Employment Rights Act 2025: What UK Boards and CEOs Must Govern Now
The Employment Rights Act 2025, now in force, has introduced the most significant expansion of UK employment law obligations in a generation — and board-level accountability for compliance is explicit.
Royal Assent was granted in December 2025, with the first tranche of commencement regulations taking effect from 6 April 2026. A new public enforcement body — the Fair Work Agency — became operational from 7 April 2026, consolidating the functions of HMRC’s minimum wage enforcement team, the Employment Agency Standards Inspectorate, and the Gangmasters and Labour Abuse Authority. The Agency has broad powers of investigation, penalty, and litigation on behalf of workers. For UK boards and CEOs, the Act creates a set of substantive compliance obligations, enhanced enforcement risks, and governance accountability questions that need to be on the agenda now — not when the next tranche of provisions activates in 2027.
What Are the Key April 2026 Provisions Boards Must Now Govern?
The April 2026 activation of the Employment Rights Act 2025 brought several provisions into immediate effect. The most operationally significant for large employers is the increase in the maximum protective award for failure to comply with collective redundancy consultation obligations. Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, as amended by the 2025 Act from 6 April 2026, the maximum award increases from 90 to 180 days’ full pay per affected employee. For organisations with significant headcount, this doubles the financial exposure of any redundancy programme where consultation obligations are not met.
New record-keeping duties also activated in April 2026. Employers must now retain compliance records relating to annual leave entitlement and pay calculations for six years, with failure resulting in penalties. This is not a marginal administrative change — it requires CFOs and heads of HR to ensure payroll systems generate and retain the required evidence trail, and for the board to receive assurance that this infrastructure is in place.
The Fair Work Agency’s enforcement powers are broad. According to the Government’s own factsheet on the Employment Rights Act 2025, the Agency can investigate employers, issue penalties, and bring Employment Tribunal claims on behalf of individual workers — removing the obligation on workers to fund and manage their own claims. This fundamentally changes the enforcement dynamic. Boards that have historically managed employment compliance risk on the assumption that individual litigation was limited by cost and capacity should revise that assumption.
What Must Boards Do Before the October 2026 Sexual Harassment Changes?
From October 2026, the Employment Rights Act 2025 raises the standard for preventing sexual harassment from “reasonable steps” to “all reasonable steps” — a materially higher bar that requires employers to demonstrate a comprehensive, proactive prevention programme rather than reactive policies. Critically, the 2026 changes also extend employer liability to cover third-party harassment: employees who are harassed by clients, customers, contractors, or suppliers will have enhanced protections, and the employer’s obligation to prevent that harassment is now statutory.
For boards, this creates a governance requirement that operates at two levels. The first is operational: ensuring that HR has implemented the “all reasonable steps” framework — which in practice requires regular training, clear escalation processes, senior accountability, and documented evidence that the employer has actively assessed and mitigated harassment risk. The second is structural: reviewing whether customer-facing, contractor-engaged, and supply-chain-intensive parts of the business have adequate third-party harassment prevention measures in place. The Audit Committee or People Committee should request assurance from management on both levels before October 2026.
According to Marsh’s Employment Rights Act 2025 readiness analysis, many large employers are materially behind on the “all reasonable steps” implementation requirement — particularly on third-party harassment prevention, where most organisations have no documented assessment at all. The financial exposure is significant: employment tribunal awards for sexual harassment have no statutory cap.
The INFORMD Executive Self-Assessment includes a governance readiness module for Employment Rights Act compliance.
How Should CEOs Govern the Fair Work Agency Risk?
The Fair Work Agency represents a structural shift in UK employment enforcement. Prior to its creation, individual workers seeking to enforce employment rights faced the practical barrier of self-funding and managing Employment Tribunal proceedings. The Agency removes that barrier. It will proactively investigate sectors and organisations where compliance risk is concentrated, can bring multiple claims simultaneously, and has statutory access to payroll, contracts, and working pattern records.
CEOs should treat the Fair Work Agency as they would the ICO or FCA in their respective domains — a regulator with teeth that requires proactive compliance management, not reactive response. This means commissioning an annual employment compliance audit covering minimum wage adherence, holiday pay calculation accuracy, collective redundancy consultation processes, and the new record-keeping requirements. The audit findings should come to the board.
The Act also introduces provisions, coming into effect in 2027, that significantly strengthen trade union rights, including rights of access and recognition. CEOs in sectors with existing trade union relationships or significant workforce organising should begin assessing their industrial relations posture now — the 2027 provisions will change the balance of power in recognition disputes and collective agreements in ways that require strategic consideration, not just legal compliance review.
What Should Boards Require from Management on Employment Rights Act Readiness?
UK Corporate Governance Code Provision 5 requires boards to understand and engage with workforce views. The Employment Rights Act 2025 gives that obligation new legal context — boards that are not engaged with workforce compliance are now exposed to enforcement risk from a well-resourced public agency, not just reputational risk from poor culture. The board’s People or Remuneration Committee should request a formal Employment Rights Act 2025 readiness report from management, covering: current compliance status against April 2026 provisions, preparation timeline for October 2026 changes, readiness programme for 2027 provisions, and Fair Work Agency risk assessment.
According to Bird & Bird’s April 2026 analysis of the Act’s implementation, many large organisations have focused their attention on the April 2026 changes while underestimating the complexity and timeline required to meet the October 2026 and 2027 obligations. Six months is not a long runway for structural changes to harassment prevention frameworks and collective labour relations policies.
For boards with director liability considerations, the Companies Act 2006 requires directors to act in the interests of the company including having regard to the interests of employees. A board that cannot demonstrate that it sought assurance on Employment Rights Act compliance is exposed to challenge under that duty in the event of material enforcement action.
Executive Action:
- Commission an immediate audit of April 2026 compliance — protective award exposure in redundancy processes, record-keeping infrastructure for annual leave, and awareness of the Fair Work Agency’s enforcement powers.
- Request a board paper from management before July 2026 confirming the readiness plan for October 2026 third-party and “all reasonable steps” sexual harassment obligations.
- Instruct the Remuneration or People Committee to add Employment Rights Act 2025 readiness as a standing agenda item for 2026 and 2027.
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Frequently Asked Questions
From 6 April 2026, the maximum protective award for collective redundancy consultation failures doubled from 90 to 180 days’ pay per employee. New six-year record-keeping duties for annual leave and pay compliance also activated. The Fair Work Agency began operations from 7 April 2026 with powers to investigate, penalise, and litigate on behalf of workers.
The Fair Work Agency is a new UK public enforcement body, operational from April 2026, consolidating HMRC minimum wage enforcement, the Employment Agency Standards Inspectorate, and the Gangmasters and Labour Abuse Authority. It can investigate employers proactively, issue penalties, and bring Employment Tribunal claims directly on behalf of workers — removing the cost barrier to enforcement.
From October 2026, employers must take ‘all reasonable steps’ — not just ‘reasonable steps’ — to prevent sexual harassment, including by third parties such as customers and contractors. This requires a documented, proactive prevention programme, regular training, senior accountability, and a formal assessment of third-party harassment risk across customer-facing and contractor-engaged operations.
Under the UK Corporate Governance Code Provision 5 and Companies Act 2006, boards must engage with workforce interests and demonstrate director accountability. The Act requires boards to seek formal assurance from management on compliance readiness, with the Remuneration or People Committee overseeing the Employment Rights Act 2025 implementation programme through 2027.
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