Luxury businesses are facing a significant shift in employment regulation as the UK’s Employment Rights Act is implemented across 2026 and 2027. The reforms represent the biggest overhaul of employment law in a generation and will affect everything from recruitment and flexible working to workplace culture, employee relations and legal risk. For luxury clients, the reforms arrive against a backdrop of ongoing labour shortages, increasing customer expectations and heightened scrutiny of corporate culture.
As implementation progresses, employers will be expected to demonstrate stronger governance, more robust decision-making and improved workforce oversight. For luxury businesses, where reputation, customer experience and talent retention are critical competitive advantages, compliance is becoming an increasingly strategic issue.
Key changes
One of the most important changes is the introduction of a six-month qualifying period for unfair dismissal claims from 1 January 2027. Employers will need to strengthen recruitment, onboarding and performance management processes accordingly. The removal of compensation caps for unfair dismissal claims could also increase financial exposure, particularly for businesses employing senior executives and other high earners.
The risk of workplace disputes may also rise. From 1 October 2026, employment tribunal time limits will double from three to six months. This is expected to increase claim volumes and place greater emphasis on document retention, record-keeping and internal investigations.
Workplace culture is also under greater scrutiny. From 30 October 2026, employers will be required to take “all reasonable steps” to prevent sexual harassment and will face wider liability for certain third-party harassment. For luxury brands, where customer interaction is central to the business model and brand image is closely linked to employee experience, these changes raise the importance of effective policies, staff training and reporting procedures.
Workforce structures and flexibility
Flexible working requests will become harder to refuse, with employers required to demonstrate both a statutory ground and a reasonable basis for rejection. Luxury brands will need to balance operational requirements with increased employee rights and ensure decision-making is consistent and well documented.
Further reforms affecting zero-hours and low-hours arrangements will require businesses to review workforce planning, scheduling and contractual arrangements. These changes could have significant implications for luxury businesses that depend on seasonal staffing, events or agency workers to meet fluctuating demand. Restrictions on ‘fire and rehire’ practices and enhanced collective redundancy consultation obligations will also increase the risks of workforce restructuring.
Culture, equality and industrial relations
The act expands family-related protections, including day one rights to certain types of leave and wider family-related safeguards expected in 2027. In response, employers may need to update policies, training and workforce planning arrangements.
Gender pay gap reporting requirements will be strengthened through mandatory equality action plans, while wider transparency and equality measures continue to gather momentum. Employment compliance is becoming increasingly intertwined with corporate reputation, ESG performance and stakeholder expectations.
Trade union reforms and expanded worker rights are also reshaping industrial relations. Luxury clients should not assume they are insulated from greater union activity and may need to revisit employee engagement, communication and consultation strategies.
Preparing for change
The creation of the Fair Work Agency and enhanced record-keeping obligations underline a broader shift towards increased enforcement. Employment governance is also expected to attract greater scrutiny during mergers, acquisitions and investment transactions.
Looking ahead, luxury brands should view the reforms as more than a compliance exercise. Employee wellbeing, fair treatment and workplace culture are increasingly linked to consumer trust, investor confidence and employer brand reputation. Businesses that adapt quickly and take proactive steps are likely to be better placed to manage risk while strengthening their position in a highly competitive talent market and in protecting brand reputation.
Five actions to take now
- Review employment contracts, policies and procedures to identify where updates are needed, particularly for probationary periods, flexible working, family rights, harassment prevention and workforce planning.
- Strengthen documentation and record-keeping processes, including probation reviews, performance discussions, investigations, annual leave records and employment decisions, to prepare for longer tribunal time limits and increased scrutiny of employer decision-making.
- Conduct/update your harassment risk assessment and refresh training programmes, ensuring managers and employees understand the enhanced duty to take “all” reasonable steps to prevent harassment and the expanded protections relating to third-party harassment.
- Assess workforce structures and future resourcing plans, particularly where the business uses agency workers, casual labour, low-hours arrangements or is contemplating organisational change, redundancy programmes or contractual changes.
- Brief senior leadership and the board on ERA implementation risks and opportunities, recognising that employment compliance is increasingly linked to governance, brand reputation, investor confidence and transaction readiness.
Kate Dodd is a Pinsent Mason’s partner and leading employment and equality lawyer. She co-leads the firm’s global equality law team and is head of its employment plus practice. She can be reached at [email protected].
Alyce McNaughton is a senior associate on the firm’s employment and incentives team. She can be reached at [email protected].
They are available to discuss how the changes may affect luxury business.
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