How will the new Employment Rights Act impact the food and drink sector?

The Government’s flagship employment law reforms will come into force in stages from April 2026 to January 2027.  The Employment Rights Act 2025 (ERA) contains some radical changes to the UK’s labour market regulation and introduces a range a new employment protections.

This will have an impact on across the economy as the costs and risks of employing people increases, at a time when employers are already feeling the effects of increases to employer national insurance contributions and to the minimum wage.

The food and drink sector will feel the impact of these reforms more than most.  Large parts of the sector rely on the relatively flexible labour market we have in the UK.  This reflects that food and drink businesses have to be able to adapt quickly in the face of production and delivery volatility, fluid customer demand, major events and seasonal changes in demand.

This unpredictability means that businesses need to have flexibility in how they operate their workforce, for example through casual or zero hour contracts, flexible shift patterns and, where necessary, to let go of unreliable or no longer needed staff.

The ERA removes a lot of this flexibility and imposes greater obligations on employers, including by:

1. Giving unfair dismissal protection to employees after six months’ employment;
2. Removing the cap on unfair dismissal compensation awards; and
3. Restricting the use of zero hours contracts.

We explain these significant reforms in more detail in this article.

Change to the unfair dismissal qualifying period

The ERA will amend the qualifying period for unfair dismissal claims from the current two years to six-months’ service.

The new qualifying period will apply to all employees from 1 January 2027. So, a new employee starting on 1 April 2026 will obtain unfair dismissal protection after just 9 months’ service.

The Government initially aimed to establish a day-one right to unfair dismissal claims. This was highly contested between the House of Commons and the House of Lords with the latter reiterating its position that a six-month qualifying period was necessary.

In response the Government will remove the cap on compensation awards for unfair dismissal claims. This will make unfair dismissal claims more expensive for respondent employers.

Employers will no longer have a two-year safety net, meaning performance monitoring from day one will be crucial.  Employers will have just six months to decide if a new recruit is the right person for the job. After six months of employment, any dismissal, whether for poor performance, misconduct or redundancy, could result in an unfair dismissal claim.

A vigorous recruitment process will be important in order to ensure employees are a good fit for the company before they are taken on.

To address this change, employers should consider:

• Carrying out a more rigorous recruitment process to make sure only let the right people are let in the door in the first place
• Tightening up probationary performance management practices and documentation
• Strengthening probationary procedures and ensuring accurate record-keeping
• Carrying out training for managers and supervisors to equip them to quickly tackle any concerns about performance or conduct of a new recruit.

Removal of the compensation cap

The ERA removes the cap on compensation awards in successful unfair dismissal claims. Currently, the compensation award is limited to the lower of one year’s gross pay or £118,223 (£123,543 for dismissals from 6 April 2026).

This is a significant change, meaning that unfair dismissal claims could become more expensive for employers who lose such claims, and settling these claims will cost more.

Under the current system, employers had a clear understanding of their maximum exposure, particularly for highly paid roles.

With the removal of the cap, employers now face the risk of higher, uncapped compensation awards, which can include an employee’s full remuneration package, including bonuses, overtime pay, commission and benefits in kind.

This uncertainty will likely affect settlement negotiations, as employees may increase their expectations, and employers will no longer have a clear upper limit to guide discussions.

Employers will need to review their disciplinary and performance management procedures in preparation for this change and ensure that managers are properly trained to handle such issues while following a fair procedure to mitigate the risk of a successful unfair dismissal claim.

Zero hours contracts

Zero hours contracts guarantee no hours for the worker and give the employer flexibility to as when to offer work.  Such contracts have been the subject of criticism by trade unions for some years. In contrast many hospitality sector workers enjoy the flexibility of being able to choose when to work, allowing them to manage work around other commitments, such as study, childcare or other jobs.

The main reform to zero hours contracts will be a requirement for employers to make an offer of guaranteed hours to workers on zero hours contracts after the end of a ‘reference period’, which expected to be set at 12 weeks.

The number of hours which are required to be offered will based on the hours worked during the previous reference period. Workers who will need to be offered guaranteed hours will not only include those under zero hour contracts but will include employees with a ‘low number’ of guaranteed hours.  So will include those – for example – guaranteed 4 hours work on a Sunday, although at present ‘low number’ has not been determined.

In addition, the ERA brings in an obligation to give workers ‘reasonable notice’ of cancellation or changes to shifts, and compensation must be paid to the worker if a shift is cancelled, changed or moved at short notice.

We do not currently know what ‘short notice’ may be. Given that one of the rationales of zero hours contracts is flexibility for both worker and employer, it is difficult to see these changes in a positive light for the employer or, in some cases, the worker.

The ‘reasonable notice’ requirement may, for example, prevent employers from covering shifts at short notice due to absence or an unexpected increase in demand and mean that workers may actually miss out on paid shifts.

Food and drink producers and retailers will have to adapt to be compliant and find new ways of working in a less flexible labour market.

If you have any questions about how the Employment Rights Bill may affect your workplace, please do contact a member of our Employment Team.