‘This isn’t fair’: Companies prepare for Labour’s major changes to workers’ rights

Labour’s Employment Law Shake-Up Sparks Business Concerns

Illustration: A hand holding Labour’s red rose in the City of London

As 2026 begins, Amy Stubbs, managing director of British Garden Centres, is facing mounting anxiety. Overseeing 3,500 employees nationwide, she worries that Labour’s sweeping changes to workers’ rights will significantly increase her company’s expenses.

“We’re apprehensive about the financial strain these reforms will place on us,” Stubbs explains. “The new statutory sick pay rules, in particular, are bound to drive up our costs.”

Under the new legislation, employees will be eligible for statutory sick pay from their first day of illness, rather than after three days. This is just one of many adjustments introduced by the Employment Rights Act, which was signed into law shortly before Christmas.

To adapt, Stubbs is extending probation periods from three to six months, expanding her HR team by two members, and providing additional training for regional managers on handling staff matters.

“Given the current economic challenges, we’re concerned about how we’ll maintain profitability with these added expenses,” she cautions.

Stubbs is just one of many business leaders across the UK preparing for what is being called the most significant overhaul of employment rights in decades.

Government officials argue that these changes will provide workers with greater job security and shift the balance of power towards employees. However, business owners like Stubbs fear the reforms will add to their financial burdens at a time when companies are already grappling with increased taxes.

Legal Risks and Rising Costs

“If we don’t manage staff effectively during their probation, things could become much more complicated later,” Stubbs notes. “Without a strong system for managing absences, costs could quickly escalate.”

She emphasizes the need to tightly control labour expenses, especially as wages continue to rise.

Stubbs’s company has the resources to strengthen its HR department, but many smaller businesses do not, says Craig Beaumont from the Federation for Small Businesses.

“The biggest fear for any small business owner is facing a lawsuit—making an employment mistake and ending up in a tribunal that could take two years to resolve,” Beaumont says.

The Employment Rights Act covers a wide range of issues, from sick pay and paternity leave to employees’ ability to take legal action against their employers. Although the reforms will be phased in starting April next year, business leaders are urged to prepare now to avoid being caught off guard.

According to the Government’s own analysis, these changes will cost businesses an estimated £5 billion, on top of recent minimum wage hikes and a £26 billion tax increase for employers announced by Rachel Reeves.

Accumulating Pressures Across Sectors

“There’s a cumulative effect,” observes Kate Shoesmith from the British Chambers of Commerce.

Different industries are worried about different aspects of the new laws. While Stubbs is most concerned about sick pay, Glyn, who operates a care service in London with 25 staff, is troubled by changes to zero-hour contracts. Starting in 2027, nearly all employees will have the right to guaranteed hours and compensation for last-minute shift cancellations.

“Most of our staff are on zero-hour contracts,” Glyn explains. “While we’d like to offer guaranteed hours, if we lose a major client, we can’t always reassign those employees. If we’re required to guarantee hours, those costs will have to be passed on to our clients.”

Glyn, who prefers not to share his surname, adds, “Any law that increases our costs means we’ll need to charge more for our services, which could drive clients away.”

Despite criticism that these reforms could further weaken the economy, the Government maintains that the changes are “pro-growth, pro-business, and pro-worker”—even as redundancies reach their highest levels since the pandemic.

In a significant compromise, the Government dropped plans to allow employees to claim unfair dismissal from their first day. Instead, workers will need to be employed for six months before gaining this right.

However, as part of this deal, the cap on compensation for unfair dismissal—previously set at £118,223 or 52 weeks’ pay—will be removed, a move that has unsettled employers. This change is expected to take effect in 2027.

Preparing for Expensive Claims

Although many of the reforms won’t be implemented for another year, businesses are already taking action.

“We’ve noticed more clients reaching out, saying, ‘We have an employee who’s been with us less than a year. If we let them go, what are the risks?’” says Nick Hurley, an employment law partner at Charles Russell Speechlys.

Some employers are proactively letting go of underperforming staff. “One client told me that even though the changes are still a way off, they’re already reassessing which employees to retain,” Hurley adds.

While much attention has focused on sectors like hospitality and retail, Hurley points out that the reforms will also make it harder for high earners in fields such as banking and law to change jobs.

“Employers are becoming much more cautious about hiring for senior roles. The recruitment process for top positions will become more stringent,” he says.

“When compensation packages are substantial, the removal of the cap on claims could make dismissals extremely costly and risky for employers.”

Companies are acting now because any missteps after the new rules take effect could lead to lengthy legal battles. The tribunal system is already overwhelmed, warns Libby Payne, a partner at Withers law firm.

“If the likelihood of claims increases and tribunals can’t handle the extra workload, everything could grind to a halt,” she says.

Phil Thorley, who employs 350 people across 18 pubs in Kent under the Thorley Taverns brand, shares similar concerns.

Pub landlord Phil Thorley: “It’s just not right to have rights from day one” - John Nguyen/JNVisuals

Thorley is particularly worried about the new rules on sick pay and parental leave. Under the reforms, new hires will immediately qualify for parental leave, and it will become harder to make pregnant employees or new mothers redundant.

“It doesn’t make sense for employees to have full rights from their first day,” Thorley argues. “When someone joins, you don’t know if they’re pregnant or what their health record is. We value our staff, but we can’t risk people taking advantage of these immediate rights.”

These worries about rising costs, legal risks, and complex regulations are making UK employers more cautious about hiring. For a government that claims to prioritize economic growth, its approach is raising eyebrows among business leaders.