The Employment Rights Act 2025 introduces the most wide‑ranging overhaul of UK employment legislation in a generation, with changes rolling out through 2026 and 2027. With the reforms significantly reshaping employer obligations across unfair dismissal, zero‑hours contract arrangements, redundancy processes, and family‑friendly rights, employers across all sectors are understandably nervous. However, for the retail sector, which continues to grapple with online competition, declining footfall on the high-street, rising rents and tight margins, the need to prepare early cannot be overstated.
Employment senior associate, Kathryn Walters, explores the key reforms and outlines why retailers must act now to prepare for the impending changes.
1. Unfair dismissal: higher litigation risk and reduced flexibility
One of the most consequential ERA changes is the reduction of the qualifying period for ordinary unfair dismissal claims from two years to six months which will come into force from January 2027. Together with the removal of the statutory cap on compensation, this will inevitably lead to increased litigation and settlement exposure for employers.
Kathryn comments that “the reform to unfair dismissal rights is anticipated to have the greatest organisational impact for employers. For retailers, who often rely on high‑turnover staffing, variable working hours, seasonal recruitment cycles, and extended probation periods, it will be crucial to have rigorous performance management and recruitment practices in place. I recommend that there is tighter scrutiny of dismissal decisions; clear documentation; early performance management; and that the managers who will be responsible for recruitment, performance management and disciplinary processes receive regular and comprehensive training.”
2. Zero‑hours and variable‑hours contracts: a shift toward predictability
Zero‑hours contracts have been widely used in retail to cope with fluctuating demand. ERA reforms introduce new obligations intended to curb “one‑sided flexibility,” including:
- A requirement for employers to offer guaranteed minimum hours after each 12‑week reference period if a pattern of regular work emerges;
- Proper notice of shifts; and
- Compensation for short‑notice shift cancellations.
These rights also extend to agency workers and come with new enforcement remedies.
For retailers, this represents a major operational shift and drawing up rotas will inevitably become more challenging. While the finer detail of the reforms is awaited, Kathryn recommends that employers start considering how shifts are rostered and how notice of shifts is given to relevant workers, with a view to identifying if any improvement and refinements can be made now, in advance of the changes coming into force in 2027. What is certain, is that the traditional flexibility offered by zero‑hours contracts will be significantly curtailed.
3. Collective redundancies and consultation duties
Retailers restructuring in response to store closures or declining footfall must note that the ERA strengthens employee protections in collective redundancy scenarios. Measures include:
- Increased consultation obligations; and
- Higher potential penalties for failure to comply
At a time when many retailers are consolidating estates or shifting investment into online platforms, these changes could significantly raise the administrative burden and financial impact of workforce reductions.
4. Expanded family‑friendly rights: day-one entitlements and enhanced protections
The ERA broadens several family‑related rights, with many becoming day-one entitlements from April 2026, including:
- Paternity leave and unpaid parental leave;
- Statutory sick pay; and
- Unpaid bereavement leave (from 2027)
It is expected that there will also be enhanced dismissal protections for pregnant women and mothers on maternity leave, with consultation on government proposals in this regard having closed within the last month.
Kathryn comments that “these increased rights increase both administrative and compliance demands, requiring tighter coordination and a need for updated policies. For a sector built on lean staffing, the effect may be that there are more short‑term staff shortages and an increased reliance on temporary staff, which could increase cost, complexity and administration.”
While the finer detail of many of the reforms is not yet clear, and secondary legislation is awaited, the direction of travel is clear. We therefore strongly advise employers to prepare now.
The retail sector is already exposed to volatile trading conditions, and with the other economic and competitive challenges this sector faces, any additional employment law risk must be proactively managed. The financial and reputational risks associated with non‑compliance are too great to ignore.
Immediate priorities for retailers
1. Review and update employment contract templates
- Update clauses relating to hours, flexibility, shift patterns, and guaranteed hours obligations
- Ensure probation and performance management frameworks reflect the new unfair dismissal qualifying period; and
- Strengthen contractual clarity on roles, duties, and conduct expectations
2. Refresh recruitment and onboarding practices
Prevention will be the best cure when it comes to seeking to minimise unfair dismissal risk and there are key steps that employers can take now, which include:
- Improving candidate screening;
- Conducting more thorough induction and early-stage performance reviews; and
- Reducing reliance on informal or short-term staffing decisions.
3. Provide robust manager and supervisor training
Store managers will be at the coal face of dealing with employees and implementing many of the reforms. It is therefore imperative that they are trained, and competent to deal with this. Areas for training include:
- Grievance, whistleblowing and disciplinary practices and procedures;
- Flexible working and family-friendly leave requests; and
- Managing zero‑hours contract obligations;
Given the pace of ERA rollout, training should be prioritised well before the main reforms take effect.
Next steps
Our employment team are advising and supporting many retail clients as they make the necessary preparations to mitigate the risks brought by the ERA reforms. In addition to delivering bespoke training sessions, the team have been updating contracts, policies, and advising on changes to working practices. Please feel free to reach out to Kathryn to discuss your needs and what support you require.
