UK M&A faces overhaul under Employment Rights Act 2025
Updated
Updated · Lewis Silkin · May 7
UK M&A faces overhaul under Employment Rights Act 2025
11 articles · Updated · Lewis Silkin · May 7
Changes phased through 2026 and 2027 include unfair dismissal rights after six months from January 2027 and removal of the compensation cap.
Buyers must widen employment due diligence, while sellers face tougher scrutiny on holiday records, harassment prevention, minimum wage compliance and use of zero-hours or agency workers.
The reforms also reshape warranties, indemnities, pricing and post-deal integration, with stricter redundancy rules, stronger union rights and tighter limits on fire-and-rehire tactics.
As 'fire and rehire' is outlawed, what new strategies must UK businesses invent to adapt their workforce?
With unfair dismissal claims now uncapped, how are dealmakers pricing this unlimited liability into UK company valuations?
Will the UK's new Fair Work Agency become a feared enforcer or just a bureaucratic paper tiger?
ERA 2025’s Financial Shockwaves: Uncapped Dismissal Liabilities and 180-Day Protective Awards Reshape UK M&A
Overview
The Employment Rights Act 2025 has introduced major changes since 2026, including removing the waiting period for Statutory Sick Pay and expanding eligibility, which increased payroll costs and forced employers to update absence management. Stronger harassment protections and extended tribunal time limits have raised litigation risks, while new tipping policy consultations and the establishment of the Fair Work Agency added administrative demands. The ban on fire-and-rehire practices limits employers' ability to change contracts, complicating post-acquisition integration. For M&A, removal of the unfair dismissal compensation cap and doubling of protective awards have drastically increased financial risks, requiring enhanced due diligence and stronger contractual protections. Together, these reforms have heightened operational complexity and contributed to a rise in labour disputes and economic pressures on businesses.