Employment eCite – January 2026

Welcome to the January 2026 edition of Employment eCite.   The landscape of employment law is evolving, and several key changes are on the horizon that could impact businesses and employees alike. To help you stay ahead, we’ve highlighted some of the most significant updates, exploring the landmark Employment Rights Act 2025 and what it means for employers, alongside practical guidance on investigations, employment status, bonus schemes, and more. As always, our goal is to provide clear, actionable insights to help you navigate change and manage risk effectively.

Employment Rights Act 2025: The key employment law changes employers need on their radar

After months of parliamentary debate, the Employment Rights Bill has finally cleared the House of Lords and gained Royal Assent on 18^th December 2025. It has now become the Employment Rights Act 2025 (ERA 2025) - a landmark reform that will reshape UK employment law over the coming years.

While many of the changes will not take effect immediately, employers should now be clear on the direction of travel. The focus should shift from what might happen to how and when to prepare.

The two changes employers are watching closely

Two late amendments made during the Bill’s final passage are particularly significant.

First, the qualifying period for ordinary unfair dismissal will reduce from two years to six months, rather than being removed entirely. This change is expected to take effect from January 2027.

Second, and potentially more impactful, the compensation cap for unfair dismissal — currently the lower of one year’s salary or £118,223 — is expected to be abolished, subject to the Government completing and publishing an Impact Assessment. If confirmed, this will substantially increase litigation risk and exposure for employers.

A phased introduction

ERA 2025 will be implemented gradually under a government roadmap.

The only immediate change following Royal Assent was the repeal of the Strikes (Minimum Service Levels) Act 2023, which removed the rules around 'minimum service levels' for strikes on 18 December 2025. These rules were about keeping services running when there's a strike.

Further industrial relations reforms will follow in February 2026, including simplified industrial action ballots and notices, stronger protection against dismissal during strikes, and the repeal of much of the Trade Union Act 2016.

From April 2026, employers will start to see more practical, day-to-day changes, such as:

• Day-one rights to paternity leave and unpaid parental leave
• Reformed Statutory Sick Pay (no waiting days or lower earnings limit)
• Expanded whistleblowing protection, including sexual harassment complaints
• Higher penalties for collective redundancy failures

Additional reforms are planned for October 2026, including tighter controls on fire-and-rehire practices, stronger rules on tips, expanded trade union rights, and a new duty to take “all reasonable steps” to prevent sexual harassment.

Beyond that, 2027 is expected to bring the aforementioned unfair dismissal changes, reforms covering flexible working, bereavement leave, protections for pregnant workers, restrictions on zero-hours arrangements, and regulation of umbrella companies.

What should employers be doing now?

For unionised employers, the priority is understanding the imminent changes to industrial action rules and reassessing risk and response planning.

For non-unionised workplaces, preparation should focus on:

• Reviewing contracts, variation clauses and probationary provisions
• Strengthening probationary processes ahead of the six-month unfair dismissal threshold
• Training managers on upcoming rights and obligations
• Planning policy updates for family leave, sickness absence and harassment
• Auditing payroll and benefits systems in light of SSP reform

The takeaway

ERA 2025 is not a single moment of change but a rolling programme of reform. Employers that start planning early - rather than waiting for implementation dates - will be best placed to manage risk, cost and disruption as the new framework takes shape.

New rates for sick pay, family leave and national minimum wage from April 2026

The Government has set out its proposed new statutory rates for statutory sick pay and family leave pay to apply from 6^th April 2026.

The average gross weekly earnings required to qualify for the various forms of family leave pay is proposed to increase from £125.00 or more per week, to £129.00 or more per week from 6^th April 2026.

These changes sit alongside the proposed changes to national minimum wage which, if approved, will take effect from 1^st April 2026:

Workplace Investigations

A well-executed workplace investigation is the bedrock of any fair and defensible disciplinary or grievance outcome. When investigations are rushed, poorly planned, or inadequately documented, the entire process can unravel - exposing employers to legal and reputational risk. HR professionals know that getting this stage right is essential, yet it remains one of the most common areas where organisations fall short. Below are practical tips to help ensure your investigations are robust, fair, and capable of withstanding scrutiny.

1. Protect confidentiality from the outset
   Make confidentiality a priority. Limit information to those who genuinely need to know and remind all participants - including witnesses - of their duty to keep details private. This not only protects the integrity of the process and avoids contamination of evidence through ‘leaks’ but also helps maintain trust across the workforce.
2. Have a clear plan before you begin
   A structured plan guides the investigator and prevents drift. Identify the allegations, the scope of the investigation, who needs to be interviewed, and what evidence is required. A clear roadmap ensures consistency and reduces the risk of missing key information.
3. Take the time you need
   While investigations should be handled without unnecessary delay, avoid rushing. A thorough investigation requires time to gather evidence, interview witnesses, and reflect on findings. Hasty conclusions are more likely to be challenged and overturned.
4. Be Impartial - perception matters
   Choose an investigator who is independent of the situation and free from any conflict of interest. Impartiality is crucial not only for fairness but also for how the process is perceived by employees. If neutrality is in doubt, the credibility of the outcome will suffer.
5. Keep meticulous documentation
   Accurate, contemporaneous records are essential. Document every step: evidence reviewed, interviews conducted, decisions made, and the rationale behind them. Clear documentation creates a defensible audit trail and supports transparency if outcomes are later scrutinised.
6. Conduct interviews fairly and sensitively
   Treat every participant with respect. Ask open, neutral questions, avoid assumptions, and give individuals the opportunity to provide their version of events. Fairness during interviews helps ensure reliable evidence and fosters confidence in the process.

A disciplined, thoughtful approach to workplace investigations pays dividends. By embedding these principles, HR professionals can help ensure outcomes that are fair, transparent, and resilient under challenge.

Understanding employment status in the UK

Employment status determines the rights and protections an individual has at work. In the UK, there are three main categories: employees, workers, and the self-employed. Each has different entitlements. There is also a distinct framework for agency workers. Getting status right is essential, as rights cannot be contracted out of or waived.

Employees

Employees have the fullest set of employment rights. To qualify, there must be mutual obligations: the employer must provide work, and the individual must perform it personally. Employees benefit from protections including:

• Statutory sick pay and maternity, paternity and shared parental leave
• Minimum notice periods and the right not to be unfairly dismissed (after two years)
• Redundancy pay
• Paid annual leave
• Protection from discrimination and detriment
• TUPE rights during business transfers

Employees also have protection against unlawful deduction from wages and the right to an itemised payslip.

These protections are in addition to those for workers and the self-employed.

Workers

Workers sit between employees and the self-employed. They perform work personally but without the full obligations of employment. They are entitled to:

• National Minimum Wage
• Paid annual leave
• Rest breaks and limits on working time
• Protection from discrimination
• Protection from unlawful wage deductions

Workers do not have rights such as unfair dismissal, redundancy pay, or family leave (unless contractually agreed).

Self-employed

Self-employed individuals run their own business and take on financial risk. They have very limited statutory rights, generally only:

• Protection from discrimination (in limited circumstances)
• Health and safety protections when working on a client’s premises

They do not have paid holiday, minimum wage rights or protection from dismissal.

Agency Workers

Agency workers are supplied by a temporary work agency to end-user businesses. After 12 weeks in the same role, they gain rights under the Agency Workers Regulations 2010, including:

• Equal treatment on basic working conditions (pay, annual leave, working time)
• Day-one access to collective facilities (canteens, childcare, transport)

Agency workers do not gain employee or worker status with the hirer unless the working relationship genuinely supports this. They are usually employed by the agency.

Drafting a discretionary bonus scheme: Key pointers for HR

Discretionary bonus schemes can boost motivation and performance, but if the rules aren’t clearly set out, they can quickly lead to disputes, costly claims and employee frustration. The key is balancing flexibility with clarity.

Be clear on how discretion works

Leaving bonus decisions entirely open may seem appealing, but it increases the risk of allegations of unfairness or bias. A better approach is to outline the broad factors that may be considered - such as company, individual and team performance - while still keeping discretion overall.

Joining and leaving mid-year

Eligibility is often where problems arise. For new starters, options include:

• excluding them until the next bonus year
• allowing immediate entry with pro-rating
• linking eligibility to successful probation

Whichever approach you take, make it explicit.

The same applies when employees leave part-way through a bonus year. Employers can exclude leavers altogether, offer pro-rata payments only for “no-fault” departures (e.g. redundancy or ill-health), or pay pro-rata bonuses to all. The Clark v Nomura case shows the danger of vague drafting: without clear wording, the employer was forced to pay a full bonus even after the employee resigned.

Other circumstances to consider

Think beyond starters and leavers. Do you want the ability to withhold or defer payment where an employee is suspended or under investigation? In some sectors, investigations can take months, so having this option can be crucial.

Get the basics right

Make sure your scheme clearly sets out:

• the bonus year dates
• when entitlement is lost (e.g. on giving notice or on termination)

Ambiguity in either area invites challenge.

Clawback and deferral

Clawback provisions can protect the business where a bonus has been paid but later needs to be recovered. To maximise enforceability, include clawback wording in employment contracts and ensure employees agree to the terms. Deferring bonus payments over time can also provide more control.

The takeaway

A well-designed bonus scheme doesn’t need to be complex - just clear. Thoughtful drafting, defined rules, and careful documentation give employers flexibility while reducing the risk of disputes and claims.

Refusing annual leave – employer’s rights.

Under Working Time Regulations 1998, all workers are entitled to at least 5.6 weeks of paid holiday per year. However, workers do not have complete freedom to take holiday when they choose to. Employers need to be able to plan and make sure that sufficient cover is in place when a worker takes annual leave. Some businesses have particularly busy ‘pinch points’ in the year (Christmas and Easter for hospitality; Black Friday and Christmas sales for retail). Employers need to know the ways in which they are able to manage how and when workers take their holiday.

The law

Under Working Time Regulations 1998, workers must give notice of at least twice the length of the holiday they wish to take. So, for a one-week holiday, the worker must give at least two weeks’ notice. If they don’t do this, then you are entitled to refuse the holiday request.

If the employer wants to mandate that holiday is taken at a certain time, then they are able to do so. In the same way as employees, they must give notice of at least twice the length of the holiday period which is being mandated.

Employers don’t have to agree to holiday requests. They can refuse them by giving notice which is at least as long as the length of the holiday requested.

Equally, employers are able to change their mind. They can approve a request for holiday and then, at a later date, rescind that approval. This isn’t a good idea from an employee relations point of view and should be handled with caution. However, you must give notice which is at least the same period as the length of the holiday (so one week for one week etc.).

A holiday policy – helping employers to stay in control

The Working Time Regulations 1998 has helpful ‘flex’ built in on the issue of holiday. Employers, provided they follow the notice requirements, can mandate certain days as holiday, refuse requests, or change their mind about a request. However, it is better for employers to tailor holiday rules to their own business by putting holiday rules in the contract of employment and/or a separate holiday policy. This allows the business to, for example, set out a mandated period of shutdown where a certain number of days of holiday must be taken. It can also designate periods where holiday is not able to be taken.

Having a holiday policy means that everyone is on the same page. Employees understand exactly what they need to do in order to maximise the utility of their holiday entitlement each year. Employers maintain control over the situation, making sure that the business continues to operate optimally when employees are away from work.

Third party pressure: a fair reason for dismissal?

The Employment Rights Act 1996 recognises five potentially fair reasons for dismissal: conduct, capability, redundancy, illegality and ‘some other substantial reason’. When faced with an ordinary unfair dismissal claim, Employers have to set out which of the five reasons they rely upon as the reason for dismissal. They must then show that dismissal for that reason was fair in all the circumstances.

‘Some other substantial reason’ (‘SOSR’) mops up situations which do not fall neatly into any of the other four categories. It has developed, over the years, through case law.

One of the areas which can be covered by SOSR is where a third party applies pressure to the employer to dismiss the employee for some reason. This often happens where a business’ employees are deployed to client sites. If the client takes exception to an employee and asks for them to be removed, then the employer can potentially rely on SOSR to dismiss. However, this principal does not give employers a ‘green light’ to jump on any client complaint and dismiss the employee, as the recent employment tribunal case of Darling v ICTS demonstrates.

In this case, Mr Darling was employed by ICTS as a security supervisor. He worked at a hospital, who engaged ICTS as their security provider. Mr Darling was arrested for alleged misuse of CCTV footage. A police investigation was initiated which was likely to take six to 12 months. The hospital told ICTS that Mr Darling could not return to site whilst he was under police investigation. ICTS dismissed Mr Darling, relying on SOSR (third party pressure) as the reason. The employment tribunal held that he had been unfairly dismissed. Whilst third party pressure can amount to ‘some other substantial reason’ in certain circumstances, ICTS had been wrong to jump directly from the client’s refusal to allow Mr Darling on site to a decision of dismissal. ICTS had lots of other contracts in place with other clients. It should have taken pro-active steps to consider alternative employment before deciding to dismiss. Mr Darling had been directed to ICTS’s job vacancy site, but the tribunal said that this was not sufficient. There was a “lack of action” by ICTS on this.

This case is an important reminder that the existence of third party pressure to dismiss does not give an employer the green light to do so. Alternatives should be pro-actively considered before a decision to dismiss is taken.

Wrongful Dismissal: What HR Needs to Know

Wrongful dismissal is a contractual claim that arises when an employer dismisses an employee in breach of their contract of employment. It has nothing to do with whether the dismissal was fair — that falls under statutory unfair dismissal rules. Wrongful dismissal is simply about whether the employer followed the contract.

What is wrongful dismissal?

The most common example is failing to give the correct notice. If an employee is entitled to three months’ notice but only receives one, the employer has breached the contract, and the employee can claim the value of the notice they should have received.

However, wrongful dismissal can also arise from breaching other express, implied, or incorporated contractual terms - not just notice clauses.

Notice periods: express, statutory and implied

HR teams should remember there are three potential notice periods:

1. Express contractual notice – set out clearly in the contract.
2. Statutory minimum notice – under section 86 of the Employment Rights Act 1996:
   • at least one week’s notice after one month’s service;
   • increasing by one week per year of service from year two;
   • capped at 12 weeks after 12 years’ service.

If the contract gives less, the statutory minimum overrides it.

3. Implied reasonable notice – only used where the contract is silent. The courts imply a “reasonable” period depending on the role, but it          can never be less than the statutory minimum. This is now rare, as most contracts specify notice.

When dismissal without notice is lawful

Dismissal without notice — summary dismissal — is not wrongful where the employee has committed gross misconduct, meaning a fundamental breach of contract that destroys the employment relationship. The employer can then treat the contract as terminated immediately, without notice or pay in lieu.

However, HR should avoid “instant” dismissals. Even in clear gross misconduct cases, employers should follow a fair disciplinary process, both because it may be contractually required, and to reduce unfair dismissal or discrimination risks.

Key takeaway for HR

Wrongful dismissal is ultimately about contract compliance. Ensure notice provisions are correct, check statutory minimums, follow procedures, and assess conduct carefully before deciding whether notice can be withheld.

Data Protection and Monitoring: What employers need to know

Monitoring employees almost always involves collecting personal data - whether that’s CCTV footage, system access logs, browser history, location data or recorded calls. Because of this, any monitoring must comply with the UK GDPR and Data Protection Act 2018, which set out strict rules on what data can be collected and how it must be processed.

Under the GDPR, employers must follow the seven core data protection principles, ensuring that personal data is:

1. processed lawfully, fairly and transparently;
2. collected for a specific and legitimate purpose;
3. limited to what is necessary;
4. accurate and kept up to date;
5. kept only for as long as necessary;
6. stored securely; and
7. capable of being evidenced through accountability measures.

Purpose and lawful basis

Before any monitoring takes place, employers must identify a specific purpose and a lawful basis. Common bases include complying with a legal obligation, performing a contract, protecting vital interests, or pursuing a legitimate interest. Legitimate interest is the most flexible but still requires employers to show the monitoring is necessary and does not override employees’ rights.

While consent is possible, it is rarely reliable in employment due to the power imbalance between employer and employee.

Special category data

Some monitoring - such as biometric systems or browsing history revealing religious or political views - captures special category data, which is subject to even stricter rules. Employers must meet an additional condition, such as protecting health and safety or demonstrating substantial public interest.

Fairness and transparency

The monitoring must be something employees would reasonably expect. Covert monitoring is only justified in exceptional circumstances, such as serious crime, and even then, must be tightly limited.

Employers must also provide clear privacy information, explaining what data is collected, why, who can access it, and how long it will be kept. Early staff engagement helps build trust and reduces the risk of complaints later.

Data minimisation, accuracy and security

Employers should collect only what is necessary, guard against “function creep”, ensure systems are reliable, and keep data secure through restricted access, encryption and proper training.

By embedding these principles, organisations can monitor responsibly while protecting staff privacy and reducing legal risk.

And finally, harassment is a serious offence. If it is related to one of the protected characteristics under the Equality Act 2010, then it can give rise to an employment tribunal claim and substantial financial awards. It can also be a criminal offence. Sometimes, conduct taking place at work satisfies not only the employment law definition of harassment, but also the criminal standard.

Against this backdrop, the Telegraph has reported that a Metropolitan Police call centre manager was found guilty of harassment in the criminal courts after targeting a colleague with unwanted gifts and messages. This is a rare case where workplace harassment strayed into criminal conduct. The manager was handed an 18-month community order and a two-year restraining order. Some of his harassing acts were eyebrow raising to say the least, including gifting a signed photo of the rock band Queen and expensive perfume, claiming to be Ronan Keating’s cousin and posing as Ronan himself in messages sent to his victim.

Being given gifts and being contacted by a pop star may not look like classic examples of harassment as they are all, on the face of it, ‘positive’ actions. This does not mean that they cannot also be harassment, either in the criminal sense (as in this case), or in an employment context. This case is a reminder to employers that harassment can take many forms. If conduct is ‘unwanted’ by the victim then, provided it is reasonable for them to feel that way, it can and will be harassment in the eyes of the law.