UK Employment Rights Act 2025 Curbs Outsourcing With 2027 Dismissal Ban as 250-Staff Firms Face New Disclosure
Updated
Updated · thelens.slaughterandmay.com · May 20
UK Employment Rights Act 2025 Curbs Outsourcing With 2027 Dismissal Ban as 250-Staff Firms Face New Disclosure
1 articles · Updated · thelens.slaughterandmay.com · May 20
From January 2027, dismissing employees to replace them with agency workers or contractors doing substantially the same jobs will be automatically unfair under the UK Employment Rights Act 2025, with uncapped liability except in limited redundancy or severe-distress cases.
That rule targets recent “fire and rehire” disputes and narrows a common outsourcing route for cutting labor costs, pushing companies to stress-test workforce plans early and rely more on indemnities and tighter liability allocation in contracts.
October 2026 will bring tighter rules for public-sector outsourcing, requiring contracting authorities to take all reasonable steps to prevent less favorable treatment when transferred public staff work alongside private-sector workers on outsourced contracts.
Employers with 250 or more staff will also have to name outsourced service providers in annual gender pay gap reports, increasing supply-chain transparency even though outsourced workers were not folded into the pay-gap calculations themselves.
The law stops short of rewriting equal-pay rules for outsourcing, but a government call for evidence keeps that risk alive, leaving companies to weigh whether future reforms could further erode outsourcing’s cost advantage.
Will tougher UK outsourcing laws drive jobs offshore or create higher-quality roles at home?
With dismissal compensation now uncapped, how can UK firms restructure without facing crippling financial risk?
Does the law blocking staff replacement by contractors also apply to replacement by AI and automation?
Navigating the Employment Rights Act 2025: Major Changes, Sectoral Impacts, and Employer Strategies (2026–2027)
Overview
The Employment Rights Act 2025 (ERA 2025) is a landmark change in UK employment law, enacting many government commitments to enhance worker rights. It marks a comprehensive overhaul focused on fairness, transparency, and equality in the workplace. The Act introduces new standards for working conditions and protections, affecting both employers and employees. Its phased implementation means businesses are already adapting to initial reforms, with more changes ahead. ERA 2025 sets a pivotal moment by raising expectations for workplace practices and signaling a shift towards a more modern, equitable employment landscape across the UK.