At a Glance
The Employment Rights Act 2025 (‘ERA 2025’) is set to introduce key changes to the legal framework for collective redundancy. In particular, changes are expected to come into force in 2027 to introduce a new organisation-wide threshold test for collective redundancy consultation. On 26 February 2026, the Government launched a consultation to seek views on the level and methods by which this new threshold might be set. In this article, we explore the alternative proposals put forward and what this could mean for employers.
Background
Current Position
Currently, collective redundancy consultation (and the requirement to submit the HR1 form to the Government) is triggered where an employer is proposing to dismiss as redundant, within a period of 90 days or less, 20 or more employees at one establishment. This is a complex area and has been the subject of commentary in recent months in light of the recent case of Micro Focus Ltd v Mildenhall (which provided some clarity for employers on how to calculate whether the trigger for collective consultation is met). See our recent update on this case for more information.
Where employers fail to comply with the collective consultation requirements, they may be ordered to pay a protective award to employees of up to 90 days’ gross pay per employee.
ERA 2025 Reforms
The ERA 2025 will introduce an additional organisation-wide trigger, such that collective redundancy consultation obligations will also be triggered when an employer proposes to dismiss as redundant, within a period of 90 days or less, a “threshold number of employees” across the business. Where this threshold will be set and how it will operate will be matters for regulations, however the Government’s recent consultation provides some insight on the Government’s proposed way forwards.
In addition, from 6 April 2026, the protective award that may be ordered for failure to comply with collective consultation obligations will double to 180 days’ gross pay per employee.
Consultation Options
The consultation is seeking views on the right method to use and the right level to set the organisation-wide threshold in order to “balance the needs of businesses while still enhancing protections for employees.”
The options put forward in the consultation consider setting the threshold as a fixed number, as a percentage of employees, as the highest or lowest of two or more numbers, or determined in some other way, noting that the ERA 2025 does not permit the threshold to be set lower than 20. The Government has narrowed it down to two proposals:
- Option 1 (the Government’s Lead Proposal) – Single Fixed Number
This would use a single fixed number within the range of 250-1,000 proposed redundancies. The Government believes that this will be the easiest way to ensure employers understand their obligations and that employees and trade unions can be certain when they should be collectively consulted.
Views are sought on where within the range of 250-1,000 employees the threshold should be set, however the consultation indicates that this is likely to be at one of 250, 500, 750 or 1,000. The Government estimates that this could lead to between 19 and 97 additional collective consultations per year, depending on which figure is chosen.
- Option 2 – Tiered Fixed Based on Number of Employees
The alternative proposal would set the threshold by applying different fixed numbers according to the employer’s size, as follows:
- 250 redundancies for organisations with 0-2,499 employees
- 500 redundancies for organisations with 2,500-9,999 employees
- 750 redundancies for organisations with 10,000 or more employees
This is estimated to have a greater impact on the number of collective consultations run by employers annually, but the Government notes that this option may not provide adequate protection to employees in permitting large employers to make large numbers of redundancies without collectively consulting. There is also a concern from the Government around how employers should calculate their business size to determine the appropriate threshold. To reduce the potential burden that this could place on businesses, this proposal suggests taking a snapshot date annually of 5 April which would apply to any redundancy proposals for the following year.
Two other proposals were explored which would either use a percentage of total workforce, or a combined fixed number and percentage threshold method. However, the Government appears to be moving away from the possibility of using variable percentage calculation methods, given the complexity this would create for all parties.
Impacts for Employers and Next Steps
Employers may be relieved to see the Government’s preferred direction of travel with this reform, as the proposed range is higher than many had predicted. It is also worth noting that some flexibility has been included in the ERA 2025 to provide that the collective consultation obligations will not require employers to consult all representatives together, nor to undertake consultation with a view to reaching the same agreement with all representatives. The consultation explains that this means employers will have flexibility to hold a single consultation exercise with representatives of all affected employees or have separate consultation discussions across different groups.
However, this is still expected to be a significant change and may lead to multi-site employers having to collectively consult more often. Centralised record keeping systems will become critical for businesses with multiple establishments to keep track of proposals for redundancies across different sites. This will also mean that multi-site businesses will need to have a centralised and more holistic approach to workforce planning and redundancies.
The consultation is scheduled to close on 21 May 2026, with the new threshold due to come into force in 2027. Responses can be submitted online here.
The Government has also indicated that it intends to produce a Code of Practice on collective redundancy obligations, subject to consultation expected during 2026.
Don’t forget the upcoming changes to protective awards, due to take effect on 6 April 2026. The doubling of the protective award to 180 days’ gross pay represents a substantial increase in the potential liability for non-compliance. It is understood that this will apply to dismissals which happen on or after 6 April 2026, meaning it will affect collective redundancy proposals underway prior to this date, if terminations take place afterwards. It will therefore become even more important for employers to carefully plan upcoming reductions in force to assess whether the threshold for collective consultation has been met and if so, to plan a compliant process.
For more information about this and the other ERA 2025 developments, please visit our Reform Hub.
