ERA 2025: unfair dismissal update and new consultation on zero hours contracts

Two eagerly awaited developments on the Employment Rights Act 2025 (“ERA”) have been published.

Timings for unfair dismissal changes

The Fourth Commencement Regulations to the ERA have been made, which set out when the changes to unfair dismissal law will come into force. The Regulations confirm that:

1. The reduction in the qualifying period of service an employee needs to bring an unfair dismissal claim (from two years to six months) will apply to claims where the effective date of termination (“EDT”) is on or after 1 January 2027.   
   
   But beware, there are circumstances in which dismissals prior to 1 January 2027 may still be caught. Where an employee is dismissed with no notice or notice short of the statutory minimum required, the EDT will be extended by the statutory minimum notice the employee is entitled to. For employees with less than two years’ service, the statutory minimum notice is one week.
2. The statutory cap on the compensatory award for unfair dismissal claims will be removed for claims where the EDT is on or after 1 January 2027.  Calculation of the basic award will remain unchanged.  

These changes should be factored into dismissal processes both in the run up to, and after, 1 January 2027. To mitigate the increased risks, employers have two main options - either shorten probationary periods if these are six months or more and tighten probationary processes, or follow a fair and proper dismissal process for all employees, regardless of their length of service.

Consultation on zero and low hours contracts

The Government has also published a consultation on the ERA measures designed to reform the use of zero and low hour contracts. These measures are extremely detailed and have been the subject of much discussion in the employment law arena.

Three main changes are expected to come into force at some point in 2027:

1. Workers on zero or low hours contracts will have a right to guaranteed hours reflecting hours worked during a specified reference period (subject to them meeting certain requirements, which will be set out in regulations). 
2. Workers who work up to a certain number of hours that are guaranteed contractually (the “hours threshold”) will have the right to reasonable notice of shifts and changes to shifts. 
3. Workers who work under the hours threshold will also have the right to a compensation payment for any shifts which are cancelled, moved or curtailed at short notice. 

These measures apply to both directly engaged workers and agency workers.

The new consultation seeks views on the detail of several aspects of these measures and how they should work in practice.  Although the consultation does not cover everything employers have been concerned about, it gives us some idea of the Government’s thinking on the following key points:

• The right to a guaranteed hours offer will apply to both zero hours workers and “low hours” workers. One big question is what will be classed as “low hours” for this purpose.  The Government is consulting on a range of options, with their preference being a threshold between 8 and 20 hours per week.
• As guaranteed hours offers will be assessed based on hours worked during a reference period, the length of that reference period is critical. The Government has set out three options for the initial reference period: 12 weeks (their stated preference), 26 weeks and 52 weeks.  It is also consulting on the length of subsequent reference periods.
• To qualify for a guaranteed hours offer, the worker must also have worked with sufficient regularity during the reference period. The Government is exploring two options for the regularity requirement – one is to require workers to have worked a minimum number of weeks during the reference period; the other is to require them to have worked a minimum number of weeks and a minimum number of hours above their contracted hours during the reference period.
• In respect of notice for shifts, the Government is consulting on the factors which would indicate notice given is reasonable. The Government has suggested that a fixed period of notice is unlikely to be reasonable in all cases and what is reasonable will vary. However, it intends to set out in the regulations a presumption of what will be deemed reasonable. This is likely to be between 1-4 weeks for directly engaged workers.
• The Government is also consulting on whether compensation for short notice cancellations and shift changes should be based on a percentage of what the worker would have earned or the National Living/ National Minimum Wage, as well as considering a higher payment for changes made at “very short notice.”

The consultation runs until 26 August 2026 and there is still a lot to be ironed out. Responses to the consultation will shape the accompanying regulations. Employers who are likely to be affected by these measures should keep an eye out for the Government’s response to this consultation and the accompanying regulations.  

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