £118,223) will be removed, allowing employees to claim unlimited compensation for financial loss. 

Our view:

These changes will almost certainly result in an increase in Employment Tribunal claims, both from employees who would not previously have had enough service and also from high earners for whom an unfair dismissal claim may not have been worthwhile under the current capped compensation regime. Settling unfair dismissal claims and negotiating senior exits are likely to become more difficult. Effective operation of probationary periods, as well as proactive performance management on an ongoing basis, will become even more important.

Why it matters:

UK employers have been required since October 2024, to take reasonable steps to prevent sexual harassment of employees, including by third parties such as suppliers. In October 2026 employers will become liable for harassment of any kind (including harassment relating to gender, race, disability and religion/belief) of staff by third parties, unless they take reasonable steps to prevent it. In addition, employers will be unable to use confidentiality clauses to stop employees disclosing information about harassment or discrimination, except in certain circumstances (the detail of which is awaited). 

Our view:

This extension of employer liability for harassment will require employers to assess the risks of third-party harassment in their workplace and implement measures to reduce the risk (such as updating third party contracts). The new confidentiality restrictions may make settlement agreements less attractive if the parties cannot be sure that the details will remain private. Or it may be that employers move away from including confidentiality provisions in settlement agreements (as some employers already are). Either way, it is more likely that harassment allegations could become public, which highlights the importance of having a thorough and transparent investigation process for these matters.

Why it matters:

Large employers (with 250 more employees) are required to report gender pay gap figures annually, and from April 2027, they will have to publish an action plan to tackle the gap (with a transitional ‘voluntary’ year in 2026). Large employers will also be required to report annually on the disability and ethnicity pay gaps in their workforce (from a date yet to be confirmed).

The EU has followed suit and is introducing gender pay gap disclosures for larger employers in 2026 (extending to employers with 100 or more employees by 2031). If a business’ gender pay gap is greater than 5%, then a pay audit will be required. Employers will have also to provide certain pay information to their workforce and to job applicants.

Our view:

Although disability and ethnicity pay reporting is not expected to come into force before 2027, there is inherent complexity in the practicalities of collecting this data and holding it in compliance with data protection rules, so it will need some advance thinking. UK employers with EU operations may be affected by the EU pay reporting and transparency rules. In addition, many UK employers are choosing to implement pay transparency measures as a matter of good practice (even if not covered by the EU changes).