Navigating redundancy: A business briefing on the Employment Rights Act 2025
The UK’s employment landscape has undergone a significant shift with the Employment Rights Act 2025. For businesses, redundancy is no longer just a sensitive HR exercise: it is an area of heightened financial and legal exposure. Understanding the nuances of these reforms is critical to mitigating risk.
Key changes to note
The most immediate impact on redundancy practices is the doubling of the maximum protective award for failures in collective consultation. Since 6 April 2026, tribunals can award up to 180 days’ pay per affected employee- a significant escalation from the previous 90-day cap.
Furthermore, the Act introduces a new, broader trigger for collective consultation obligations. Employers must now consider redundancy proposals not just at a single establishment, but across their entire organisation. While the aggregate threshold is subject to further government regulation, the legislative intent is clear: small-scale restructures across multiple sites that previously fell under the radar will now probably trigger mandatory collective consultation.
Looking ahead to 1 January 2027, businesses must prepare for a radical change in unfair dismissal claims
- Qualifying Period: the period required to claim unfair dismissal will reduce from two years to six months
- Uncapped Compensation: The current statutory cap on compensatory awards for unfair dismissal will be removed.
Critical pitfalls for businesses
- Consultation Lag: With 180 days of pay on the line. The “reasonable time” for consultation is now a high-stakes issue. Employers must initiate meaningful dialogue far earlier than previously. “Rubber-stamping” decisions or failing to demonstrate genuine consideration of employee feedback will be costly.
- Multi-sites: Businesses often manage site-specific redundancies independently. Relying on this approach is now a major risk. HR oversight is essential to track total headcount reductions across the organisation, ensuring that you do not accidentally breach collective consultation thresholds.
- Probation: With the reduction of the unfair dismissal qualifying period to six months, the “two-year buffer” is disappearing. Many businesses have historically used this time to bypass rigorous performance management. They must now implement robust, documented probationary reviews and performance management frameworks immediately; otherwise, they will face an influx of claims from relatively short-service employees
Summary
The era of “at will” style dismissals or light-touch consultation is over. Successful processes now require a pro-active and meticulously documented approach to all staff reductions. Failure to adapt will not just result in administrative headaches, but substantial financial penalties.
Read Jeremy’s comments in ICAEW here: Ten redundancy pitfalls and how to avoid them
