Buyer beware: why the UK Employment Rights Act 2025 should be on every buyer's radar

Post-acquisition workforce restructuring is common practice, whether through harmonisation of employees’ terms and conditions and/or large-scale redundancy programmes. Both have attracted trade union scrutiny, which is set to intensify with the UK Employment Rights Act 2025. This piece of legislation is fundamentally reshaping the rules of the game, and buyers who fail to take account of the incoming reforms risk greater legal and financial exposure.

Fire and rehire: plan early and consult genuinely

From 1 January 2027, dismissing an employee for refusing to accept changes to core contractual terms known as “restricted variations” covering pay, pensions, working hours and shift patterns will be automatically unfair, as will fire and replace scenarios, where the employer hires someone else on inferior terms. A narrow exception will apply where the employer faces severe financial difficulties threatening business viability.

This does not mean that changes to terms and conditions cannot be made, but the changes will need to be done with the employee’s consent, rather than imposed unilaterally under the threat of dismissal.  If post-completion integration will involve harmonising terms, e.g., reducing hours, adjusting shift patterns or restructuring pay, buyers should work with legal advisers pre-completion to map legacy terms, identify restricted variations, and develop a genuine consultation strategy. Where the cost of harmonisation is material, this should be reflected in deal pricing and built into the integration timeline from the outset.

Unfair dismissal: tighten your people processes

Another significant change lands on 1 January 2027: the qualifying period for ordinary unfair dismissal claims will fall from two years to six months, and the statutory cap on compensatory awards will be removed. Naturally, this will increase the number of employees in a newly acquired business who have standing to bring a claim, with no ceiling on damages.

Due diligence should assess the target’s HR processes: are probationary periods set at appropriate lengths? Are performance management and disciplinary processes robust enough to withstand tribunal scrutiny? Where gaps are identified, the cost and time required to implement compliant processes should be factored into the integration plan.

Collective redundancy: build in time and budget

The collective redundancy regime is also getting an overhaul. The ERA 2025 will introduce a new organisation-wide trigger for collective redundancy consultation alongside the existing single-establishment threshold in 2027, and from 6 April 2026 the maximum protective award for failing to collectively consult will double from 90 to 180 days’ gross pay per affected employee.

Buyers planning post-completion redundancies should, ahead of completion, incorporate a realistic consultation timeline into their post-completion integration plan. Where the target has multiple sites, the new organisation-wide trigger should be assumed to apply and identifying or electing employee representatives should be a priority in the first days following completion. The increased financial exposure for getting this wrong means that budgeting for a properly resourced consultation process is far cheaper than the alternative.

Zero-hours and low-hours contracts: model the true cost

Businesses built on casual labour face a fundamental shift in 2027. Workers on zero-hours and low-hours contracts will gain a right to guaranteed hours reflecting their actual working patterns, together with a right to compensation for cancelled or reduced shifts.

Buyers acquiring businesses with flexible workforces, particularly in hospitality, retail and logistics, should request detailed data on actual hours worked during due diligence. This will allow the buyer to model the true cost of guaranteed hours obligations and identify where the labour model may need restructuring. If the business has relied heavily on casual labour, the incoming rights will fundamentally alter its cost base and should be reflected in valuation.

Trade unions and industrial action: know the landscape

The ERA 2025 has already reduced the notice period for industrial action from 14 days to 10 days, extended industrial action mandates from six to 12 months, and made dismissal for taking part in industrial action automatically unfair. Further changes this year will make union recognition easier and will simplify union balloting.

Due diligence should map the target’s industrial relations landscape, covering recognition status, collective bargaining arrangements, dispute history, and any union recruitment campaigns. Where there is no recognised union, buyers should assess the likelihood of a recognition claim post-completion, particularly if planned workforce changes could stimulate union support. Buyers may also wish to consider establishing a formal employee representative body to give employees a structured channel for raising concerns. A clear day-one communications strategy can help manage the risk of industrial action during what is often an unsettling period for the workforce, setting out the buyer’s rationale behind the acquisition and vision for the business, providing an overview of the integration process, giving reassurance on job security where possible,  and directing employees to the appropriate contacts and channels for raising concerns.

Practical takeaways for buyers

The cumulative effect of the ERA 2025 is to raise the stakes on virtually every employment-related aspect of a transaction. Due diligence should go beyond existing liabilities and assess the target’s readiness for the incoming reforms. Integration planning should start before completion, with realistic timelines built into the deal timetable. Buyers should also be aware that on 7 April 2026 the ERA 2025 will establish the Fair Work Agency, a new single enforcement body intended to consolidate the UK’s employment rights enforcement function.  The Agency is still in its early stages and much remains to be seen about how it will operate in practice, but its powers—including the ability to inspect, investigate, issue penalties, and bring proceedings against non-compliant employers—underscore the importance of identifying and addressing any inherited compliance gaps during due diligence. The smartest buyers will be those who treat employment law compliance not as a post-deal afterthought, but as a core element of transaction planning.

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