If you’re a local government or public sector employer, the new Employment Rights Act 2025 is going to keep your legal and HR teams very busy.

The long-awaited Employment Rights Act is finally here, and with it comes a long list of important changes for lawyers, HR professionals and managers to take in. This is undoubtedly the biggest change to employment law in a generation.

The changes are particularly significant for the local government sector, which is already facing significant upheaval with LGR (Local Government Reorganisation). The public sector more broadly will be significantly impacted - expert sector-focused legal support is recommended now to get ready for the upheaval ahead.

Read more in this insight on some of the key changes to come during 2026 - and one big change which wasn’t expected.

The scale of change 

The scale of change is perhaps underlined by the response of the Local Government Association which recently noted: “Costs flowing from employment reforms must be matched by increased funding to councils for the reforms in the new Act to be effective. Changes will affect directly employed staff, outsourced workers and the whole adult social care sector... Local government needs to be engaged by government on how the Act is implemented, otherwise the resultant bureaucratic and legal burdens on councils will mean public money is diverted from vital local services.”.

When are the first reforms coming into force?

Many of the changes which will impact the sector most are coming into force this year. For example, from 1 April 2026 we will have the new Fair Work Agency, which will have powers to undertake its own investigations of employers, and impose fines to enforce employment law, including around minimum wage and holiday pay. 

Perhaps the most significant date is 1 October 2026, and the following come into effect:

• Extending Employment Tribunal time limits from three to six months;
• New rules restricting use of “fire and rehire/replace” with associated new claims able to be brought, and new liabilities;
• New rules on sexual harassment, including a higher duty, which is to take ‘all reasonable steps’ to prevent harassment;
• Employer liability for third party harassment of employees and workers;
• New rules on public sector outsourcing regarding “equality of terms”; and
• A raft of new rules relating to trade unions and related employment rights.

Unfair dismissal rights

A significant change to be aware of for your 2026 agenda is the change to- unfair dismissal compensation, which was not expected. We now know that we will have a new qualifying period for unfair dismissal claims - 6 months’ service, rather than the current two years. This is somewhat more manageable than the promised “day one rights”. However, a last-minute change to unfair dismissal compensation was added to the Bill in the weeks prior to the passing of the new Act.

To put this into context: for many years now, we have been used to an overall cap on the compensatory award. The cap on the compensatory award rose annually with inflation, and is currently £118,223, or 52 weeks’ pay (whichever is lower). This meant that in unfair dismissal claims, regardless of the individual’s salary, and how long it might take that individual to find another similarly-paid job, unfair dismissal “exposure” was quantifiable, and generally not more than £135,000 (including the basic award).

The current relative predictability about unfair dismissal compensation is soon to disappear, as the cap on unfair dismissal compensation will be removed from 1 January 2027.

Capsticks' view

The change to Unfair Dismissal compensation from January 2027 means it will be much more attractive for employees to bring unfair dismissal claims, as they may seek larger sums, for example for a long period of seeking employment, plus potentially lost benefits/bonus, and future pension loss. There is simply more to fight for. Expert evidence on such losses may be required. This will be particularly important where Claimants have a health concern (and the dismissal is not related to health/disability) or are older, particularly those individuals who are nearing retirement age.

Unfair dismissal claims may take longer to resolve, in a context where Tribunal claim numbers are rising, and with claims already often waiting more than 2 years for a hearing. Expert evidence on the value of such claims may be needed, pushing up costs, complexity, and requiring additional Tribunal time.

How Capsticks can help

Do contact us for our resources on the full list of reforms in the ERA 2025, with key dates, and our expert guidance on how to prepare. We have developed sector-specific guidance and training, which will support planning and resourcing decisions for your organisation. Capsticks is well placed to support you with these changes.