With the landmark Employment Rights Act poised to overhaul the UK’s legal landscape, organizations are bracing for a wave of profound change. To help navigate this new terrain, we sat down with Ling-Yi Tsai, a leading HR technology expert with decades of experience guiding businesses through complex regulatory shifts. She brings a unique perspective on how technology and process re-engineering can turn compliance challenges into strategic advantages. In our conversation, we explored the practical implications of these reforms, from the accelerated pace of performance management and the severe restrictions on ‘fire and rehire’ tactics, to the new administrative burdens of guaranteeing hours and the heightened duty to prevent workplace harassment. Ling-Yi also shed light on the increased financial risks from enforcement changes and offered guidance for companies facing the prospect of greater trade union activity.
The qualifying period for unfair dismissal drops from two years to six months in January 2027. How will this impact the use of probationary periods, and what practical steps should employers take to adjust their performance management processes for this much shorter timeline?
This is one of the most significant operational shifts in the entire Act, and it effectively turns the traditional probationary period on its head. For years, employers have used a six-month probation as a standard, but it often functioned as a gentle settling-in phase, with the real performance scrutiny deferred until closer to the two-year unfair dismissal cliff edge. Now, that six-month period is the cliff edge. It transforms probation from a welcome mat into a high-stakes, intensive evaluation. Employers can no longer afford a “wait and see” approach. They must front-load their entire performance management cycle. This means ditching the annual review mindset for a system of structured, documented check-ins at 30, 60, and 90 days. Managers need immediate training on how to provide clear, constructive, and, crucially, recorded feedback from the very first week to build a robust case if an employee isn’t a good fit.
The Act makes ‘fire and rehire’ automatically unfair for key contractual terms, with a narrow exception for “financial difficulties.” What specific documentation will an employer need to prove they meet this exception, and can you walk us through a hypothetical scenario where this could still be used lawfully?
The bar for using this exception is extraordinarily high; we’re not talking about a poor quarter or a dip in profits. The legislation specifies difficulties affecting the business’s ability to continue as a “going concern.” To prove this, an employer would need to present a comprehensive and frankly grim portfolio of evidence. This would include detailed, audited financial statements showing catastrophic losses, forward-looking cash flow projections that demonstrate imminent insolvency, and board meeting minutes where all other cost-saving alternatives were exhaustively explored and dismissed. You’d also likely need correspondence with creditors or banks showing the severity of the financial pressure. Imagine a manufacturing firm hit by an unforeseen, permanent collapse in the market for its main product. Its only options are immediate closure, leading to 100% job losses, or a drastic reduction in pay across the board to stay afloat long enough to pivot its operations. If the company can present all that financial documentation and show that this change was the absolute last resort to avoid total collapse, it might just meet the threshold. But it will be a very, very difficult case to make.
A new duty will require employers to offer guaranteed hours to qualifying workers based on a reference period. What are the biggest operational challenges this presents, especially for businesses with seasonal or fluctuating labor needs? How should they begin tracking work patterns now to prepare?
For businesses in sectors like hospitality, retail, and events, this presents a monumental operational headache. Their entire business model is often built on the flexibility of a zero-hours workforce that can scale up or down to meet unpredictable demand. The biggest challenge is the loss of that agility. Being required to offer a permanent contract based on hours worked over a reference period, which is likely to be 12 weeks, forces them to predict future labor needs with a level of certainty they simply don’t have. A restaurant that was unusually busy over a summer reference period might be legally obligated to offer permanent, higher-hour contracts just as it heads into its quiet autumn season, creating a huge, unsustainable wage bill. To prepare, these businesses must start tracking hours with forensic detail today. They need to invest in workforce management systems that can not only log hours but also analyze patterns, flag workers who are approaching the threshold, and model the potential financial impact of making guaranteed offers. They have to move from simply filling shifts to strategically managing work patterns to avoid inadvertently creating permanent contractual obligations they can’t afford.
With the employer duty shifting from “reasonable steps” to “all reasonable steps” to prevent harassment and the new liability for third-party conduct, what does this higher standard mean in practice? What specific training or policy updates should companies implement before the October 2026 deadline?
The shift from “reasonable” to “all reasonable steps” is a game-changer. It moves the legal standard from a defensive position to a proactive, preventative one. It’s no longer enough to have a policy in a handbook and run a generic annual training session. “All” implies an exhaustive, documented effort to identify and mitigate every conceivable risk. In practice, this means employers must conduct thorough risk assessments of their specific work environment. For example, a bar will have different third-party risks than an office. Companies need to update their policies immediately to explicitly cover third-party harassment, outlining a clear, zero-tolerance stance and a simple, confidential reporting mechanism for employees who experience harassment from customers or clients. Training needs to become more sophisticated; think interactive, scenario-based workshops that empower employees to handle difficult situations, rather than just online modules. And visibly, companies should consider signage in public-facing areas stating that abuse of staff will not be tolerated. They must be able to demonstrate to a tribunal that they thought of everything possible to protect their people.
The new Fair Work Agency can impose 200% penalties for holiday pay errors, while tribunal claim time limits will double to six months. How does this combination magnify the financial and administrative risks for employers, and what is one critical audit they should perform now?
This combination is a ticking time bomb for any employer who isn’t 100% confident in their payroll processes. The extension of the time limit to six months means that a disgruntled employee has a much longer window to bring a claim, making it more likely that issues will be raised long after the fact. When you couple that with a new, powerful Fair Work Agency that can proactively investigate and impose a staggering 200% penalty on top of the owed wages, the financial risk skyrockets. A small, systemic error in calculating holiday pay—for instance, failing to include regular overtime or commission—that might have cost a few thousand pounds in the past could now result in a six-figure liability when applied across the workforce and multiplied by the penalty. The single most critical audit every employer should perform right now is a comprehensive holiday pay audit. They must scrutinize how they calculate holiday pay for every type of worker, especially those with variable pay, and ensure their systems are fully compliant. This isn’t just a payroll issue anymore; it’s a major financial and reputational risk.
The Act introduces easier workplace access for trade unions and lowers the thresholds for statutory recognition. For a non-unionized company, what are the first signs they might see of organizing activity, and what is the best first step for management to take in response?
For a company that has never engaged with a union, the initial signs of organizing can be subtle and easily missed. You might notice small groups of employees having more hushed conversations, or a sudden increase in pointed questions about pay scales, benefits, or workplace policies during team meetings. Sometimes, you’ll see an uptick in activity on internal communication channels or even external social media. The absolute worst thing management can do is react with hostility or start talking about the downsides of unions. That approach almost always backfires and fuels the organizing drive. The best first step is to listen intently and engage proactively. This is a clear signal that employees feel they lack a voice or that their concerns are not being heard. Management should immediately ramp up their own communication, conducting town halls, launching anonymous engagement surveys, and training line managers to have more open conversations with their teams. The goal isn’t to fight the union; it’s to understand the root causes of the discontent and demonstrate a genuine commitment to addressing them, thereby making the need for third-party representation feel less urgent to your workforce.
Do you have any advice for our readers?
My strongest advice is to treat this period before the various implementation dates as a critical preparation window, not a grace period. Don’t wait until October 2026 or January 2027 to react. The most successful organizations will be those that start taking action now. I’d recommend a three-step approach. First, conduct a thorough audit of all your existing employment contracts, handbooks, and policies, mapping them against the changes in the Act to identify the gaps. Second, invest heavily in training your line managers; they are your first line of defense against claims related to performance management, harassment, and flexible working requests. Finally, evaluate your HR technology. Manual systems for tracking hours or managing performance reviews are no longer fit for purpose. Investing in robust software now will save you from enormous administrative burdens and legal risks down the line. Ultimately, viewing this not just as a compliance exercise but as an opportunity to build better, fairer, and more transparent workplace practices will put you in the strongest possible position.