Employment Rights Act 2025: a transformative shift for hospitality

The impact of the Employment Rights Act 2025 (ERA), described as one of the most significant overhauls of UK employment law in decades, will be felt across all sectors, but few industries stand to experience as much operational and financial disruption as hospitality — a sector known for its high turnover, flexible staffing patterns, and reliance on zero‑hour or low‑hour work arrangements.

Being alert to the implications of the act is essential for managing workforce related costs and liabilities, particularly for hospitality businesses operating on tight margins or facing heightened financial fragility.

This article is by no means a comprehensive account of these changes, nor does it cover all preparatory measures that should be considered over the coming months as much of the detail is still to be confirmed. Rather, it highlights some key changes particularly relevant to hospitality, and outlines steps that can be taken now to soften the blow when the new rules come into force.

Enhanced dismissal protection

One of the most debated reforms under the act was the enhanced protection for employees against unfair dismissal. From January 2027:

  • employees will be able to claim unfair dismissal after only six months of service, down from the current two years; and
  • compensation for unfair dismissal will no longer be capped (currently at the lesser of 12 months’ pay and £118,223), significantly increasing employers’ financial exposure and improving the negotiating position of high earning employees in settlement discussions.

With historically high churn rates, hospitality employers will need to invest in more rigorous probation management, documentation and performance processes. Poorly managed exits of any employees after just six months’ service (not just those who join after the implementation of the new rules) will become far more costly and legally risky.

Because of this:

  • managers should be trained on addressing performance and conduct issues and be prepared to face up to difficult conversations early on;
  • periods of probation should be reviewed and measures put in place to ensure sufficient performance monitoring and awareness of the date from which the protection applies;
  • think ahead. The needs of the business for the number and type of roles should be reviewed and any required structural changes promptly addressed over the coming months; and
  • the length of service of exceptionally high earners and employees whose performance or conduct gives rise to concerns, or whose future employability is otherwise questionable for any reason, should be reviewed and, if less than two years, exits considered now to avoid unfair dismissal claims and uncapped awards.

Guaranteed hours and shift predictability

The act tackles the long‑criticised ‘one-sided flexibility’ in the employers’ favour of zero‑hour and low-hour contracts. From 2027 (the date is yet to be confirmed as the proposals are complex and will require significant consultation):

  • workers must be offered guaranteed hours to reflect their average hours worked over an initial reference period (anticipated to be 12 weeks) and after every subsequent reference period;
  • employers must provide reasonable notice for shifts, cancellations of shifts and shift changes. The ‘specified period’ of such notice is yet to be confirmed but will not exceed seven days. This will extend to agency workers;
  • compensation will apply for short‑notice shift cancellations or changes. The amount of notice and compensation is yet to be specified;
  • tribunal claims can be brought by workers for failure to comply and ‘just and equitable’ compensation (subject to an as yet unknown cap) may be awarded; and
  • it will be deemed automatically unfair to dismiss if the reason relates to rights concerning guaranteed hours offers, and workers will be protected from any detriment arising from the exercise of these rights.

Restaurants, hotels, pubs, and venues — all of which rely heavily on flexible and seasonal staffing — will need to redesign scheduling systems, budget for compensation payments, and maintain detailed shift‑tracking to demonstrate compliance. Digitised workforce management tools will become essential to remain efficient and, in preparation, employers should:

  • review zero-hours, casual and agency worker terms and conditions;
  • identify workforce patterns that could create guaranteed‑hours obligations and consider revising these patterns, or voluntarily introducing minimum hours now to increase staffing cost predictability and better enable budgeting in the longer term;
  • implement a process for monitoring reference periods and ensure technology is in place to track hours worked;
  • review processes for shift allocation and cancellations to ensure it is managed efficiently and with minimal changes or cancellations; and
  • provide training for managers so they are aware of the requirements for advance notice and compensation, with a view to minimising compensation costs and risk of detrimental treatment claims.

Increased sexual harassment obligations

Employers are already under a duty to prevent sexual harassment. Under the new rules, this duty will be extended, such that from October 2026:

  • employers must take ‘all reasonable steps’ (rather than just ‘reasonable steps’) to prevent sexual harassment; and
  • employers can be held liable for third-party harassment (eg by customers) if preventative measures are inadequate.

Prior to these changes, from April 2026, sexual harassment reporting will be explicitly included as a protected disclosure for whistleblowing purposes.

The hospitality industry faces unique risks due to customer interaction, late‑night operations, and alcohol‑driven environments. The nature of the sector makes this one of the highest-risk areas for non-compliance with the new requirements. In readiness:

  • harassment, whistleblowing and other relevant policies should be updated;
  • staff training, awareness, venue safety protocols and incident reporting mechanisms will need reviewing and may have to be significantly upgraded;
  • risk assessments and third-party arrangements currently in place should be revisited with the higher threshold in mind; and
  • guidance from the Equality and Human Rights Commission (EHRC) on reasonable steps should be considered and the awaited regulations should be reviewed as soon as available.

Increased sick pay

  • Statutory Sick Pay (SSP) will become more accessible, payable earlier, and better enforced. From 6 April 2026, all employees, regardless of income, will qualify for SSP with no lower earnings limit (currently £125 per week);
  • SSP, currently not payable until the fourth day of absence, will be payable from day one of sickness absence due to removal of the waiting days;
  • a new rate of SSP will apply, particularly relevant to low earners, equal to the lower of 80% of normal weekly earnings or the statutory flat rate; and
  • compliance, disputes and enforcement processes will be overseen by the new Fair Work Agency, a single enforcement body with expanded powers.

With many part‑time and lower‑income employees historically excluded from SSP, employers in hospitality will face increased wage costs and be under increased scrutiny to ensure the right amounts are paid. Appropriate record keeping and payroll processes will need to be in place to ensure businesses do not face additional liabilities for non-compliance.

Trade union reform

The act introduces substantial reforms to trade union law, implemented in phases across 2026. This could be (and has been) the subject of very lengthy articles in itself but key changes include:

  • industrial action protection – dismissal for participating in lawful industrial action will become automatically unfair and workers will have the right not to be subjected to a detriment where the sole/main purpose is to prevent, deter or penalise protected industrial action;
  • requirement for a written statement informing workers that they have the right to join a trade union;
  • increased rights of workplace access granted to unions;
  • enhanced rights to time off and facilities for union representatives;
  • removal of limitations on strike action; and
  • simplification of the union recognition process.

These reforms collectively make it easier for unions to organize, sustain, and legally protect industrial action, increasing the risk of union activity within hospitality operations and the potential disruption this may entail. To mitigate the impact of these changes, employers in the hospitality sector should:

  • consider recognising a union of choice now, rather than waiting for one to be pushed on them through statutory recognition;
  • consider and consult with the workforce regarding the potential implementation of alternative means of employee representation; and
  • amend contracts to include required provisions regarding the right to join a union and ensure appropriate policies, procedures and practices are in place affording the industrial action protections that will soon be required.

Tipping and gratuities

Existing obligations (eg to pass on all qualifying tips, distribute fairly and transparently, provide a written tipping policy and maintain records) will be strengthened under the ERA. Expected to be implemented from October 2026, the new rules provide for:

  • mandatory consultation with recognised unions, elected representatives or workers directly on tipping policies and provision of feedback summaries to ensure transparency;
  • policies to be formally reviewed (and consulted on) every three year review cycle; and
  • strengthened enforcement and compensation rights – workers may bring tribunal claims if employers fail to consult or comply with the new rules, and compensation of up to £5,000 may be awarded for financial loss caused by non‑compliance.

The details are still to be ironed out in secondary regulations, but this is plainly very relevant to businesses in the hospitality sector. In readiness, these employers should:

  • review current policies and practices to ensure current requirements are met;
  • consider and seek to implement preferred consultative bodies or forums; and
  • if not already, put adequate record keeping measures in place and be ready and able to otherwise demonstrate compliance.

And more…

Changes are also tabled to the rules and requirements regarding:

  • flexible working (with an added requirement for refusals to be reasonable);
  • family friendly rights (including a day one entitlement to paternity and unpaid parental leave and additional protection from dismissal for pregnant staff and new mothers);
  • equality reporting (which will require ‘action plans’);
  • fire and rehire (with significant restrictions on using dismissal and re-engagement to implement contractual changes); and
  • collective redundancy consultation (changing the ‘trigger’ and doubling the maximum protective award penalty for failure to inform and consult from 90 to 180 days per employee).

Conclusion

Overall, the act marks a transformative shift for the UK hospitality industry. With another 26 consultations expected to take place this year, on zero-hours contracts, worker status, flexible working and collective redundancy consultation to name just a few, the precise impact of the act is still far from certain.

What is clear is that employers across all sectors will face increased responsibilities, costs, administrative burdens and risk, and this is particularly the case in hospitality given the typical structure and make up of the workforce. Staff‑related liabilities will be larger, more complex, and more heavily enforced, and hospitality businesses already managing tight margins and high staff turnover will face significant operational challenges. Hospitality employers should start to take steps now to ensure their readiness and reduce their financial exposure and potential liabilities under the new regime, which could threaten the sustainability of many hospitality businesses in the long term.

The new rules aim to create fairer, more predictable, secure and sustainable employment, but at what expense?

Related expertise

Related content
See all