UK Employment Rights Act 2025 | Financial Services Implications
The UK Employment Rights Act 2025 represents one of the most significant overhauls of employment legislation in a generation.
During a recent Danos Group webinar hosted in partnership with Norton Rose Fulbright, employment law specialists Paul Griffin and Jonathan Newman examined the practical implications of the reforms for Financial Services firms, with particular focus on governance, employee relations, workforce management, and litigation risk.
The session explored not only what is changing, but where firms are most exposed operationally and the practical steps leadership teams should already be taking ahead of implementation deadlines through 2026 and 2027.
Key Employment Law Changes Already in Force
Several major reforms came into effect in April 2026, including:
- Statutory Sick Pay now payable from day one of absence
- Removal of the lower earnings threshold for SSP eligibility
- Increased protective awards for collective consultation failures from 90 to 180 days’ pay per employee
- Day one rights for paternity leave and unpaid parental leave
- New whistleblowing protections covering sexual harassment disclosures
- Mandatory holiday pay and leave record retention requirements for employers
The speakers emphasised that many organisations have underestimated the operational and governance impact of these changes, particularly around policy updates, payroll systems, documentation standards, and management training.
Sexual Harassment: Governance Expectations Are Increasing
One of the most commercially significant developments arriving in October 2026 is the strengthened employer duty to prevent sexual harassment.
Under the new regime, employers must take “all reasonable steps” to prevent workplace harassment, including harassment by third parties such as clients, customers, or external stakeholders.
Paul Griffin highlighted that firms should now be conducting structured workplace risk assessments covering:
- Workplace culture and reporting mechanisms
- Power imbalance risks
- Events involving alcohol consumption
- Employee travel and overseas work events
- Third-party interaction risks
- Training effectiveness and escalation procedures
The discussion reinforced that prevention, governance oversight, and evidence of proactive action will become increasingly important if organisations wish to mitigate regulatory, legal, and reputational exposure.
Unfair Dismissal Reform Creates Significant Financial Risk
One of the most discussed reforms during the webinar was the removal of the statutory compensation cap for unfair dismissal claims from January 2027.
Alongside this, the qualifying period for unfair dismissal protection will reduce from two years to six months.
Jonathan Newman noted that this fundamentally changes the risk profile for employers, particularly when managing senior executives or performance-related exits.
Historically, many employers relied on the statutory compensation cap when assessing settlement exposure. The removal of that cap creates materially higher financial risk where firms fail to follow fair process or robust documentation procedures.
The webinar highlighted several areas firms should prioritise now:
- Reviewing probationary periods for new hires
- Strengthening performance management processes
- Improving contemporaneous record keeping
- Gathering mitigation and market evidence earlier in disputes
- Assessing how settlement strategy may need to evolve
The importance of contemporaneous evidence was repeatedly emphasised throughout the session, particularly around conduct, performance rationale, and mitigation analysis.
Fire and Rehire Restrictions
The webinar also explored the incoming restrictions on “fire and rehire” practices from January 2027.
The legislation will make dismissals automatically unfair where employees are dismissed for refusing certain contractual changes, including:
- Reductions in pay
- Pension changes
- Shift or working time changes
- Introduction of new flexibility clauses
This has major implications for restructuring projects, post-acquisition integration, harmonisation exercises, and cost reduction programmes across Financial Services firms.
The speakers noted that employers should now review template employment contracts and consider carefully where contractual flexibility provisions may still be appropriate before the changes take effect.
What Financial Services Firms Should Be Doing Now
A key theme throughout the webinar was preparation.
While some reforms do not formally take effect until 2027, many of the operational, contractual, governance, and cultural changes required will need to begin during 2026.
The session highlighted the importance of:
- Reviewing employment contracts and policies
- Strengthening governance around investigations and employee relations
- Training managers on documentation and process
- Assessing workforce data and reporting readiness
- Reviewing harassment prevention frameworks
- Preparing for enhanced equality and pay gap reporting obligations
For regulated firms, the intersection between employment law, governance expectations, conduct risk, and reputational management is becoming increasingly significant.
The full webinar recording featuring Paul Griffin and Jonathan Newman of Norton Rose Fulbright is now available to watch. https://www.youtube.com/watch?v=t_528w7BgPU
Hosted by James Franklin, Managing Director and Head of Legal at Danos Group, the session provides practical guidance for HR, Legal, Compliance, and Risk leaders navigating the evolving employment law landscape.
For more information on governance hiring, interim solutions, and consulting support across Compliance, Financial Crime, Legal, and Risk, please reach out to James Franklin.
