Guest Blog - Employment Rights Act: What umbrella companies could be overlooking?

The Employment Rights Act 2025 (“ERA”) has already introduced a number of significant changes to employment law in the UK. Whilst a number of provisions are already in force, further reforms are due to take effect over the coming months. This article considers the forthcoming ERA changes and what the reforms may mean in practice for umbrella companies.

30 October 2026

Harassment at Work and Third-Party Harassment

Employers are already under a duty to prevent all forms of harassment. Under the ERA, however, this preventative duty has been tightened. From 30 October 2026, employers will be required to take “all reasonable steps” to prevent sexual harassment at work. Failure to do so can result in an Employment Tribunal increasing any compensation for successful harassment claims by up to 25%. The Government has confirmed that it intends to establish Regulations specifying what constitutes “all reasonable steps”, although these are not expected until 2027. Employers should therefore review their arrangements now in preparation for the strengthened legal duty coming into effect on 30 October 2026.

Liability for third-party harassment has also been introduced by the ERA and will come into effect from 30 October 2026. This means that employers can be held directly responsible for harassment of employees or workers by a third-party (i.e. if a customer, client, contractor, supplier or any kind of visitor harasses a member of staff). Whilst this is a particularly significant change for employers operating within public-facing sectors such as hospitality or retail, it will affect all employers to some extent.

The changes are also likely to have significant practical implications for umbrella companies where employees commonly work on assignment at sites managed by the end-client where staff members and customers of the end-client may also be present. Despite having no direct control over the day-to-day operation of end-client sites, umbrella companies will still be held liable for any third-party harassment experienced by their employees whilst on assignment unless they can demonstrate that “all reasonable steps” were taken to prevent it. It will therefore not be sufficient to simply have a policy in place to address harassment in the workplace or to rely on the policies of the end-client. Rather, umbrella companies will need to take proactive steps to show that preventative action has been taken. Clear arrangements should therefore be made between the umbrella, recruitment agencies and end-hirers to ensure that appropriate measures are put in place, such as carrying out risk assessments, delivering training, establishing clear reporting channels and appropriately investigating concerns raised. Any measures in place should also be reviewed periodically.

January 2027

Unfair Dismissal Rights

Currently, employees are required to have a minimum of two years’ service with their employer before they qualify for the right to bring claims for ‘ordinary’ unfair dismissal. This period is also known as the “qualifying period”. From 1 January 2027, the qualifying period for unfair dismissal protection will be reduced to just six months. As a result, every employee with at least six months’ service on 1 January 2027 will be eligible for unfair dismissal protection on that date.

Under the ERA, the cap on compensation for successful unfair dismissal claims will also be removed. Currently, compensation is capped at 52 weeks’ gross pay or £123,543, whichever is lower. Whilst this is unlikely to have a significant impact in most cases, the removal of the cap will likely place employers at risk of increased financial exposure where cases involve highly paid employees or those who have been dismissed from long-term employment.

Changes to the law on unfair dismissal are likely to impose an increasing legal and operational obligation on umbrella companies where a recruitment agency or end-hirer decides that an assignment should end. In circumstances where workers are employees of the umbrella company, their employment may be treated as having ended where they do not commence another assignment within a certain period of time. At present, the short-term nature of assignments and temporary work has posed little risk to umbrella companies as their employees often do not have sufficient qualifying service to attract unfair dismissal rights. With the qualifying period set to decrease, however, there is a risk that terminating employment in this way could be argued to amount to an unfair dismissal and could give rise to an increased number of claims where employees have six months’ service from 1 January 2027. It will therefore be important for umbrellas to assess the individual circumstances where it proposes to terminate employment, ensure that decision-making is documented, and alternatives to dismissal are considered before employment is brought to an end.

Zero-Hours Contracts

Further reforms planned for 2027 will see the introduction of further rights in relation to zero-hours workers. Specifically, zero-hours workers will be afforded:

·         A right to guaranteed hours: The measures set out in the ERA will require employers to offer eligible workers guaranteed hours reflecting the hours they regularly work over reference period, which will be set in regulations and is expected to be 12 weeks. Individuals will be able to reject an offer of guaranteed hours and remain on a zero hour contract if they wish. Responsibility for offering guaranteed hours to workers will fall on end-hirers.

·         A right to reasonable notice of shifts: The ERA requires employers to provide workers with reasonable notice of shifts. If an employer schedules shifts with unreasonable notice, the worker can bring an Employment Tribunal claim against their employer. The Government will produce Regulations to confirm how much notice should be ‘presumed reasonable’ and will also set out factors that Employment Tribunals should consider when determining whether the notice given was reasonable. Responsibility for providing reasonable notice will be placed on both employment agencies and end-hirers.

·         Right to payment for shifts cancelled, curtailed, or moved at short notice: The ERA requires employers to make payments to workers if they cancel, move or curtail a shift at short notice. Responsibility for payment of any short-notice cancellation or curtailment payments will be placed on employment agencies, however, they may be allowed to re-coup this from the end-hirer where there are relevant arrangements in place in respect of this.

In light of the above, it is crucial for employers to be aware of their obligations under the changes that have been, and will be made under the ERA. Employers should therefore take proactive steps to ensure that their business practices, policies and procedures are compliant with the new legislation to minimise any legal and financial risks. For umbrella businesses, compliance will depend not only on updated policies but also on effective arrangements with agencies and hirers. They should map where responsibility and operational control sit across the supply chain, review contractual information-sharing and indemnity provisions, and ensure that assignment-ending, harassment and shift-management processes allow the umbrella to discharge its obligations as employer. Taking those steps now should reduce the risk of gaps arising between what happens at the client site and what the umbrella knows, records and acts upon.

Paul Chamberlain is a Partner and Head of Employment at JMW Solicitors LLP. Paul has over 32 years’ employment law experience and is nationally recognised for his expertise in the law relating to the recruitment industry.  In particular, Paul has extensive experience in advising on employment status issues, the Agency Workers’ Regulations, GLAA/FWA matters, the Working Time Regulations, TUPE and industry-specific regulatory compliance issues.