2025 has been a very busy year in the employment law space for both us and our clients. As 2025 draws to a close, we pause and reflect on some of the key (but certainly not all!) legal developments this year.
Employment Rights Bill (No Longer!)
No employment law 2025 round up could exist without first mentioning the Employment Rights Bill (‘ERB’) which, after a series of vote downs by the Houses of Lords and a prolonged period of ‘ping pong’ between the two Parliamentary chambers, was passed into law on 16 December 2025 with Royal Assent received on 18 December 2025. From this point on it will be known as the Employment Rights Act 2025.
We started the year with the headline proposed change of day one unfair dismissal rights which has now, as the result of negotiations between the Government, unions and business stakeholders, become a reduction in the current two-year service qualification period for the bringing of unfair dismissal claims to six months.
A surprising outcome of those negotiations was the last-minute amendment to remove the compensation cap for ordinary unfair dismissal claims (currently the lower of 12 months’ pay and £118,223). Despite concerns from the shadow cabinet and House of Lords as to the last-minute introduction of a significant provision during the Parliamentary process, the Government stood firm on this point and the removal of the compensation cap will form part of the new Employment Rights Act 2025. The Government has said it will publish an impact assessment in due course before bringing the provision into force.
These changes to unfair dismissal rights form only part of the wide-ranging employment law changes that will be brought about by the new Act, which also implements reform to redundancy consultations, zero-hour contracts, harassment protections, family leave and trade union powers, to name but a few.
Of course, the passing of the ERB, whilst undoubtedly significant, is only just the beginning as reforms are anticipated to come into force in stages, with some further 26 consultations promised to set out the practical details. Employers should keep track of developments as timings and practical details are still a moveable feast and start preparing for the impacts of the changes. See our article here or our Reform Hub for more details on the changes.
Government Consultations
The Employment Rights Act 2025 is only stage one of the Government’s reform agenda and additional Government consultations launched this year demonstrate that further changes in employment law may be coming down the line. Although details are still unknown, we may see further clarity in 2026.
Key consultations include:
- Working paper on non-competes – Following the previous Government’s announcement that it intended to limit non-competes to three months back in 2023, which ultimately never materialised, a working paper was launched on 26 November 2025 seeking views on a variety of potential restrictions on non-competition clauses in employment contracts. See our article here for more.
- Review of family leave – In July 2025, the Government announced a comprehensive review of all statutory family leave and pay entitlements. The review is expected to run for 18 months up to the end of 2026, following which the Government intends to set out a roadmap for further reforms. See our article here for more.
- Ethnicity and disability pay gap reporting – The Government moved forward with its pre-election commitment to introduce mandatory ethnicity and disability pay gap reporting for large employers, similar to the existing gender pay reporting framework, by launching a consultation on the proposal in March 2025. See our article here for more.
- Reform to equality laws – In April 2025 the Government published a broader call for evidence on proposed reforms to equality law. This included proposals to extend the equal pay regime to race and disability, strengthen the enforcement of equal pay rights via the establishment of a new enforcement body, improve pay transparency, widen anti-harassment protections and put into force existing statutory protections against combined discrimination that have laid dormant. See our articles here and here for more.
Financial Services
There have been a series of changes that affect employers in the financial services sector throughout 2025, with further updates expected in 2026. Key developments include:
- In July 2025, the Financial Conduct Authority (‘FCA‘) consulted on updates to its handbook to help better address non-financial misconduct (‘NFM’) following public and political scrutiny as to how allegations of inappropriate conduct in the financial services industry are dealt with. The proposed updates to the FCA Handbook included a new ‘anti-harassment’ rule in the Code of Conduct as well as detailed guidance on how the regulator expects allegations of NFM to be handled and responded to. The updates and guidance were finalised in December 2025, which we have written about here.
- In Autumn 2025, HM Treasury, the FCA and the Prudential Regulation Authority (‘PRA‘) launched consultations on proposed changes to the Senior Manager & Certification Regime (‘SM&CR’), aimed at simplifying the regime’s requirements and reducing the regulatory burden on firms. Updated SM&CR rules are expected to be published by the FCA and PRA in mid-2025. For more, see here.
- Following a consultation in 2024, the FCA and PRA announced on 16 October 2025 significant changes to the variable remuneration rules applying to certain senior individuals in dual regulated firms. These included the removal of the specific seven-year bonus deferral period for Senior Managers (now four years for all Material Risk Takers), vesting of equity awards to Senior Managers on a pro rata basis from the time of grant rather than after three years and a reduction in the proportion of bonuses required to be deferred. See here for more.
Sexual Harassment
Following the introduction of the new proactive legal duty requiring employers to take reasonable steps to prevent sexual harassment that came into force on 26 October 2024, employers have been moving forwards with carrying out the necessary risk assessments and considering reasonable steps to mitigate against the identified risks.
These have included updates to policies, code of conducts, template employment agreements and supplier contracts, the implementation of comprehensive sexual harassment training, and in particular manager specific training sessions.
Given the changes in the Employment Rights Act 2025 which introduced liability for third party general harassment and increased the duty to prevent sexual harassment from taking reasonable steps to taking all reasonable steps, employers might want to consider strengthening and updating their approaches.
Pay Transparency
Employers with a European presence have been busy this year preparing for the EU Pay Transparency Directive, with a deadline for local implementation for Member States of 7 June 2026.
The EU Directive imposes new reporting obligations for employers with 100 or more employees, including the provision of information on their gender pay gap, including by categories of workers performing the same work, or work of equal value. Many early in-scope employers are pre-emptively considering their job architecture and gender composition across roles ahead of reporting obligations next year, to assess where there might be potential risk as regards equal value comparisons.
The EU Directive also introduces new pay transparency measures, including the requirement to provide salary information to job candidates, a ban on asking candidates about their salary history, the prohibition of pay secrecy clauses and the provision of pay criteria to employees.
Whilst the Directive will not currently impact UK employers without a presence in the EU, the UK Government’s call for evidence launched in April 2025, which asked for evidence and views about the existing equal pay framework and proposals as to pay reporting and pay transparency not dissimilar to those being introduced by the EU Directive, suggests that further change in this area is a strong possibility.
For further information, visit our EU Pay Transparency Directive page.
Other Developments
Other notable employment law developments in 2025 include:
- The introduction of statutory neo-natal care leave and pay via the Neonatal Care (Leave and Pay) Act 2023 (in effect from 6 April 2025). See our article here.
- The strengthening of restrictions on NDAs and similar confidentiality provisions with the introduction of section 17 of the Victims and Prisoners Act 2024 (in effect from 1 October 2025), which extended the circumstances in which disclosures are permitted and made any contractual provision void if it seeks to prevent a permitted disclosure under the Act. It looks too that further reform is ahead with amendments introduced via the Victims and Courts Bill. See our article here.
- In November 2025, the Government announced that the Advisory, Conciliation and Arbitration Service (‘ACAS’) early conciliation period (the mandatory pre-claim stage which attempts to settle disputes and stops the clock on time limits for bringing a claim) will increase from six to 12 weeks. See our article here.
- The UK’s Supreme Court decided in For Women Scotland v The Scottish Ministers (see our article here), that the terms ‘sex’, ‘man’ and ‘woman’ in the Equality Act 2020 (the UK’s equalities legislation) refer to a person’s biological sex (i.e. the sex of a person at birth). Subsequently, Employment Tribunal cases have considered the impact of the judgment in the context of discrimination claims, and statutory guidance is expected soon as to what this means practically for the provision of services.
- The Data (Use and Access) Act 2025 was passed into law on 19 June 2025 with staggered implementation. Key changes include:
- Codifying existing DSAR principles into law (such as the ability for employers to stop the clock on DSAR responses and limit searches to those which are reasonable and proportionate);
- Introducing a new right to complain for employees if they consider there has been a breach of UK data privacy law; and
- Relaxing some restrictions on the use of automated decision making to only significant decisions based entirely or partly on the processing of special category data (e.g. health or racial/ethnic origin).
Of course, these are only some of the notable developments this year. We have seen employment case developments, compliance developments (such as the new failure to prevent fraud), changes announced in the Autumn budget, immigration developments and numerous global and other EU developments.
In the meantime, keep your eyes out for a further article in the New Year looking ahead to some of the changes coming up for 2026, and for our quarterly updates (see here) for more regular round ups.
Spoiler alert – 2026 is looking even busier than 2025 for employment law developments!
If you have any questions regarding any of the developments in this article, please contact your usual Littler contact. In respect of training enquiries, please reach out to Natasha Adom.
