The Employment Rights Act 2025: What Retailers Need to Know

The Employment Rights Bill received Royal Assent on 18 December 2025, becoming the Employment Rights Act 2025. It introduces sweeping reforms that will significantly impact how retailers recruit, retain, and manage their workforce. The changes are set to reshape employment practices and will particularly impact the retail sector, where flexibility, agency staff, shift work and variable hours are common.

Implementation will be phased over the next two years, but retailers should start preparing now to mitigate compliance risks and to maximise employee engagement.

At the time of writing (25 February 2026), further Government consultation papers and regulations are expected to be published setting out more details of the forthcoming changes. Retailers can contribute their views by responding to the consultation papers.

1. Guaranteed Hours

One of the most disruptive changes for the retail sector may be the requirement to offer guaranteed hours to qualifying workers (those on zero-hours or low-hours contracts) and agency workers, to reflect the hours they have worked over a reference period (anticipated to be 12 weeks), if their hours exceed the minimum number set out in their contract or the minimum threshold to be specified in regulations.

Importantly for the retail sector, where seasonal workers are commonplace, further details are awaited in respect of the grounds on which it may be acceptable to use fixed-term contracts where retail businesses reasonably consider that there is only a temporary need for qualifying workers to do work.

Retailers will also be required to provide reasonable notice of shifts, shift changes and cancellations, or will be required to make compensation payments for cancelled, moved or curtailed shifts where sufficient notice is not provided. In preparation, retailers are advised to review their rostering systems and payroll processes.

These provisions are expected to take effect in 2027.

2. Flexible Working

Whilst employers will still be able to refuse flexible working requests on specified business grounds, the Act provides that they can only do so where it is reasonable. Employers will need to set out their reasoning for refusing a request and explain why they consider that decision to be reasonable.

With potentially more flexible working applications, retailers could consider job shares, split shifts or hybrid roles.

3. Statutory Sick Pay (SSP) and Family Leave

The Act proposes that from April 2026, SSP will apply from day one, removing the current three-day waiting period. The lower earnings limit (currently £123 per week) will also be removed.

This change is likely to increase costs for retailers, particularly for part-time or lower-paid staff. There will also be day-one rights to paternity, parental and bereavement leave.

4. Harassment and Discrimination

The proactive duty to take reasonable steps to prevent sexual harassment (introduced on 26 October 2024) will be strengthened to a duty to take ‘all reasonable steps’. Employers will also be liable for acts of harassment by third parties against staff during the course of employment, unless they can demonstrate that all reasonable steps were taken to prevent it.

With harassment from third parties towards retail staff on the rise, retailers should consider:

– Conducting risk assessments;

– Implementing customer conduct policies;

– Refreshing and undertaking regular staff training;

– Reviewing incident reporting mechanisms; and

– Displaying signage to deter inappropriate behaviour.

Confidentiality clauses (or NDAs) preventing workers from making allegations of harassment, discrimination or the employer’s handling of such matters will be void, subject to exemptions expected to be set out in regulations.

Further Government consultation papers and regulations are expected to be published setting out more details of the forthcoming changes. Retailers can contribute their views by responding to the consultation papers.

Retailers will need to inform staff of preventative steps identified through risk assessments, update internal guidance and systems, and strengthen procedures relating to internal investigations. Creating a transparent and safe working culture can also reduce staff turnover and absenteeism, while enhancing productivity.

5. Unfair Dismissal

The Act will reduce the current two-year qualifying period for unfair dismissal claims to six months. This will require careful planning and changes to probation policies and performance management processes during the first half of 2026.

The Act also removes the cap on compensation for unfair dismissal claims (currently the lower of 52 weeks’ pay or £118,223). Termination processes will therefore require increased scrutiny. The Government has confirmed it will publish an impact assessment before implementing the removal of the compensation cap.

These changes are expected to take effect from 1 January 2027.

6. ‘Fire and Replace’

It will be automatically unfair to dismiss employees in order to replace them with non-employees, such as contractors, performing the same work, unless the employer’s need for that work has diminished.

Retailers should be mindful that switching to self-employed staff to reduce costs will no longer be permitted under these circumstances.

7. Trade Union Reform

The Act introduces significant reforms to trade union law. Key changes planned to take effect in October 2026 include new rights of access to workplaces for trade unions for recruitment, organising and collective bargaining purposes (excluding strike action).

Employers will also be required to provide workers with a written statement of their right to join a trade union from the outset of employment. Retailers with little prior union engagement should begin preparing now.

Looking Ahead

The Government will continue to consult on the proposals before they are implemented between April 2026 and the end of 2027. The Act will be challenging and disruptive for the retail sector.

Retailers should review existing processes and adapt to the forthcoming changes now to remain compliant and competitive.

Curious about what 2026 has in store for the retail industry? Download our EDGE of Retail 2026 report now.