Have we tripped over the fine line?

This year is bringing the most far-reaching employment law updates seen in recent years. Every UK employer, no matter how small, should be prepared. The changes are overwhelmingly pro-employee and will significantly increase costs, risks, and legal challenges for businesses.

With Employment Tribunal claims expecting to rise, employers will need to spend more time and money protecting themselves. There is no mercy for small businesses.  Gannons Solicitors specialise in helping employers and can help you navigate these costly changes and avoid expensive disputes.  Where do you start?

Here’s a summary of what you need to know:

1. Day-one unfair dismissal rights (expected late 2025) - Employees will soon have unfair dismissal protection from day one, removing the current two-year qualifying period. This means:

• more tribunal claims – employees will no longer need two years’ service to claim unfair dismissal.
• increased legal costs – defending unfair dismissal claims usually cost between £8,500–£30,000 per case.
• greater risk of compensation payouts – now awards can be over £100,000+.

How to protect your business: Employers can consider extending probation periods, but this will not eliminate risk entirely. If you dismiss an employee after an extended probation period, you may have to prove poor performance or some other solid reason to justify dismissal and avoid a claim- which itself could lead to more disputes and HR meetings.

2. Increases to statutory payments and more (effective April 2025) - From April 2025, several statutory payments will increase, forcing employers to pay significantly more in wages, taxes, and compensation.

For a small business with 10 employees, here’s the potential increase to payroll cost:

Total additional cost for a small business with 10 employees: £30,000+ per year.

3. Neonatal care leave and pay (effective April 2025) - Parents of babies admitted to neonatal care will now be entitled to up to 12 weeks of neonatal care leave, in addition to maternity or paternity leave and statutory neonatal care pay, subject to meeting service and earnings criteria. This means:

• more employees on paid leave
• increased salary costs for covering absent staff
• more pressure on small teams to manage workloads

How to protect your business: Review your leave policies and plan for workforce cover to avoid disruption.

4. Ban on zero-hour contracts (expected late 2025) - Zero-hour contracts which are described by the Labour Government to be “exploitative” are set to be banned. Employers will be required to offer a guaranteed hours contract to zero-hours workers after the end of every reference period. Employers must:

• guarantee hours to workers at the end of each reference period
• lose flexibility to scale workforces up/down based on demand
• face legal risks if contracts are not updated correctly

How to protect your business: Review your contracts now and consider alternative employment structures to maintain flexibility.

5. Further protection against sexual harassment (expected late 2025) - The previous Conservative Government instigated stricter protections against sexual harassment that took effect from 26 October 2024. This placed a proactive duty on employers to take ‘reasonable steps’ to protect staff against sexual harassment. The plans are currently to raise the bar so that employers will have to take ‘all reasonable steps’ to prevent sexual harassment.

This means:

• more claims against employers
• more compliance costs (training, policies, investigations)
• higher compensation payouts

How to protect your business:  Most harassment takes place out of the sight of employers making it a very difficult area to tackle.  At the very least employers will need to show training has been provided. It is almost impossible to become more bullet proof.

6. . Higher protective awards on fire-and-rehire (already here) - While the government’s Code of Practice on dismissal and re-engagement (see GOV.UK) does not currently make fire and rehire illegal, it providers guidelines around the narrow remits within which the practice is allowed. If an employer has unreasonably failed to comply with the code, an employment tribunal can increase protective awards by up to 25%.

You cannot avoid it

With day-one unfair dismissal rights, we expect more employees to bring unfair dismissal claims rather than discrimination claims, as they will no longer need a protected characteristic (e.g., race, gender, disability) to make a claim. Discrimination claims may decrease, but unfair dismissal claims are far easier to bring — costing businesses more in legal fees and payouts.

With these sweeping changes approaching, small businesses will be hit the hardest. The law does not exempt SMEs. Every employer, regardless of size, must comply.

Catherine Gannon, managing partner of Gannons Solicitors comments that the additional costs are being slipped in under the radar but will have implications across all businesses many of which doing their best to be fair already.