The impact of the Employment Rights Act 2025 on insurance claims
Claims for employment-related disputes are increasing both in frequency and cost, so it has never been more important to protect your business by taking out adequate cover for Employment Practices Liability.
In 2024, the Government introduced a series of proposed employment reforms which became the Employment Rights Bill. See Romero Insurance’s whitepaper: Read our Employment Rights Bill Whitepaper – Romero Insurance.
After Parliamentary scrutiny and amendments, it received Royal Assent on 18th December 2025 and became the Employment Rights Act 2025 (ERA 2025) introducing wide‑ranging reforms affecting employment protections, dismissal rights, working arrangements, and enforcement mechanisms. Implementation will be phased between 2026–2027.
Lewis Jackson, Senior Claims Handler at Romero Insurance, walks us through the implications of the Employment Rights Bill for businesses in regards to insurance claims.
What are implications of the Employment Rights Act for Businesses?
Below are the multiple effect the new bill will have specifically on a business’s insurance claim. To learn more about each chapter of the bill, read our Employment Rights Whitepaper here.
Unfair dismissal reform – expected to apply 1st January 2027
As stated in the chapter on Unfair Dismissal – The qualifying period for an employee to be eligible to make a claim against their employer has been reduced from 2 years to 6 months. The Bill initially proposed eligibility should commence on day 1 of employment, however Parliament scaled back the proposal.
Compensation cap removed – expected to apply 1st January 2027
Prior to the Act, the upper limit was 52 weeks’ pay or £118,223. This has been completely removed, despite it being highly contested in the House of Lords.
Employment Tribunal time limits extended – expected to apply October 2026
The time limit for most claims—including unfair dismissal—has been extended from 3 months to 6 months from the date of effective termination.
Fire and rehire restrictions – expected to apply October 2026
As stated in the Fire and Rehire chapter, This provision places restriction on a business’s ability to impose changes to key contractual terms (such as pay, hours, pensions, shift patterns, time-off rights, and certain benefits) by means of ‘fire and rehire’. If in breach, the employer will be found automatically liable for unfair dismissal.
Establishment of the Fair Work Agency (FWA) – launches April 2026
The FWA will act as a single enforcement body to consolidate the enforcement of the national minimum wage, agency rules, holiday pay, and action against serious labour exploitation. They will have the power to issue penalties and even bring tribunal claims on behalf of workers.
There are many other changes being introduced including: Reform for zero-hours workers, Strengthening family leave, Sick pay rights, and even a ban on Non-disclosure agreements (NDAs).
The Impact of the Employment Rights Bill on Employment Claims
Employment tribunal claims are increasing year-on-year, with a 23% increase in 2024/25 from the year prior (a total of 42,000 claims were filed).
Due to the reforms introduced by the ERA, we are likely to see a continued upward trend in claims made against employers primarily as a result of the increase in the number of eligible employees. This is likely to hit businesses with a high turnover of staff the hardest, as previously only employees with a minimum of 2 years’ service could bring a dismissal claim.
The removal of the compensation cap could open the door to inflated claim values, with claimants and their representatives taking advantage.
The increased limitation period gives employees twice the amount of time to bring a claim, meaning insurance companies will be required to keep their files open for longer periods potentially leading to increased premiums.
The strengthening of protections for vulnerable workers could lead to an increase in claims relating to discrimination if employers fail to adhere to the changes to, for example, sick pay or parental leave.
What can businesses do to defend against the implications of the Employment Rights Bill?
From an insurance and claims perspective, the first most important step is to ensure you have adequate cover in place for such eventualities.
It is also important to notify your broker of incidents as soon as you become aware of them. This will ensure that we have had the opportunity of reviewing the circumstances of the matter before it becomes a formal claim and ensures compliance with claim conditions.
As they say, “prevention is better than a cure” so it is important to ensure procedures are in place to prevent disputes from occurring and to mitigate against unnecessary costs being accrued. An example of good practice could be:
- Implementing structured probation reviews at 1, 3, and 6 months.
- Documenting all discussions, concerns, and support provided.
- Seeking employment law advice before taking action.
- Auditing compliance across minimum age, agency worker rules, holidays and other tenuous areas of employment.
- Running refresher training for HR and managers on discrimination, flexible working and family rights.
Most importantly, good record keeping is essential. Personnel files must be retained after an employee leaves the business in order to best protect against potential claims. Good documentation is necessary for the strongest claims defence.
Thank you Lewis for your thorough explanation of the recent impact of the Employment Rights Bill. Hopefully this bulletin provides a useful insight into the key changes of the ERA and its impact on insurance and claims.
If you have any queries, whether you are a Romero Insurance client or not, we are more than happy to assist.