In this article, we consider the impact of the Employment Rights Act 2025 (“ERA 2025”) on the technology sector and examine how tech businesses need to rethink their workforce strategies to stay competitive and compliant in a rapidly changing landscape.

Published: 6 March 2026
Authors: Mollie Wilkinson

The Employment Rights Act 2025 (ERA) introduces significant reforms to employment law, and its effects will be particularly far‑reaching for the technology sector. Technology companies are known for rapidly scaling, using on-demand working styles, and restructuring in response to market changes. It is therefore critical that tech companies are ready to adapt to an environment with stronger dismissal protections, tighter contract variation obligations, and more regulated working arrangements. This article explores the practical impacts of some of the upcoming reforms and highlights the way that the sector will need to manage its workforce going forwards to navigate these changes.

Greater risk during restructuring and funding cycles

Restructuring is a common feature of the tech sector, particularly in response to shifts in investment, evolving market priorities, or changes in product direction. In order to remain agile and competitive, tech employers frequently refine working patterns; such as adjusting hours, modifying on-call schedules, or revising remuneration packages to better support business objectives. When employees resist contractual amendments, the prevailing commercial approach for many employers has been to terminate and re-engage staff on updated terms. This method is often viewed as a pragmatic solution, avoiding the higher risk of breach of contract claims that could arise from imposing changes unilaterally. By adopting this route, employers have historically been able to implement essential workforce adjustments with greater certainty and fewer legal complications.

However, from January 2027 under the ERA 2025, if the primary reason for dismissing an employee is due to their refusal to agree to a ‘restricted variation’ of the employment contract, such as a change to their working hours, then this will be an automatically unfair dismissal. This means that what may previously have been considered minor contractual adjustments for an employer to make, will now carry higher litigation risk. Employers will be required to put increased time into complying with employment legislation during restructures, which will ultimately lead to increased legal costs.

In addition, from April 2026, the penalty for failing to properly carry out collective consultation during redundancy exercises will increase significantly. Specifically, if an employer proposes to make 20 or more employees redundant at a single location within a 90-day period, and does not follow the required collective consultation process, the maximum protective award that can be granted to affected employees will rise from 90 days’ pay to 180 days’ pay.  As a result, the financial stake for employers have never been higher when it comes to the consequences of non-compliance.

Start-ups are particularly vulnerable to non-compliance with the new employment protections introduced by the ERA 2025, largely because their HR functions are typically outsourced or minimally resourced. In contrast, larger organisations benefit from established internal HR teams capable of responding swiftly to early indicators of risk or procedural missteps. The absence of dedicated HR expertise within start-ups means that even seemingly routine decisions—such as extending probation or altering an employee’s responsibilities—will now necessitate thorough justification and robust supporting documentation. Navigating these requirements will be considerably more complex for start-ups, prompting a need to reassess and strengthen their HR operations to ensure compliance and mitigate legal exposure in the evolving regulatory landscape.

Reduced flexibility in managing early‑career talent

The ERA 2025 will reduce the qualifying period for unfair dismissal from two years to six months from 1 January 2027. Crucially, any employee with six months’ service on that date will automatically gain unfair dismissal protection (ie those employed from 1 July 2026).

This change compresses the window for assessing employees dramatically. Employers must now implement shorter probationary periods—ideally under six months—as well as more structured and rigorous performance review processes beginning from 1 July 2026. Informal methods of assessing suitability will no longer be viable, and managers must ensure that concerns are documented and communicated promptly. Employers will need to be wary of probationary periods that end within periods of high annual leave, as any delay in notifying the employee beyond the six months will result in the employee being protected from being unfairly dismissed, requiring the employer to conduct a much more extensive dismissal process.

The tech sector is well known for hiring junior or early‑career employees with the intention of evaluating their suitability over the first two years of employment. However, this tendency will no longer align with the reduced service requirements for unfair dismissal from January 2027. To mitigate the heightened risk under the ERA 2025, tech employers must embed structured probationary frameworks, using clear performance metrics, regular documented feedback, and identifying performance concerns early on. These processes must be in place from the first weeks of employment, not introduced reactively after problems arise. A rigorous approach will be essential to protect the employer and to justify decisions made before the six‑month protection threshold.

Removal of the compensation cap

From January 2027, the ERA 2025 will abolish the current cap on compensation for unfair dismissal claims; both the numerical limit of £118,233 and the maximum of 52 weeks’ gross pay will be removed entirely. This means employers could face uncapped compensation awards for unfair dismissal, with payouts potentially reaching much higher sums, particularly where senior or highly specialised staff are involved. The stakes for getting dismissal decisions and processes right have never been higher: any missteps or poorly handled terminations could result in substantial financial exposure. Employers must prioritise robust, evidence-based performance management and ensure fair, legally compliant dismissal procedures to protect their position.

Impact on‑demand and zero‑hours roles

The ERA 2025 introduces tighter protections for zero‑hours workers, introducing key rights such as:

• guaranteed hours for qualifying workers and qualifying agency workers, reflecting the hours they regularly work over a reference period
• reasonable notice of shifts
• compensation for shifts that are cancelled, moved, or curtailed at short notice.

According to the Government’s timeline update, these changes are expected to come into force in 2027. The Government’s aim with these reforms is to provide greater job security, rights and guaranteed income for vulnerable, low-income workers who are typically engaged with zero-hours contracts. However, the tech sector will be significantly impacted as many on-demand staff are crucial to support logistics, platform operations, and content moderation. For tech businesses operating large support functions or on‑demand models, these reforms will reduce the cost flexibility gained by using zero-hours contracts and will place further demand on advance shift planning. Shift‑based operational structures will need to be redesigned to avoid penalties for last minute changes and ensure compliance with the duty to provide guaranteed hours once the reference period expires. Tech employers must prepare for these sweeping changes now.

Conclusion

The ERA 2025 represents a significant shift in workforce governance for the technology sector. The combined pressures of stronger dismissal protections, the removal of compensation caps, stricter collective consultation requirements, and enhanced rights for zero‑hours workers will reshape the employment landscape for both start‑ups and large tech businesses.

Compliance will require early planning, stronger HR infrastructure, and a shift towards more structured feedback and performance management. For tech companies willing to adapt, the ERA 2025 provides an opportunity to create a more stable workforce and increase employee trust due to improved people management processes. For those that delay preparation, the legal, financial and reputational risks have the potential to be significant.