Written by Gillian McAteer, director of employment law at Citation
The Employment Rights Bill passed through the UK Parliament on 16 December 2025 and received Royal Assent on 18 December 2025, officially becoming the Employment Rights Act 2025 (‘the Act’). The government has since set out its proposed timetable for implementation, with unfair dismissal and zero-hours contract reforms due to be phased in during 2027 and changes to Statutory Sick Pay (SSP) rules coming into force in April 2026.
The Act contains more than 150 sections that together significantly enhance workers’ rights, meaning employers across the independent retail sector will need to start preparing now.
Below are three key areas businesses should be aware of.
Unfair dismissal
The Act will reduce the current two-year minimum service requirement for bringing ‘ordinary’ unfair dismissal claims, giving employees the right to bring a claim after six months of employment. It will also remove the statutory cap on compensation for unfair dismissal, which currently stands at 12 months’ salary or £118,223, whichever is lower.
These amendments will come into effect on 1 January 2027, meaning employees with at least six months’ service will be able to bring an unfair dismissal claim from that date.
The legislation will also make it automatically unfair to dismiss an employee for refusing certain contractual changes, or to dismiss and rehire them – or a replacement – on substantially the same duties under different terms. However, employers may still defend such dismissals if the changes are necessary to address severe financial difficulties threatening the ongoing viability of the business and there was no reasonable alternative to imposing the change.
Even where this exception applies, tribunals will still assess the fairness of the dismissal, including consultation and any mitigating actions taken by the employer. This amendment will also come into force in January 2027.
Statutory Sick Pay
Statutory Sick Pay is a legal entitlement that eligible employees must receive if they are off sick. Until April 2026, employers only had to pay SSP once an employee had been off work for four or more consecutive working days, with the first three days acting as unpaid ‘waiting days’. SSP was also only payable to employees earning above the Lower Earnings Limit, currently £129 per week, and was paid at a flat weekly rate of £118.75 for up to 28 weeks.
Under the new legislation, from 6 April 2026 SSP is payable from the first day of sickness absence, removing the three-day waiting period entirely. The Lower Earnings Limit has also been removed, meaning all employees now qualify for SSP regardless of income.
For lower-paid employees, SSP will be paid at 80 per cent of their average weekly earnings, or the standard SSP rate of £123.25 per week, whichever is lower.
Many SME business owners may experience an increase in short-term sickness absence following these changes, making it important to ensure absence management procedures are in place and implemented consistently and fairly.
This will be especially important given the remit of the new Fair Work Agency, also introduced as part of the Act, which includes enforcement of SSP entitlement alongside holiday pay and National Minimum Wage compliance.
Changes to zero-hours contracts
The Act also introduces significant reforms around zero-hours contracts. Where workers on zero-hours arrangements have regularly worked a certain number of hours and pattern over a set period – which the government has indicated is likely to be 12 weeks – employers will be required to offer them a guaranteed-hours contract.
However, further detail is still needed on when this obligation will apply, how it will work in practice and what exemptions may be available for employers.
The legislation will also introduce a legal requirement for “reasonable notice” of shifts. Currently, employers are only required to provide notice periods if they are set out contractually. Although the definition of “reasonable notice” has not yet been confirmed, the government has indicated it is unlikely to exceed seven days.
In addition to shift notice requirements, the Act introduces a new right to reasonable notice for the cancellation, shortening or movement of shifts. Workers will also be entitled to compensation where reasonable notice has not been given.
Employers will be responsible for compensating workers for shifts that are cancelled, amended or shortened at unreasonably short notice, with compensation capped at the wages for that shift or the wages lost where a shift is shortened.
Getting ready for the changes
The government plans to implement these reforms in stages throughout 2026 and 2027, making it essential for employers to stay informed and prepared.
One of the first steps businesses should take is auditing their staffing model. Retailers should review who is currently working on casual or zero-hours contracts and consider whether alternative arrangements may work better for the business in future.
It will also be important to tighten up internal policies and procedures. Reviewing absence management, recruitment, induction and probation processes now could help businesses manage increased employee rights around sick pay and unfair dismissal more effectively.
Finally, employers should stay informed as further guidance and clarification emerges over the coming months, particularly around exemptions and definitions that are still being finalised. Where uncertainty remains, seeking advice from HR or employment law experts will help ensure correct procedures are being followed.
For more advice and guidance, visit the Citation website.