Debenhams Ottaway’s Employment Law Round Up January 2026

Click the links below to read more about some upcoming changes in employment law next month:

• Employment Rights Bill 2025 gains Royal Assent: Key considerations for employers
• Rates and limits increase in April 2026
• Workplace toilets after For Women Scotland: What employers need to know
• Non-compete clauses under review: Working paper is issued
• New bereavement-related paternity leave rights take effect

Employment Rights Bill 2025 gains royal assent: Key considerations for employers

The Employment Rights Bill received Royal Assent on 18 December 2025, becoming the Employments Rights Act 2025.

The Bill introduces significant reforms aimed at strengthening employee protections and extending procedural timelines. While key provisions, such as the six-month qualifying period for unfair dismissal and uncapped compensation limits, will be potentially implemented as early as January 2026.

Employers should prepare for a more claimant-friendly landscape, with longer timeframes for conciliation and tribunal claims likely to increase litigation risk. Below we highlight some of the most notable changes expected to come into
force over the next 12 months.

Unfair dismissal qualifying period reduced

The right for employees to make an unfair dismissal claim after six months in a job has been confirmed. These changes are expected to take place on 1 January 2027. To prepare for this employers should tighten their probation management to take into account the increase in risk once employees gain such rights. They can do this by ensuring formal, documented probation milestones and by training line managers to handle performance and conduct issues fairly and consistently from the outset of employment.

Removal of compensation cap for unfair dismissal

The Bill removes the fixed numerical cap, which currently limits awards to £118,223 or 52 weeks’ gross pay. The time frame for implementation has yet to be confirmed, but there is speculation that it could also be in January 2027. If enacted in this form, there would be no cap on the amount an employee can claim in an unfair dismissal claim, which would increase the potential exposure for employers in relation to unfair dismissal complaints.

Extension of ACAS Early Conciliation period

Additionally, from 1 December 2025, the ACAS Early Conciliation period was formally increased from 6 weeks to 12 weeks for all notifications made on or after that date. The extension of the ACAS Early Conciliation period to 12 weeks increases the duration of uncertainty, cost and administrative burden for employers by prolonging the period before it is clear whether a tribunal claim will be pursued.

Extended tribunal claim window

The Employment Rights Bill also extends the time limit to bring most employment tribunal claims from three months to six months. This is expected to come into effect in October 2026. When this is paired with the 12-week conciliation period, employees and workers will have up to nine months before needing to file a claim.

Automatic unfair dismissal for “fire and rehire”

Looking ahead, the Bill will also introduce reforms making most “fire and rehire” practices automatically unfair. Employers should ensure they have established fair processes, meaningful consultation, and consider restructuring options carefully, taking legal advice where appropriate.

Statutory duty to prevent third-party sexual harassment

From October 2026, the Bill is expected to place a statutory duty on employers to take all reasonable steps to prevent sexual harassment by third parties, such as customers or clients. This significantly raises the legal threshold by requiring employers to take “all” reasonable steps (not just reasonable steps) to prevent sexual harassment and by re-introducing liability for third-party harassment. This means employers would be held responsible for harassment by customers or clients unless they could show robust preventative measures, with failures exposing them to a 25% uplift in tribunal compensation. Employers should prepare by updating policies, training staff, assessing and mitigating harassment risk —including from third parties and ensuring prompt, well-documented responses to complaints.

Rates and limits increase in April 2026

As recommended by the Low Pay Commission the Government announced an increase in the national minimum wage (NMW) which will apply from April 2026.

From the 1 April 2026 the hourly rates of the national minimum wage will be:

• National Living Wage (NLW) (aged 21 and over): £12.71 (currently £12.21)
• 18–20-year-old rate: £10.85 (currently £10.00)
• 16–17-year-old rate: £8.00 (currently £7.55)
• Apprentice rate: £8.00 (currently £7.55)
• Accommodation offset: £11.10 (currently £10.66)

The Government has also released the 2026–27 benefit and pension rates, confirming increases to statutory payments including sick pay, parental related pays, neonatal care pay, parental bereavement pay and maternity allowance. The revised rates, detailed below, include a 3.8% increase in line with inflation and will be confirmed in parliament.

Statutory Sick Pay (SSP): The weekly rate increases to £123.25 (from £118.75). Subject to implementing regulations, from April 2026, these will be payable from day one for the first three qualifying days of sickness.

Family related statutory payments: The weekly rate for these payments (maternity, maternity allowance, adoption, paternity, shared parental, neonatal care, bereavement) increases to £194.32 (from £187.18).

Lower Earnings Limit: This rises to £129 per week (from £125) for eligibility for the above payments (except maternity allowance).

Workplace toilets after For Women Scotland: What employers need to know

Following For Women Scotland, “sex” under the Equality Act 2010 means biological sex, but this does not impose a single mandatory approach to workplace toilets. Recent tribunals, detailed below, confirm that employers may lawfully allow trans employees to use facilities aligned with their gender identity where facilities are suitable and sufficient and no material disadvantage is caused, but they must review arrangements if concerns are raised.

The key for employers is to balance dignity, privacy and safety for all staff through a proportionate, case-by-case approach, bearing in mind all employees’ statutory rights.

Kelly v Leonardo UK Ltd ETS/8001497/24

In the first instance decision of Kelly v Leonardo UK Ltd ETS/8001497/24 (25 November 2025) an employment tribunal rejected Ms Kelly’s claims of sex related harassment and direct and indirect sex discrimination, when she objected to her employer’s policy allowing trans employees to use toilets in line with their gender identity. She argued the policy compromised women’s privacy and safety, but both her grievance and appeal failed.

Referring to For Women Scotland v Scottish Ministers [2025] UKSC 16, the tribunal noted that “sex” under the Equality Act 2010 means biological sex. Although employers must provide separate male and female toilets under the 1992 Workplace Regulations, these do not have to be restricted by biological sex or gender certification.

The tribunal accepted that the claimant found the policy unwelcome, but concluded that it did not amount to unlawful harassment or discrimination under the Equality Act 2010. The tribunal found the policy did not harm Ms Kelly’s dignity or create a hostile environment, as she could still use female facilities and her direct and indirect discrimination claims were dismissed for lack of less favourable treatment.

Peggie v Fife Health Board and another ETS/4104864/24

In the first instance decision of Peggie v Fife Health Board and another ETS/4104864/24, an employment tribunal partly upheld a harassment claim by a nurse, Ms Peggie, against her employer, but rejected her discrimination and victimisation claims. Ms Peggie had objected to a trans woman doctor using the female changing rooms, and after ongoing disputes, Ms Peggie was placed on special leave.

The tribunal found that the employer had failed to adequately consider interim arrangements after Ms Peggie’s objections were raised, while confirming that the initial access arrangements themselves were not unlawful. The tribunal found the hospital harassed her by failing to temporarily suspend the doctor’s access to the changing room once she raised concerns. While the doctor’s initial access was lawful, the tribunal said employers must use an objective test when balancing conflicting protected characteristics. After Ms Peggie’s objection, access should have been paused while alternative arrangements were considered.

Non-compete clauses under review: Working paper is issued

On 26 November 2025, the Government issued a working paper exploring reforms to noncompete clauses in employment contracts. Consultation options include:

• a statutory time cap on noncompete clauses (potentially varied by
  employer size)
• an outright ban on noncompetes
• banning noncompetes for employees below a set salary threshold
• combining a salary threshold with a three month limit.

The paper also questions whether employees avoid challenging restrictive covenants due to High Court litigation costs, and whether reforms should extend to other types of covenants or workplace agreements. Consultation responses are due by 18 February 2026.

New bereavement-related paternity leave rights take effect

The Paternity Leave (Bereavement) Act 2024 came into force on 29 December 2025.

The Act gives fathers and partners the right to take paternity leave when the mother or adopter dies during childbirth or within a year of birth or adoption, including in surrogacy and parental order cases. Fathers and partners now don’t need 26 weeks’ service to take paternity leave in these circumstances and paternity leave can still be taken even if shared parental leave has already been used.

Although these changes currently apply only in bereavement-related cases, the Employment Rights Act 2025 is expected to extend similar day-one paternity leave rights to all fathers and partners from April 2026.

Some aspects of the new rights will require further secondary regulations before they take effect. These regulations may:

• allow paternity leave to be taken where both parents have died
• allow bereaved employees to do limited work (such as keeping-in-touch
  days) without ending their paternity leave
• provide additional redundancy protection following bereavement related
  paternity leave.

The Government has also indicated that it intends to extend the maximum period of leave available in these circumstances from two weeks to up to 52 weeks, although the timing of these further regulations has not yet been confirmed.