Monthly Highlights – UK Employment Law – December 2025

In this month’s highlights, our team summarises the latest developments in UK employment law and their implications for employers. Catch up on November’s highlights here.

On 18 December 2025, the Employment Rights Bill received Royal Assent, becoming the Employment Rights Act 2025. The Act includes significant changes to the law surrounding unfair dismissal and the maximum compensation available to employees.

• While many proposed changes to the law are still subject to amendment and implementation through secondary legislation, it has been confirmed that the minimum service threshold will be lowered from two years to six months before employees may claim unfair dismissal.
  • This means that an employer will need to act more quickly (and most likely during any probation period) if performance or conduct issues arise and the employer wishes to dismiss without a formal disciplinary process.
• The government has committed to this change taking effect from 1 January 2027. Therefore, any employee who has been employed for at least six months by this date, i.e. all those employed on or before 1 July 2026, will have this right to claim unfair dismissal.
  • Employers should therefore be mindful of whether any existing employees will gain this right immediately upon the change taking effect.
• The Act will also abolish the statutory cap on compensation for unfair dismissal. Currently, any compensatory award is limited to 52 weeks’ gross pay or the statutory cap of £118,223, whichever is lower. However, following the removal of this limit, the maximum amount of any compensatory award could, in theory, be unlimited (as is currently the case for discrimination and/or whistleblowing complaints).
  • Employers should continue to carefully consider the grounds for and circumstances leading to the dismissal of an employee.
  • Given the correlation between an employee’s position and the size of compensatory award, employers should be aware of the risk that much higher amounts may be awarded when a senior employee is dismissed.
  • It may also be more difficult to reach separation settlements, with individuals seeking potentially greater sums through the Employment Tribunal particularly where it will take some time to find alternative employment at a similar level of seniority and pay.
• In addition, the Act includes a series of new day-one rights relating to sick, maternity and paternity leave. Confirmed changes include the removal of the length of service requirement before an employee is entitled to parental leave or paternity leave, with both changes expected to take effect in April 2026. The Act will give the government powers to introduce stricter regulations covering dismissals during pregnancy, maternity leave or following a return to work. Previous draft versions of the Act have indicated that this could take the form of a complete ban on dismissals of women who are pregnant, on maternity leave or during a six month return to work period, save for in limited circumstances.
  • Employers will therefore need to ensure that they have properly considered the circumstances allowing for the dismissal of such employees and seek expert advice where necessary, or risk being in breach of the new regulations.

In the separate cases of Kelly v Leonardo UK Ltd and Peggie v NHS Fife Health Board, the Tribunal considered employers’ obligations under the Equality Act in relation to single-sex spaces following the Supreme Court ruling in For Women Scotland v The Scottish Ministers.

What led to the disputes, and why are the outcomes significant for employers?

• In Kelly, an engineer (Kelly) working for Leonardo UK Limited, challenged Leonardo’s policy that allowed transgender staff to use whichever toilets aligned with their gender identity. Kelly raised a grievance and later brought multiple claims including harassment related to sex, as well as direct and indirect discrimination.
  • During proceedings, Leonardo re-labelled some of the toilets in their office as unisex facilities. Kelly argued that, following the decision in For Women Scotland, an employer is required to provide toilet facilities that are exclusively for the use of biological women and Leonardo’s policy was therefore unlawful.
  • The Tribunal ruled that Kelly had not suffered harassment under the Equality Act stating that the application of a strict biological interpretation of sex to any duty to control toilet access was “unworkable”. Considering the Workplace (Health, Safety and Welfare) Regulations (WHSW), the Tribunal noted that the requirement was for an employer to provide “suitable and sufficient sanitary services” and that any control of access must be “reasonably practicable” to ensure employees’ health and safety.
• In Peggie, a nurse (Peggie) employed by the Fife Health Board, confronted Dr. Upton, a transgender woman, for using a female changing room as permitted by the Fife Health Board. Dr. Upton later made a complaint, and Peggie was subsequently placed on special leave and suspended pending a disciplinary investigation, ultimately returning to work later but subject to restrictions and greater supervision. Peggie later brought a claim for sexual harassment, belief discrimination and victimisation.
  • Unlike in Kelly, the Tribunal did not consider the WHSW, but instead considered the fact that Peggie and Dr. Upton both had rights based on protected characteristics which needed to be balanced. The key question was whether it was lawful to continue to allow Dr Upton to use the changing room following Peggie raising concerns.
  • The Tribunal found that the Health Board should have revoked Dr Upton’s permission to use the changing room until changes could be made to shift patterns to ensure that her and Peggie were not working simultaneously and therefore upheld some of Peggie’s claims for harassment relating to sex.

Takeaways

• It is clear that there is broad scope to interpret the variety of relevant legislation, and that the findings in For Women Scotland will not necessarily bind the Tribunal, which will reach its conclusion based on the unique circumstances of each claim.
• The Supreme Court did not consider the meaning of “men” and “women” under the WHSW, meaning the Tribunal is open to reach alternative conclusions, as it did in these cases.
• Employers should keep their policies and practices regarding access to “single-sex” facilities under review.

In Bailey v Stonewall Equality Ltd and Ors, the Court of Appeal considered the interpretation of section 111 of the Equality Act 2010, which makes it unlawful for a person to instruct, cause or induce someone to discriminate against, harass or victimise another person, or to attempt to do so.

What led to the dispute, and why is the outcome significant for employers?

• Bailey was a tenant of Garden Court Chambers (GCC), which was partnered with Stonewall through its Diversity Partners programme. Bailey expressed gender critical views in a series of tweets, specifically criticising the programme and Stonewall’s approach to various transgender issues. Following complaints made by Stonewall and others, GCC publicly acknowledged that it would conduct an investigation into Ms Bailey’s actions. Following this, GCC concluded that Bailey should delete the tweets in question.
• Bailey brought a claim for discrimination against GCC before the Tribunal. This succeeded and Ms Bailey was awarded damages. Bailey also brought a claim under section 111 of the Equality Act against Stonewall, claiming that they had caused or induced GCC to discriminate against her.
• The Tribunal dismissed the claim against Stonewall, noting that the complaint made by Stonewall had been “no more than a protest”, and that its actions were not the “effective cause” of the discrimination, this instead being GCC’s investigation. This issue was appealed to the EAT, and subsequently the Court of Appeal.
• The Court of Appeal upheld the decisions of the ET and EAT, noting that there are two limbs to the test for liability under section 111 of the Equality Act. The first being the “but for” analysis, which considered whether the discrimination would have occurred “but for” the actions of Stonewall. On the facts this limb was passed, as it was noted that GCC’s investigation would not have occurred had it not received complaints from Stonewall and others.
• However, in agreement with the EAT, the Court of Appeal concluded that the second limb of the test was whether it is fair, just and reasonable to hold a party liable, considering all the facts. The Court of Appeal agreed that Stonewall’s complaint was “no more than a protest” and that, on the facts, it would not be fair or reasonable to find Stonewall liable. It also noted that GCC’s investigation had served as a new intervening act, breaking the chain of causation between Stonewalls complaint and the discrimination.

Takeaways

• The Court of Appeal’s decision confirms that individuals or groups may be shielded from liability under section 111 of the Equality Act in circumstances where their actions are not found to be the effective cause of discrimination.
• The Tribunal must consider what is fair and reasonable based on the facts, rather than relying solely on a strict “but for” analysis. Acts by another party that are deemed to break the chain of causation must also be considered before any conclusion is reached.
• The facts of the case do however serve as a reminder that when balancing complaints involving protected characteristics, employers should not appear publicly to take a side prior to conducting a proper investigation. Should an investigation be conducted improperly, even where the correct conclusion may be reached, an employer could nonetheless be found liable.