Employment Update May 2026

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Pay equality

Tesco has been in the news as it seeks to defend long-running equal pay claims from thousands of store assistants. The case is one of many against large retailers – including Asda, Morrisons, Sainsbury's and Co-op – where predominantly female shop staff claim they are paid less than predominantly male warehouse staff for doing work of equal value.

The claims have brought equal pay into the spotlight in recent years – where it looks set to remain, given upcoming developments in Europe and the UK.

The EU Pay Transparency Directive introduces gender pay gap reporting requirements for large employers across Europe and must be implemented by 7 June 2026. Where there is an unjustified pay gap of five percent or more, the employer will also be required to conduct a joint equal pay audit with employee representatives. All employers operating in Europe, regardless of their size, will also have new obligations to provide information to job applicants and workers about pay. Many EU member states look set to miss the 7 June 2026 implementation deadline, and some are pushing for the deadline to be delayed. However, some countries are on track and in scope employers need to be prepared. We are working with a number of employers on implementation projects.

In the UK, large employers (250+ employees) are already required to produce annual gender pay gap reports. From April 2027, they will also be required to produce equality action plans setting out the steps they are taking to reduce the pay gap and support employees through the menopause. The Government has recently produced guidance for employers on producing actions plans (see "New Law" below). The Government has also confirmed that it plans in the future to require large employers to report on ethnicity and disability pay gaps, and produce action plans to address them, although it has not set a date for this.

With greater transparency around pay comes the prospect of more disputes and claims around pay equality. In the light of these developments, employers should review their pay structures, interrogating the reasons for any pay differentials and looking to correct anomalies.

New Law

Third party harassment

Employers in the UK already have a duty to take reasonable steps to prevent sexual harassment at work, including by third parties such as clients or suppliers. From October 2026, employers will become liable for harassment of staff by third parties of any kind (e.g. race, gender, disability and religion/belief), unless the employer took all reasonable steps to prevent it. Ahead of October, employers should consider what steps can be taken to prevent such third-party harassment. The starting point will be a risk assessment to identify the nature of interactions with third parties and the different risks involved. This should then inform the preventative measures, which might include steps such as:

updating documents such as contracts with third parties, supplier codes of conduct or other policies and procedures that third parties are required to follow; and
providing training to managers about how to identify potential risks and take appropriate action.

Appropriate measures will depend on factors such as the employer's sector and workforce, and the nature of interactions that employees may have with third parties. We are developing a toolkit of documents to help with this – please speak to your usual Employment department contact for more details.

Employment Tribunal time limits

The Employment Rights Act will increase the time limit for workers to bring claims in the Employment Tribunal from three to six months. It is expected that this will take effect on 1 October 2026, where the relevant events complained of take place on or after 1 October 2026. This is the approach which has been taken in draft regulations published so far in respect of some Employment Tribunal claims. The change will give workers considerably longer to bring claims, particularly given the ACAS pre-claim conciliation period increased from six to twelve weeks in December 2025. However, it also gives parties more time to potentially resolve disputes before a claim is brought.

Employment terms

As previously reported in Employment Update, key reforms under the Employment Rights Act will take effect in January 2027. These include the reduction of the qualifying period for unfair dismissal claims, the removal of the cap on compensation for unfair dismissal and changes to "fire and rehire" which will make changing terms and conditions of employment much more difficult. Employers should use the time ahead of January 2027 to prepare. Employers should ensure they have robust probationary periods which are operated effectively, and that managers are trained in managing probation, underperformance following probation, and disciplinaries and dismissals more generally. Employers may also wish to revisit their employment contract terms to build in as much flexibility as possible to make it easier to change terms once restrictions on fire and rehire come in. Please speak to your usual Employment department contact if you would like to discuss the impact of the changes on your business.

Equality action plans

Large UK employers (with 250 or more employees) are required to report gender pay gap figures annually under the current gender pay gap reporting requirements. From April 2027, they will also have to publish an equality action plan alongside the figures. On 7 April 2026, the Office for Equality and Opportunity issued step-by-step guidance on creating action plans which confirms that:

action plans will need to detail the steps taken by the employer to address the gender pay gap and support employees who are experiencing the menopause;
employers will need to identify at least two specific actions – one for the pay gap and one for menopause support. These must be new or in progress, rather than being an established part of the employer's practice;
action plans will be produced annually and published and submitted in the same way as gender pay gap figures;
action plans will need to be signed off by a director, partner or senior officer, whose name appears in the plan and who confirms the information contained in it is accurate.

The guidance suggests eighteen recommended actions for employers to choose from, including improving pay, promotion, and reward transparency, and making job descriptions more inclusive. Employers are also encouraged to engage with employees, their representatives and network groups when developing action plans. There are no penalties for failing to produce an action plan, although there is likely to be "naming and shaming" of non-compliant employers. While action plans become mandatory for large employers from April 2027, employers can choose to publish them voluntarily before then for the 2026/27 reporting year.

Consultations

Trade union access

From October 2026, trade unions will have new rights to access workplaces for a broad range of purposes including recruiting and organising workers; meeting, supporting or representing members; and for collective bargaining purposes. The Government has launched a consultation on a draft Code of Practice setting out how the right will operate in practice. The proposal is that:

trade unions would be able to make a request for access to the employer, and the employer would have 15 working days to respond;
the parties would then have a further 25 working days to negotiate an agreement on access;
if negotiations are unsuccessful, either party could apply to the Central Arbitration Committee (CAC) who can make an order for union access;
access agreements could last up to two years and provide up to weekly access to the workplace; and
failure to comply with access agreements could result in fines of up to £75,000 for a first breach, up to £150,000 for repeated non-compliance and up to £500,000 for any third or successive breach.

The Government is proposing prescribed forms for access requests, responses and notifications to the CAC. The draft Code also provides guidance on how access should work in practice, confirming that it can be physical or digital, that employers should make every effort to provide suitable facilities and ensure privacy, and that access should not unreasonably interfere with the employer's business. The consultation closes on 20 May 2026. Following consultation, the Government will publish a final code along with regulations setting out the detailed requirements.

Confidentiality and NDAs

Under the Employment Rights Act, any confidentiality provision or non-disclosure agreement (NDA) will be void to the extent it prevents a worker discussing allegations of discrimination or harassment, including the employer's response to such allegations. This will make it harder for employers to include confidentiality provisions in settlement agreements where discrimination or harassment is involved. However, the Government has launched a consultation on possible exceptions. The proposal is that confidentiality provisions or NDAs would be allowed where:

the worker has had independent advice on the confidentiality obligations;
the worker has expressed their preference in writing to enter into the confidentiality obligations (after having had independent advice);
the worker has a 'cooling off period' of 14 days to withdraw from the agreement or the confidentiality provisions without penalty;
a copy of the agreement is provided to all parties (as would usually be the case);
the discrimination or harassment has already happened (i.e. it would not be possible to enter into confidentiality provisions in respect of future incidents that have not yet occurred); and
the confidentiality obligation is time-limited (with the potential for regulations to set a time limit of somewhere between one and ten years).

The above requirements would add a new level of process to settlement agreements but should, in general, be workable. The Government is also considering whether employers should be allowed to suggest confidentiality or whether this would have to come from the employee, which could be more difficult to operate in practice. The consultation closes on 8 July 2026, with the restrictions coming into effect in 2027. Employment Update will report developments.

TUPE

The Government has launched a call for evidence on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). TUPE protects employees on the transfer of a business or part of a business, including in an outsourcing situation. The Government is considering modernising TUPE and strengthening the rights and protections for employees on TUPE transfers. The call for evidence does not contain any specific proposals but seeks views on the effectiveness of TUPE and how the regulations operate in practice, with a view to considering how they might be improved. The call for evidence closes on 1 July 2026.

Immigration Radar

Sponsor priority services

The UKVI has expanded capacity under its paid 'Priority Change of Circumstances' service, increasing the daily limit from 100 to 120 requests. The service allows sponsors to accelerate processing of licence changes (such as increasing a Certificate of Sponsorship allocation) and generally aims to deliver a decision within five working days. This compares favourably to the standard service, which is currently taking up to 18 weeks. The increase in daily capacity will hopefully help to ease the significant demand pressures that have built up around the service.

Right to work checks and avoiding discrimination

The UKVI has published a draft updated Code of Practice on Avoiding Unlawful Discrimination While Preventing Illegal Working. The Code provides practical guidance to help employers navigate their dual obligations of conducting right to work checks and ensuring they do not unlawfully discriminate against individuals in breach of the Equality Act 2010 and may be considered by Employment Tribunals when assessing whether an employer has acted lawfully. Subject to approval, the Code is expected to come into force on 1 October 2026, applying to all new employment and any repeat right to work checks carried out on or after that date.

The key change is an extension of scope: the definitions of "employer" and "worker" will be broadened to cover organisations engaging sub-contractors and individuals hired through online matching platforms, reflecting the extension of the illegal working regime to the gig economy and zero-hours workers under the Border Security, Asylum and Immigration Act 2025. The Code also includes updated guidance on equality obligations and confirms that individuals must not be treated less favourably where technical issues prevent them from demonstrating their right to work through the Home Office online service.

Case Watch

Withdrawing job offers

A recent case has considered the circumstances in which employers can withdraw job offers.

The employee in this case was offered a job as a Project Manager. The offer was subject to satisfactory references, a right to work check and successful completion of a six-month probationary period. The employee accepted the offer by email and provided referee contact details and copies of his right to work documents (with originals to be provided on his first day). The employer subsequently withdrew the offer due to a delay to the project. The employee brought a breach of contract claim, arguing that his contract had been terminated without notice. However, the employer argued that no contract had been formed, as the offer was conditional and the relevant conditions had not been met – references had not been received and original right to work documents had not yet been provided.

The employee ultimately won his case. The Employment Appeal Tribunal (EAT) ruled that there was nothing in the offer letter requiring the conditions to be satisfied before the contract was formed. One of the conditions was completion of a probationary period, which could only be satisfied once the employee had started work. The referee form also stated that employment could be terminated without satisfactory references but did not say these were required for formation of the contract. Accordingly, the employee's acceptance of the offer created a binding contract and the employee was entitled to notice of its termination. As there was no notice period in the offer letter, the EAT had to imply one, saying that three months was reasonable and should have been given.

This case is a warning for employers to take care when drafting offer letters. Where an offer is intended to be conditional, it should be clear what the conditions are and what happens if they are not met. Otherwise, the employer might be liable for notice pay should the offer later be withdrawn. The case also highlights the importance of setting out the notice required to terminate the contract either in the offer letter or in separate terms and conditions. In this case, because there was no notice period, the EAT implied a reasonable period of three months. It is common for employment contracts to provide a shorter notice period for termination during probation (e.g. one week's notice). Had that been the case here, the employer would have been liable for the shorter 'probationary' notice period, rather than the full notice period.

KANKANALAPALLI V LOESCHE ENERGY SYSTEMS LTD

Liability for permanent health insurance

The employee in this case was dismissed for incapacity due to long-term illness. Her contract of employment provided that if she remained unable to work after 26 weeks of absence, she would be paid 75 percent of her normal earnings until she recovered or reached the age of 65. The benefit was to be secured by an insurance policy, but this was not done due to administrative error. The employee never received the benefit and brought an unlawful deduction from wages claim. She initially claimed for the period of absence up to her dismissal but also sought to add a claim for the period after termination of her employment.

The Employment Tribunal ruled at first instance that the employer was liable to make the payments of 75 percent of salary up until dismissal but did not allow the employee to claim for the period after the termination of her employment. However, on appeal, the Court of Session said that the employee could claim both for the period up to dismissal and the period afterwards. The case had to be sent back to the Employment Tribunal to determine the employer's liability.

This case is a reminder of the importance of careful drafting when it comes to benefits in the employment contract. It is common for employers to offer permanent health insurance (PHI) or income protection that pays a percentage of salary when the employee is unable to work through illness or injury, either permanently or for an extended period. Such benefits are usually provided through a third-party insurer. In these circumstances, the employment contract should make it clear that the employer's only obligation is to pay premiums due to the insurer and pass on any benefits received from the insurer, not to provide the benefit itself.

MCMAHON V AXA ICAS LTD

Community Engagement

In May, members of the Employment team took part in a Wild Work Day, volunteering with the firm's Major Charity Partner, the Wildlife Trust, to remove invasive species from local woodlands and help with path maintenance and woodland management.
In recent weeks, our team has been involved in a variety of pro bono work for organisations such as Refugees at Home, the Luminary Bakery, Giveout and Future Dreams.

Our Work

Since the last edition of Employment Update, our work has included:

advising a listed company on the departure of one of its C-suite executives and related notification requirements
advising an asset management client on the implementation of the EU Pay Transparency Directive in the jurisdictions in which it operates
considering the scope of positive action in the context of internships for underrepresented groups
advising a tech client on the enforceability of post termination restrictions for a departing senior employee
running tailored training sessions for a private equity client's deal teams on managing senior executive exits
supporting an infrastructure client through a complex disciplinary process involving sensitive mental health considerations and the challenge of an employee deploying AI tools in support of his case.