Government plan to ‘make work pay’ will also impose new compliance burdens on employers
It has been billed as one of the most consequential periods of regulatory change in decades for the labour market in Scotland and the wider UK.
And according to lawyers and others talking to The Business, this is not mere hyperbole.
The Employment Rights Act 2025 received Royal Assent in December last year, a pivotal moment in UK employment legislation. It has already begun to take effect, marking the first phase of an overhaul that will be rolled out through 2026 and into 2027.
Described by the UK government as a plan to ‘make work pay’, the legislation aims to recalibrate the balance between flexibility and security in the workplace, one that will extend protections to millions of workers – but which will also impose new compliance burdens on employers.
The first phase came into effect in February, including increased protection against dismissal for participating in industrial action, which became ‘automatically unfair’. The notice period for industrial action was also reduced from 14 days to 10 days.
Among other major changes the act introduces a shift away from service-based eligibility towards ‘day one’ rights. From 6 April, for example, employees gained immediate entitlement to paternity leave and unpaid parental leave, while statutory sick pay becomes both more generous and more widely accessible, with waiting days and earnings thresholds removed.
While employees will benefit, Liam Entwhistle, chair and partner specialising in employment law and dispute resolution at Wright, Johnston & Mackenzie (WJM), predicts that changes including the reduction of the unfair dismissal qualifying period to six months and the removal of the compensation caps will see a huge increase in claims which will inevitably place a strain on an already over-stressed system.
“That increase will be happening in the context of an infrastructure that will find it difficult to cope,” he says. “Tribunals in England are struggling and while in Scotland they are managing, the act will place an extra burden on them,” he says.
He expects that there will be a steady increase in the number of claims when the cap on unfair dismissal compensation is lifted from the act from January 2027. Employers should be looking now at contracts and procedures to prepare for this substantial change, which brings increased risk to all businesses.
“To a certain extent many employers will be quicker and more risk averse when it comes to making decisions about whether an employee is good enough to be kept on,” says Entwhistle.
It is a concern shared by Michelle Ferguson, CBI Scotland director, who says: “With the tribunal system already creaking at the seams, it is important that the government reconsider its decision to remove compensation caps for unfair dismissal. We cannot afford further pressure being put on the system by those entering the process with unrealistic expectations of awards.”
Fiona Herrell, a partner at Brodies, agrees the act will majorly influence how businesses deal with their employees. “Its wide-reaching provisions cover most aspects of the working relationship and will result in significant changes to HR policies, procedures and practices,” she says.
“More employees will have unfair dismissal protection, and the legal risk associated with those dismissals will look very different. Robust probationary period, performance management and disciplinary processes will be essential,” she adds.
Employer’s engagement with trade unions
The act also strengthens the rights of trade unions, including by simplifying the process to achieve recognition and increasing access to workplaces and employees says Herrell.
“Employers should anticipate more active engagement with trade unions including those who wish to achieve recognition. Ensuring industrial relations strategies are up to date is going to be more important than ever.”
Catriona Aldridge, a partner in the employment and pensions team at CMS, agrees that the act will impact all aspects of the employment life cycle.
“Many private sector employers have previously had no dealings with trade unions. Now they are obliged to inform workers about their right to join a trade union, including providing a written statement at the start of employment.”
There’s nothing wrong in reminding an employee that they have a right to join a union
- David Mitchell
While there have been inevitable headlines about a return to the union strife of the 1970s, Entwhistle says: “That won’t be the case. The changes are certainly making it a bit easier for unions to get recognition but trade unions don’t now have the resources to suddenly flood employers and places of business with leaflets and agitators.
“There’s nothing wrong in reminding an employee that they have a right to join a union,” he adds. “This is a democratic society and trade unionism is important to protect employment rights.
“But these changes also mean that employers should be looking at how they already communicate with their employees and should think about internal mechanisms such as speaking with employee representatives or councils.”
Employers should anticipate more active engagement with trade unions including those who wish to achieve recognition
- Fiona Herrell
For smaller firms, especially those without an in-house HR resource, this poses obvious challenges and Aldridge says clients at CMS have had mixed reactions to the act. “Several are worried by it and are feeling somewhat overwhelmed by the number of changes and the amount of work that it’s creating.
“Others feel they are already operating under best practice and that for them, many of the changes are not likely to make much of a difference.”
She says her team is assisting employers with contract reviews, policy reviews and training. “There’s quite a lot of senior leader training but also training of managers so that they’re aware of what the changes are and what the implications are for them in practice,” she says.
Legislative changes and the current economy
Ferguson stresses the importance of aligning the legislative changes with the demands of the current economic situation.
“While Scottish firms are actively preparing for elements of the act to come into force, several areas of concern remain. Getting these details right will require UK government, employers and union representatives to get back around the table to design reforms that are both deliverable in practice and support the country’s growth mission,” she says.
“With unemployment rising and economic inactivity being a major challenge for the Scottish economy, the priority must now be restoring firms’ confidence to hire. The high cost of doing business is already biting on hard-pressed firms, not least because of a broken business rates system – adding further cost and administrative burdens will ultimately make it harder for employers to create jobs and invest in communities across Scotland.”
Chris Phillips, employment partner at Thorntons, adds: “The more significant change on the horizon is unfair dismissal.
“Although initial proposals to provide employees with day one protection have been revised to a six-month qualifying period,
this is still a dramatic reduction from the current two-year threshold, and it will fundamentally change how businesses approach hiring.”