Employment Rights Act 2025: Top 5 Reforms for Retailers

Change is on the horizon for retail employers. Over the next couple of years, the Employment Rights Act 2025 (ERA 2025) will reshape the employment law landscape as we know it.

In this insight, we set out the top reforms that retailers should have on their radar, together with practical steps you can take now to prepare.

1. Unfair Dismissal Rights and Employment Tribunal Time Limits

From 1 January 2027, employees will gain unfair dismissal protection after 6 months' service (reduced from 2 years) and the cap on the compensation cap will be removed entirely. From October 2026, the time limit for tribunal claims increases from 3 to 6 months (except for breach of contract claims arising or outstanding on termination of employment).

Employers can expect a higher volume of claims from a wider pool of employees. Senior executives will be able to recover full financial losses (salary, pension, bonuses), making exit negotiations potentially more costly and complex. Settlement discussions may become more challenging without a compensation cap to manage expectations.

Combined with the recently extended Acas early conciliation period (now 12 weeks), retailers may not receive notices of claim for up to 10 months, prolonging uncertainty and potentially affecting witness recollection. This may encourage greater use of mediation and early settlement.

Action Points:

• Address existing performance/conduct issues before 1 January 2027
• Review HR recruitment and probation processes (don’t forget that employees starting in July 2026 will have 6 months' service by January 2027)
• Train HR teams and managers on fair dismissal procedures
• Review early dispute resolution processes and budget approvals
• Revisit data-retention policies to preserve evidence

2. Third Party Harassment

From October 2026, employers must take "all reasonable steps" to prevent third-party harassment of their employees in the workplace; including sexual harassment and harassment in relation to all protected characteristics under the Equality Act 2010.

This duty is particularly significant for retailers given the customer-facing nature of the sector. Employees regularly interact with customers, delivery drivers, contractors and other third parties, creating high exposure to potential harassment risks.

However, uncertainty remains around what will constitute compliance. In relation to sexual harassment, the Government anticipates that regulations specifying the steps that are to be regarded as reasonable will come into force in 2027/28 after consultation. This means retailers must comply with the duty from October 2026 before knowing the standards they are expected to meet.

Overall, defending harassment claims will become harder and as investigation requirements also remain unclear, retailers face difficult judgement calls on how to respond to incidents.

Action Points:

• Update risk assessments to include third-party harassment
• Keep a watching brief for the upcoming government consultation on these reforms, particularly with regard to what is to be considered as “all reasonable steps”
• Revise HR policies and consider adding protective wording in any supplier/customer contracts
• Train managers and staff on new obligations and reporting procedures

3. Trade Union Reforms

Multiple reforms take effect from 18 February 2026 onwards, including:

• Simplified balloting procedures (18 February 2026)
• Reduced notice of industrial action from 14 to 10 calendar days (18 February 2026)
• Extended strike mandate from 6 to 12 months (18 February 2026)
• Simplified statutory recognition process (6 April 2026)
• Duty to inform workers of union rights and strengthened union workplace access (October 2026)

Further details about these reforms and the transitional arrangements for putting them in place can be found in our latest Horizon Scanner.

These reforms may facilitate increased union activity and membership. Larger non-unionised retailers are expected to be early targets for union recognition.

Action Points:

• Unionised retailers: strengthen union relationships to foster a collaborative relationship, prepare for higher union membership, develop 12-month business continuity plans for industrial action, and review existing access frameworks.
• Non-unionised retailers: consider how access agreements might work in your organisation and improve employee engagement to ensure staff feel heard and represented.
• Update HR processes/onboarding procedures and employment contracts in due course to include duty to inform employees of their right to join a union.
• Inform and train HR and line managers on the reforms.

4. Collective Redundancies

From 2027, collective consultation will be triggered when an employer is proposing to dismiss either (i) 20 or more employees as redundant at ‘one establishment’, or (ii) a specified number of employees (TBC) across multiple establishments, within 90 days. The government intends to consult on the multiple establishment threshold later this year.

From April 2026, the maximum protective award will double from 90 to 180 days' gross pay per affected employee (which may be increased by up to 25% if the Statutory Code on Dismissal & Re-Engagement is breached during a ‘fire & re-hire’ exercise meaning the total maximum penalty could be 225 days’ gross pay per affected employee – see below).

These reforms will increase the burden on multi-site retailers, who will have to start tracking proposed redundancies across establishments. However, the government has confirmed that employee representatives from different locations do not need to be consulted in the same place and that the same agreement does not need to be reached with all of them.

Action Points:

• Consider carrying out any necessary organisational changes before the changes are implemented.
• Keep a watching brief for the government consultation and consider responding
• Multi-site retailers: review HR systems to ensure they can track redundancy proposals across establishments so appropriate triggers are not missed.

5. Fire and Re-hire

From January 2027, dismissing employees for refusing to agree to "restricted variations" to their contract of employment (including changes to pay, hours, holiday, or introducing unilateral variation clauses) will be automatically unfair, except where an employer can satisfy the ‘financial difficulties’ exception which will be narrowly interpreted.

Reaching agreement on contractual changes will be more challenging for retailers and the use of ‘fire and rehire’ only permitted in exceptional circumstances. Employees will have greater leverage to negotiate, potentially leading to stalemates or increased redundancies.

Action Points:

• Audit all contractual terms (formal and implied) now, so that you can seek to make any changes (including the introduction of unilateral variation clauses where necessary) before the changes are implemented.
• Strengthen employee engagement so that proposed changes are more likely to be accepted by staff.
• Keep a watching brief for the upcoming government consultation on these reforms.

Next steps

If you would like advice on any of the above issues, please do not hesitate to contact a member of the TLT Employment Team.

We will be looking at the above reforms in more detail in our upcoming Retail Risk Outlook Report. In the meantime, further information on all the reforms outlined in the ERA 2025 can be found in our downloadable Employer Guide.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 18 December 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.