Employment Law for Entrepreneurs: A look at the Employment Rights Act 2025 reforms from the perspective of start-ups and scale-ups

The Employment Rights Act 2025 introduces a range of reforms that will affect entrepreneurs across the UK. Part 2 builds on the general workforce-risk checklist in Part 1 and focuses on the key reforms that businesses should be aware of.

Even if a business has previously put in place compliant contracts, policies and people processes, the reforms may require those arrangements to be reviewed and updated. For start-ups and scale-ups, the key point is to ensure that documentation and management practices remain fit for purpose as employment protections expand and compliance expectations increase. As you may well be aware, the Employment Rights Act 2025 is changing the landscape significantly, particularly in relation to dismissal, pay and record keep requirements.  

Immediate priority actions for growing businesses preparing for the reforms

The tasks that entrepreneurs should prioritise when preparing for the reforms are as follows.

1. Review employment contracts, probation provisions and notice arrangements before the unfair dismissal reforms take effect.
2. Strengthen early intervention and active performance management.
3. Review dismissal procedures and prepare for increased employment tribunal exposure by reviewing higher-risk employment relationships before the reforms take effect, taking advice before termination decisions are made and clearly documenting decision-making.
4. Improve documentation of people-management decisions.
5. Review statutory, payroll, holiday pay, working time and wage record-keeping processes.
6. Monitor enforcement developments, including the Fair Work Agency, where relevant to the business.
7. Plan for the transition period before implementation, including employees who may fall within the new risk window.

Entrepreneur readiness checklists

We set out more detailed recommendations in relation to these areas of concern in the checklists below.

Probation periods

• Review probation periods and ensure review points align with the new six-month qualifying period.
• Check that notice provisions support effective decision-making before unfair dismissal protection is acquired. Consider whether probation extension processes remain appropriate.  
• In light of the reduced qualifying period for ordinary unfair dismissal protection, use probation periods actively rather than treating them as a formality. Set objectives, hold review meetings and take advice in good time before contractual or statutory notice affects the available options.

Early intervention and active performance management  

These general management-process risks were covered in Part 1, but they will become more significant because from 1 January 2027 employees may acquire ordinary unfair dismissal protection earlier than under the current regime.

• Set clear expectations from the beginning of employment.  
• Provide timely feedback where concerns arise.  
• Hold regular probation review meetings.
• Address performance and conduct issues promptly rather than allowing concerns to drift.
• Take advice before terminating employment where the employee has raised concerns, complained about discrimination or harassment, requested adjustments, taken family leave or is absent due to ill-health. The reforms do not change the core whistleblowing regime, but whistleblowing remains a high-risk area because employees do not need the usual qualifying service to bring an automatically unfair dismissal claim connected with a protected disclosure.

Review of fairness of dismissal processes

• Review dismissal procedures to ensure fair process is followed consistently.
• Ensure investigations are proportionate and properly documented.
• Apply policies consistently across comparable cases.
• Escalate higher-risk dismissals to HR, outsourced HR support or legal advisers at an early stage.

Documentation of people-management decisions

• Document performance concerns as they arise.  
• Record the reasons behind employment decisions contemporaneously.
• Ensure managers understand the importance of consistent and accurate record-keeping.  

Record-keeping obligations

• Check that systems accurately record holiday entitlement and usage, holiday pay calculations, working time where relevant, pay deductions and termination payments.
• Identify any gaps and update HR and payroll systems accordingly.
• Set up or improve processes to retain key employment, payroll and decision-making records for appropriate periods, commonly up to six years depending on the type of record and the risk being managed.
• Distinguish statutory, payroll, holiday pay, working time and wage records from records of individual people-management decisions, which should be reviewed separately.

Enforcement

• For most early-stage businesses, trade union issues may not be an immediate priority. However, businesses with larger operational workforces, lower-paid roles, logistics, hospitality, retail, manufacturing or outsourced service models should monitor the simplified union recognition process.
• Monitor workforce relations for potential impact and keep up to date with developments regarding the remit of the Fair Work Agency.

Transition planning

• Identify employees who will have between six months’ and two years’ service on 1 January 2027.  
• Monitor new joiners closely, as they may acquire protection shortly after implementation.
• Consider the impact of contractual and statutory notice periods when planning dismissals before the end of 2026. 

Our employment team has lots of experience with helping start-ups and scale-ups. If you would like any assistance, please contact Joanne Leach or Simon Gorham.