Key employment law updates | December 2025

Welcome to our monthly update, where we share upcoming changes to employment law.

Reform of non-compete clauses in employment contracts is truly underway

The Department for Business and Trade (DBT) launches consultation on reforming non-compete clauses in employment contracts, which will remain open until 18 February 2026. Hot topics and areas up for discussion include:

• Statutory limits on length of non-compete clauses – for example, companies with more than 250 employees could have a statutory limit for non-compete clauses of three months, while companies with less than 250 employees could have a statutory limit of six months.
• Partial/full bans on non-compete clauses.
• Banning non-compete clauses below a salary threshold – the aim would be to eliminate non-compete clauses for lower paid workers who aren't in a strong financial position to challenge enforceability or afford to spend an extended period of time out of work
• Combining a ban below a salary threshold and a statutory limit of three months – the aim would be to eliminate non-compete clauses for lower paid workers and ensure restrictions on non-compete clauses only apply to those at the higher end of income distribution.

The working paper outlines that reforms are being considered to promote economic growth by improving labour mobility and encouraging innovation. Evidence suggests that non-compete clauses are common and can limit job movement, suppress wages, and slow business growth, though their impact on employer investment in training remains mixed.

These proposed reforms could significantly impact how employers use non-compete clauses. We will continue to monitor developments closely and keep you updated on any changes.

Do they know it's christmas? House of Lords pass the Employment Rights Bill

Late on 16 December 2025, the House of Lords passed the Employment Rights Bill. It is now expected to get Royal Assent on 18 December 2025, becoming the Employment Rights Act 2025.

In honour of the festive season, the houses exchanged gifts, with:

• The House of Commons having let go of 'Day 1' unfair dismissal rights, accepting instead a reduction to the qualifying period (to claim unfair dismissal) from 2 years to 6 months.
• The House of Lords:
  • Agreeing a last-minute Government amendment to remove the compensation cap on unfair dismissal altogether (where it is currently the lower of 52 weeks' gross pay or the statutory cap of £118,223.
  • Dropping their amendment on zero hours seeking to convert the right to be offered guaranteed hours into a right to request guaranteed hours.
  • Dropping their objection to the reduction in the threshold required for statutory trade union recognition (from 40% of all workers in a bargaining unit voting for recognition down to a threshold which could be as low as 2% of the bargaining unit).

The last-minute change to remove the compensation cap on claims for unfair dismissals is the most significant (and controversial) change. There was initially a lot of confusion about what the Government was proposing and an expectation that only the 52-week cap would be removed; instead, the Employment Rights Bill has been passed with no cap on compensation for unfair dismissal whatsoever. This change (anticipated to come into effect for dismissal on or after 1 January 2027) is likely to benefit high earners significantly and to make unfair dismissal claims much more difficult to settle which, in turn, will impact the way in which employers make dismissal decisions. The Government has said it will publish an impact assessment on the impact of removing the compensation cap, but there is no commitment to a consultation on the effects, and the Bill has been passed with the compensation cap removed.

Otherwise, save for the changes to unfair dismissal outlined above, the changes and the timeline appear to remain as per our previous detailed summaries set out in May and July 2025, with the ban on Non-Disclosure Agreements also having been passed. And much of the detail that will effect how the changes will work in practice and therefore what employers can do about them (such as what will constitute low hours for the zero-hour work provisions or what the alternative threshold will be for collective redundancy) remain to be set out in secondary legislation.

There will be no clanging chimes of doom here at Foot Anstey; in the New Year we will unpack the final position as far as we understand it in the Employment Rights Act and suggest how employers can practically plan for the changes.

New statutory rates for sick pay and family leave to apply from 6 April 2026

The Government has announced proposed new statutory rates for sick pay and family leave pay, effective from 6 April 2026. It is important for employers to review their current polices, assess the financial implications and ensure payroll systems are updated promptly. These updates will all take affect from the start of the 2026-2027 tax year, and will have a substantial impact on payroll costs, family leave budgets and HR systems.

The Lower Earnings Limit is also set to increase from £125.00 or more per week to £129.00 or more per week from 6th April 2026. A full table of proposed changes is outlined below.
 
The updated figures reflect a 3.8% rise in line with the consumer price index to September 2025.

New official video guidance for litigants

Employment Tribunal Judges have released 18 short YouTube videos aimed at demystifying tribunal procedures and complex employment law topics. These videos are designed for parties without legal representation, to help clarify processes, outline expectations and improve communication channels with tribunals. This includes videos on how to fill in a claim form, how tribunals decide if someone is disabled and how to prepare for a case management hearing.

These videos can be found on YouTube here.

Available training for managers

Given the significant changes due to be brought about by the Employment Rights Bill, there is no better time to upskill your managers via our transformational management development programmes to reduce risk, increase engagement, and enhance motivation.

Our programmes involve utilising unique accelerated learning techniques that will boost people management skills for years to come, suitable for supervisors up to board level. 

Furthermore, our seamless programmes link in with your policies and templates to bring about impactful change (with practical templates to bring your policies to life, if required). We link below further information on four of our flagship programmes:

Details of our current programmes are as follows:

• 21st Century: An innovative four-day management development programme designed to equip managers with essential skills, knowledge, and behaviours to effectively manage performance and improve workplace culture.
• Gender Diversity: We know that managers and employees lack confidence talking about gender diversity and managing a diverse workforce. That is why we've created this bespoke training programme to help you get ahead and shape your culture.
• Inclusive Leadership: We may not notice our unconscious biases, but they still influence our actions and beliefs. For leaders, it is crucial to recognise those biases and lead inclusively which is the focus of our one-day Inclusive Leadership programme.
• Prevention of Sexual Harassment: With a duty to take proactive steps to prevent sexual harassment (such as training) introduced last year, it is more important than ever to act. This programme equips your workforce with the tools needed to identify and take conscious steps to prevent workplace sexual harassment.
• Upskill Managers to Manage: We can support you to navigate the challenges of integrating teams effectively to maximise post-integration success, emphasising the need for strong management, strategic alignment, and collaboration to overcome cultural differences and mitigate risks in an increasingly competitive market.
• Improve Employee Heath & Resilience: Improving the health and wellbeing of your people is a key requirement to driving a successful business. By educating employees on health and wellbeing strategies, we can help you to gain the competitive edge as your people improve their energy, productivity and overall wellbeing. Our wellbeing programmes deliver educational, fun and interactive sessions that are empowering and revealing.

Please contact Joanne Boyle, Legal Director, if you would like to discuss further how we can support your organisation.