UK Quarterly Employment Update (April 2026)

1.  Key changes implemented by the Employment Rights Act 2025.
2.  The impact of the UK FCA’s final guidance on non-financial misconduct.
3.  Post-termination restrictive covenants in the context of the recent case of Guy Carpenter v. Willis [2026] EWHC 361 (KB).

1. 2026 Updates to the Employment Rights Act 2025

At a glance

From 6 April 2026, a first wave of Employment Rights Act 2025 reforms will take effect, including stronger whistleblowing protection for sexual harassment disclosures, a higher collective redundancy protective award, and the establishment of a “Fair Work Agency” that will act to enforce workers’ rights.

From 7 April 2026, the Fair Work Agency will begin operating as the government’s new single labour enforcement body.

From 1 January 2027, the UK government will abolish the statutory cap on compensation for unfair dismissal and reduce the qualification period from two years to six months.

Summary of key reforms

Family leave: Unpaid parental leave and paternity leave

From 6 April 2026, employees will no longer need a qualifying period of service in order to take unpaid parental leave or paternity leave. This matters particularly in sectors with higher labour mobility, where employees currently lose continuity when moving jobs. These day-one rights are expected to make around 32,000 additional fathers or partners eligible for immediate paternity leave annually, with an additional 1,500,000 parents eligible for unpaid parental leave.

However, it should be noted that, first, statutory paternity pay is not becoming a day-one right. The 26-week qualifying period for pay remains in place. Second, transitional notice rules mean newly eligible employees can give notice from 18 February 2026 so that leave can be taken from 6 April 2026. Employers should ensure that managers and payroll teams understand the distinction between leave entitlement and pay entitlement and that template forms do not inadvertently state that both are day-one entitlements.

Furthermore, organisations should (i) update their employee handbooks, policies, and contracts to reflect the new day-one rights; (ii) train managers so they fully understand the changes, including that new starters may request paternity leave or unpaid parental leave from the first day of employment, and that employees are protected from detriment, dismissal, or other unfavourable treatment for exercising those rights; and (iii) ensure that payroll systems can accommodate such requests.

Bereaved partner’s paternity leave

A new day-one right to bereaved partner’s paternity leave will take effect, allowing fathers and partners to take up to 52 weeks of leave following a child’s birth or placement for adoption when the child’s mother or primary caregiver dies. Employers should review family leave and manager guidance materials so that eligibility, process, and support pathways are clear and applied consistently.

Whistleblowing and sexual harassment: Procedural alignment matters

From 6 April 2026, disclosures about sexual harassment will be expressly recognised as capable of amounting to protected disclosures for whistleblowing purposes. In practice, that increases the importance of treating some harassment complaints not simply as dignity-at-work issues but as complaints that may carry whistleblowing consequences, including detriment and unfair dismissal protection.

Separately, a new protection contemplates measures that will void any provision in an agreement between an employer and a worker of the employer insofar as it seeks to prevent the worker from making an allegation of, or disclosing information about, relevant harassment or discrimination or about the employer’s response to such matters. Certain “excepted agreements” are also contemplated, but the conditions for those agreements are to be set out in regulations following consultation, so employers should be cautious about assuming that any particular confidentiality clause or non-disclosure agreement will fall outside the contemplated prohibition.

Collective redundancy: Consultation risk becomes more expensive

The immediate doubling of the protective award to 180 days’ pay substantially increases the downside of getting collective consultation wrong in, for example, a business sale or restructuring plan. In light of the complexity of the collective consultation framework, employers and their advisers will need to proceed with particular caution. The government has indicated that it will publish guidance in due course.

This change is also likely to increase employee-side leverage in negotiations and to heighten the importance of early legal diligence where multiple establishments, rolling programmes, or uncertain headcount assumptions are in play. Employers should not assume that because the threshold rules are expected to change later, they can delay reviewing redundancy governance in the meantime.

The Fair Work Agency: Enforcement risk is becoming more centralised

The Fair Work Agency will be established on 7 April 2026 as an executive agency of the Department for Business and Trade. Its policy purpose is to centralise labour market enforcement, provide the state with clearer oversight of underpayments and other breaches, and create a single point of contact for workers and employers. In practical terms, the Fair Work Agency is intended to oversee compliance with key worker rights obligations, including issues such as compliance with minimum wage, certain aspects of the Modern Slavery Act 2015, holiday pay, statutory sick pay, and unlawful deductions as part of a more centralised labour enforcement regime.

For employers, the practical implication is that robust record-keeping, auditability, and remediation processes will become increasingly important. Even where the substantive legal duty is unchanged, the enforcement environment is shifting. Organisations should therefore proceed on the basis that compliance failures that might previously have remained within organisational silos will now be easier for the state to detect and manage enforcement.

Unfair dismissal

From 1 January 2027, the qualifying period for protection against ordinary unfair dismissal will reduce from two years to six months. This will significantly widen the pool of employees able to challenge dismissals in the Employment Tribunal and shorten the period within which employers will need to ensure that performance, conduct, and capability processes are fair and documented.

At the same time, the statutory cap on the compensatory award for unfair dismissal will be removed. This will materially increase downside risk with respect to higher paid employees and is likely to affect litigation strategy, settlement valuations, and the economics of contested exits. Employers should therefore review dismissal templates, investigation and hearing processes, appeal mechanisms, and management training well in advance of January 2027.

Fire and rehire

Dismissal for refusing changes to terms and conditions will become automatically unfair in most circumstances, meaning “fire and rehire” practices will be largely prohibited. Employers should expect a much narrower ability to rely on dismissal and re-engagement when seeking to vary contractual terms, with any proposed changes requiring earlier planning, consultation, and stronger business justification.

What employers should do now

a)   Update family leave, sickness, whistleblowing, anti-harassment, and redundancy policies so that eligibility rules and escalation routes reflect the April 2026 position.
b)   Review payroll and human resources information system logic for statutory sick pay, paternity pay, and family leave administration, including forms, workflow approvals, and employee-facing guidance.
c)   Train HR, line managers, and employee relations teams on the practical distinctions between leave and pay, harassment complaints and protected disclosures, and individual versus collective redundancy risk.
d)   Stress-test record-keeping and audit trails ahead of the Fair Work Agency’s launch, particularly around holiday pay, sick pay, wage deductions, and other high volume statutory rights.
e)   Map the broader Employment Rights Act programme through 2026 and 2027 so that April changes are implemented as part of a wider employment law roadmap rather than as a standalone project.

Looking ahead

April 2026 is only the first major operational milestone. The government’s current timetable points to further reforms later in 2026 and in 2027, including expanded sexual harassment duties in October 2026, unfair dismissal and fire-and-rehire reforms from January 2027, and later commencement for guaranteed hours, flexible working, bereavement leave, and the wider collective redundancy threshold.

 
2.   The UK FCA’s Final Guidance on Non-Financial Misconduct

At a glance

The Financial Conduct Authority (FCA) published a Policy Statement (PS25/23) on 12 December 2025 finalising its guidance on tackling non-financial misconduct (NFM) in financial services with respect to the Code of Conduct for Staff sourcebook (COCON) and the Fit and Proper test for Employees and Senior Personnel (FIT).

The following changes will come into force on 1 September 2026:

a)  the new COCON “scope” rule for non-bank firms under the FCA’s Senior Managers and Certification Regime (SMCR);
b)  final COCON guidance on when work-related NFM, such as bullying or harassment, will breach the FCA’s Conduct Rules; and
c)  final FIT guidance on when NFM, including NFM out of work, may be relevant to fitness and propriety (FIT Guidance).

New scope rule for non-bank SMCR firms

The new scope rule at COCON 1.1.7FR broadens the circumstances in which serious work-related misconduct between individuals working at non-bank SMCR firms, including bullying, harassment, or violence, can fall within COCON. Bullying and harassment involve any unwanted conduct that (i) violates dignity; (ii) creates an intimidating, hostile, degrading, humiliating, or offensive environment; or (iii) is violent in nature. The rule applies to such individuals both in respect of their regulated activities and also their non-regulated activities.

Conduct relating solely to an individual’s private or personal life will remain outside COCON. However, COCON may be engaged where conduct outside the workplace is sufficiently connected to work. Examples include conduct at training events and client-organised workshops or award ceremonies.

“Seriousness” threshold

Only serious misconduct will be caught by the new rule, bringing the position more closely in line with existing UK employment legislation. The FCA’s guidance sets out certain factors that the FCA will consider, such as duration, impact on the subject, relative seniority, and whether conduct could justify dismissal or is criminal. However, the FCA considers that firms are best placed to assess the unique circumstances of each case and will therefore treat a firm’s judgment about whether misconduct is serious enough to constitute a breach as compliant with the applicable rules, provided that the judgment is reasonable and properly informed.

Relevance to fitness and propriety

The FIT Guidance makes clear that NFM in an individual’s work or private life may be relevant to their fitness and propriety, where such conduct presents a material risk that the individual will breach regulatory standards or otherwise show a lack of integrity. The assessment is to be fact-specific — not every incident will make an individual unfit, but seriousness, dishonesty, breach of trust, violence, and repetition are all relevant factors.

Notably, the FCA confirms that firms are not expected to investigate trivial or implausible allegations or to breach privacy laws in pursuit of ascertaining whether such connection exists. Furthermore, lawful but controversial views expressed in private life will not automatically call fitness and propriety into question but may still be relevant where there is a material risk of workplace repetition or regulatory breach.

Obligation of senior managers

The FCA guidance provides that managers should take reasonable steps to prevent and respond to NFM. However, the FCA will assess reasonableness against factors such as their individual knowledge and authority and not apply strict liability. This is designed to avoid disproportionate personal exposure while underpinning cultural standards. Firms should therefore keep detailed governance records and have clear escalation routes, given the possibility of the FCA later scrutinising management response.

Key takeaway

The changes set out above aim predominantly to reduce uncertainty and increase consistency in how firms assess NFM under COCON and FIT while avoiding disproportionate burdens. For a more detailed analysis of the FCA’s broader approach to NFM, see our earlier Sidley Update, “UK Financial Conduct Authority Finalises Non-Financial Misconduct Framework: What Firms Need to Do Now”, prepared by our Regulatory and Insurance teams. Ahead of the new COCON scope rule being implemented in September 2026, firms should consider reviewing relevant policies and carrying out training so that firms are better placed to handle live incidents and to justify their judgments to the FCA, as applicable.
 
3.  Case Update: Employment Post-Termination Covenants

Background

In the recent case of Guy Carpenter v. Willis [2026] EWHC 361 (KB) (judgment dated 20 February 2026), the High Court has reaffirmed that springboard injunctions in a team move scenario are corrective, not punitive, even where there has been a breach of a post-termination restrictive covenant. Their purpose is strictly to remove any ongoing unlawful competitive advantage. If the advantage has expired or its impact is limited, no injunction will be granted.

High court decision

In this case, 22 employees, including two directors, resigned from Guy Carpenter and joined Willis. Although the court found (i) the former directors improperly provided employee information to assist recruitment and (ii) Willis liable for dishonest assistance, inducing breach of contract, and unlawful means conspiracy (limited to misuse of employee information), there was no misuse of client information or unlawful solicitation. The only unlawful advantage identified was that some departures occurred earlier than they otherwise would have, which had expired by the time of the judgment. On this basis, as there was no continuing advantage, no injunction was granted. The court also rejected broad client restrictions, noting that the employees were already subject to notice, garden leave, and 12-month post-termination covenants. There was no evidence of client loss, and the proposed restrictions were overly wide and commercially uncertain.

Legal significance

This decision in Guy Carpenter v. Willis is important because it:

a)  reinforces limits on springboard relief — courts will carefully quantify the actual competitive advantage gained and restrict relief to that period only;
b)  confirms that wrongdoing alone is insufficient — even dishonest assistance and conspiracy will not justify forward-looking restraints without proof of continuing benefit;
c)  raises the evidential threshold — claimants must demonstrate real competitive impact, not hypothetical strategic harm; and
d)  emphasises proportionality in large broker markets — broad, market-wide client restrictions are likely to face close scrutiny.

Practical impact for employers

Although arising in the reinsurance broking context, the principles in Guy Carpenter v. Willis are directly relevant to investment managers and other financial services firms facing team moves. Investment management businesses often rely heavily on portable talent, investor relationships, and coordinated hiring strategies. This case signals that courts will require clear evidence of ongoing competitive advantage, such as investor solicitation or misuse of confidential information, before granting springboard or client-based injunctions. Existing contractual protections (notice, garden leave, and post-termination restrictions) will significantly influence whether additional equitable relief is justified.

Thank you to Emmanuel Okoli, trainee for Sidley’s Labor, Employment and Immigration practice, for his significant contribution to this Sidley Update.