UK Quarterly Employment Update (June 2026)

The UK faces major changes in employment law and practice in the coming months and years. Employers will need to navigate not only upheaval on the domestic front but implications for companies with involvement in the EU and the U.S. This Sidley Update covers:

1. the Employment Rights Act 2025: six-month unfair dismissal qualifying period
2. a case update on Kankanalapalli v. Loesche Energy Systems, with respect to the possibility of a conditional job offer resulting in a binding employment contract before day one
3. worsening employment tribunal timelines
4. the EU Pay Transparency Directive: Directive (EU) 2023/970
5. the new Equality Action Plan regime
   
   

1. ERA 2025: six-month unfair dismissal qualifying period

At a glance

The Employment Rights Act (ERA) 2025 will reduce the qualifying period for protection against ordinary unfair dismissal from two years to six months, beginning 1 January 2027. This is a material change for employers that currently use a six-month contractual probation period, because any employee who reaches the end of their probation will also obtain unfair dismissal protection.

Practical impact for employers

Perhaps most important, the change will affect employers who hire as soon as 1 July 2026. From 1 January 2027, ordinary unfair dismissal protection will apply immediately to employees who already have six months’ service or more, with others gaining protection once they reach six months. That means employees hired from 1 July 2026 will gain unfair dismissal rights on 1 January 2027.

In practice, this means that six-month probation periods will no longer provide the same clean risk-management window. Therefore, employers should shorten their standard probation periods to, for example, three months’ probation, with a tightly controlled option to extend for one or two months at the most, ensure that during probation their full disciplinary and grievance procedures do not apply, build in earlier review checkpoints, and ensure that any decision not to retain the employee is taken before the employee accrues six months’ service where possible.

Managers should also be trained to treat probation dismissals as requiring proper evidence, a fair reason and a fair process much earlier in the employment relationship. Even before six months, employers must remain alert to claims that do not require ordinary unfair dismissal qualifying service, including discrimination and whistleblowing claims.

2. Case update: Conditional job offers may bind employers before day one (Kankanalapalli v. Loesche Energy Systems)

At a glance

The issue was whether Loesche Energy Systems’ conditional offer created a binding employment contract when accepted, such that its later withdrawal before Mr Kankanalapalli’s start date amounted to a breach of contract by failing to give reasonable notice.

Background

Loesche Energy Systems (L) offered Mr Kankanalapalli (K) a project manager role on 23 September 2022, with an anticipated start date of 1 November 2022, “subject to” (i) receipt of satisfactory references, (ii) a right-to-work check, and (iii) a successful six-month probationary period. K accepted the offer on 26 September 2022 via email and later booked flights to the UK and provided new starter information, referee details, and right-to-work documents. When the underlying project’s “notice to proceed” was delayed, L first tried to push the start date back, then withdrew the offer altogether on 11 October 2022. The references hadn’t been taken up, and the original right-to-work documents hadn’t been seen; the withdrawal had nothing to do with those conditions.

K brought a breach of contract claim in the Employment Tribunal (the ET), arguing that L had withdrawn the offer without appropriate notice, amounting to a breach of contract. L argued that no binding contract had existed because the conditions had not been satisfied at the point of withdrawal, or alternatively, if a contract had existed, that reasonable notice had been given.

ET decision

The ET dismissed the breach of contract claim. It found that whilst K had accepted the offer, it remained subject to unsatisfied conditions precedent, namely, the receipt of satisfactory references and completion of right-to-work checks. The ET held that as those conditions had not been satisfied before the offer was withdrawn, no binding contract had formed, and therefore, no breach of contract could arise.

The ET held in the alternative that even if a binding contract had existed, the offer letter did not specify a notice period. It therefore implied the statutory minimum notice under s.86 ERA 1996, which was nil because K had not yet started work and therefore had no continuous employment, and concluded that L was entitled to terminate without notice. Since L had nonetheless given K one week’s notice, the ET held that it would have dismissed the notice-pay claim even if it had found that a contract existed.

The Employment Appeal Tribunal’s decision

The Employment Appeal Tribunal (the EAT) allowed the appeal, set aside the ET’s decision ,and, with the parties’ agreement, decided the point itself rather than remitting the case.

1. “Subject to” does not automatically mean no contract
   The EAT held that the ET had erred by not addressing K’s argument that the offer conditions were conditions subsequent rather than precedent. The EAT explained that the phrase “subject to” in the offer letter only showed that conditions existed; it did not determine whether those conditions prevented a contract from coming into existence, nor did it give rise to a right to terminate an existing contract if the conditions had not been met.
2. The conditions were conditions subsequent on the facts
   The EAT held that the parties had concluded an employment contract because, on the facts, (i) the offer letter contained the essential terms of employment; (ii) L sent new-starter materials and took steps to onboard K; (iii) the relevant wording contemplated that employment “may be terminated” if satisfactory references were not received, rather than stating that no contract would arise; and (iv) the six-month probationary period could only operate once employment had begun. The EAT also noted that all three conditions were grouped together with no attempt to distinguish them and, as the probationary provision could only be a condition subsequent, treated the other provisions in the same way.
3. Silence on notice led to an implied term, which should be decided by the common-law concept of “reasonable notice”
   With no notice clause agreed, the EAT implied a term of reasonable notice (assessed as on all the facts known at the date of contracting). Both parties accepted three months was reasonable for the role; the EAT rejected L’s argument that probation reduced it, as that had never been put to or agreed with K. Statutory minimum notice under s.86 ERA 1996 is a floor, not the starting point.

Substituting the ET’s judgment, the EAT held that the breach of contract claim succeeded and ordered L to pay three months’ notice.

Practical impact for employers

This decision is instructive on the drafting of conditional employment offers in that an offer that is said to be “subject to” certain conditions does not automatically mean that no contract exists until those conditions are satisfied; the existence of a binding contract will turn on the specific facts.

The decision also provides insight into notice where no express notice period has been discussed and/or recorded in an agreed employment contract. The appropriate approach, in these circumstances, is to imply “reasonable notice,” taking into account the factual circumstances of the employee, the role, and the recruitment process.

The case is fact-specific, but it highlights drafting and process points that HR, talent acquisition, and legal teams should address before issuing an offer.

3. Worsening employment tribunal timelines

At a glance

Employers should now expect contested employment claims to take years to reach a final hearing. The number of unresolved claims is at an all-time high, according to His Majesty’s Courts and Tribunals Service, and is likely to increase following the extension of limitation periods and the reduction to the unfair dismissal service requirement to six months, effective from 1 January 2027. The practical effect for employers includes increased legal costs, a higher risk of evidential degradation, and a greater need to reduce claim risk at source.

Claim statistics

For Q4 2024/25, the government reported 13,047 single-claim receipts and 5,728 single-claim disposals. In the same quarter, there were 9,500 multiple-claim receipts and 2,624 multiple-claim disposals. The annual figures for April 2024 to March 2025 also show single-claim receipts of 36,171 and disposals of 29,127, with multiple-claim receipts of 74,674 and disposals of 31,641, effectively two in for every one out. With 64,000 single claims and 531,000 total ET claims outstanding, the tribunal system is under severe strain.

What is driving the concern?

The problem is not just more claims. It is more claims that take longer to process.

If we look back, the pandemic backlog was inflated by large numbers of shorter wage and working-time claims, many of which could be dealt with relatively quickly. The current wave looks different. Open-track claims, usually discrimination, whistleblowing, and other complex disputes, now make up the majority of ET1 receipts. The Advisory, Conciliation, and Arbitration Service puts open-track cases at approximately 58% of ET1 receipts.

AI appears to be adding to the load. Judges and practitioners have reported more elaborate pleadings, bulkier documents, more reconsideration and interim relief applications, and inflated schedules of loss, with AI suspected to be one driver. Weak claims do not necessarily disappear quickly if they arrive wrapped in lengthy pleadings and applications; they still take judicial time.

So the bottleneck is not just volume. It is volume multiplied by complexity. For employers, that affects strategy from day one: preserving evidence, taking witness accounts early, budgeting realistically, and reassessing settlement leverage.

Implication for employers

1. Settlement strategy and valuation
   Delay changes the economics of litigation. From an employer’s perspective, longer timelines are likely to increase legal costs (including in some cases, interest on awards), take up more of management’s time, and extend the period during which contingent liabilities remain open (including on the balance sheet). From a claimant’s perspective, delay may create financial pressure to settle, particularly where alternative employment has not yet been secured or earnings remain uncertain.
2. Evidence preservation and witness planning
   The risk of evidential degradation in long-running tribunal litigation is also significant. Witnesses may leave the business, memories may fade, and relevant documents or messages may be deleted in the ordinary course of retention cycles. Employers should therefore take preservation steps as soon as a dispute is anticipated. This should include identifying key custodians and preserving relevant emails, instant messages, and collaboration-platform data; HR system notes; investigation materials; grievance and disciplinary records; payroll data; and notes or communications demonstrating the rationale for key decisions. Where appropriate, routine deletion or auto-retention policies should be suspended in respect of relevant materials.
3. Case management and alternative dispute resolution
   The delays are also likely to increase the tribunals’ focus on proportionate case management and early alternative dispute resolution. Where it is warranted, employers should consider, at an earlier stage, whether judicial mediation, dispute resolution appointments, neutral evaluation, private mediation, or without-prejudice discussions may assist in narrowing or resolving the dispute. These options may be particularly valuable in discrimination, whistleblowing, and multi-day unfair dismissal claims, where the time, cost, and management burden of proceeding to a final hearing may be substantial.
4. Budgeting and provisioning
   Finance and legal teams should assume a longer lifecycle for contested claims. A claim issued in 2026 may not reach final hearing until 2029, 2030, or later in some London cases. Budgets should reflect multiple case-management hearings, amended pleadings, disclosure disputes, interest on claims, witness turnover, and repeated settlement windows.
5. Internal processes
   The best way to manage tribunal delay remains to reduce claim risk at source. Employers should ensure that managers understand fair process requirements, reasonable adjustments, whistleblowing escalation routes, grievance handling, and the importance of contemporaneous records. This is particularly important ahead of further ERA 2025 changes.

Practical steps for employers now

1. Review live tribunal matters and record the current procedural stage, hearing date, estimated length, and any risk of adjournment given current time lines and delays.
2. For each live or threatened claim, identify key witnesses and start preserving evidence now.
3. Issue or refresh litigation holds in light of expected time lines where claims are anticipated, especially for messaging platforms and HR systems with automatic deletion settings.
4. Stress-test judicial mediation, private mediation, and settlement valuations against the cost of a multi-year dispute and the impact of the new time limit extensions.
5. Brief HR and employee relations teams on the practical consequences of delay, including the importance of early recordkeeping and consistent internal communications.

Outlook

While attempts are being made to hire more full-time-equivalent judges, there is no single solution to the current tribunal backlog. The ERA 2025 has broadened access to the tribunal system by extending most limitation periods, reducing the service requirement for unfair dismissal claims (which on the government’s own estimate will bring a further 6 million workers within the unfair dismissal regime) and by introducing wider employee-friendly reforms this year and further anticipated reforms in 2027 (See our previous update: UK Quarterly Employment Update (April 2026)). Even if those reforms improve access to justice, they are likely to increase the volume and complexity of claims in the short to medium term.

4. The EU Pay Directive: Directive (EU) 2023/970

At a glance

The deadline for EU member states to implement Directive (EU) 2023/970 (the Directive) expired on 7 June 2026. The Directive requires a level of pay transparency that many employers have not previously had to operate, including pay information during recruitment, objective pay and career progression criteria, worker rights to comparator pay information, intensified gender pay gap reporting for employers with at least 100 workers, and remedial action where pay gaps cannot be objectively justified. The Directive functions as a minimum threshold in that member states may introduce more worker-favourable provisions and are responsible for determining and implementing practical points such as enforcement authority, consultation mechanics, and penalties. Multinational employers should therefore consider developing a common EU-wide compliance framework while allowing for jurisdiction-specific adjustments to reflect differences in local implementation and enforcement.

UK- and non-UK-headquartered employers

While the Directive is not directly applicable in the UK due to Brexit, and UK gender pay gap reporting remains a separate regime, UK employers with EU subsidiaries, branches, remote employees, or EU recruitment activity will still need to comply with the Directive through local EU implementing laws. Such UK employers should be minded not to treat the UK gender reporting regime, which is narrower than the Directive, as a proxy for EU compliance.

For U.S.-headquartered groups, the Directive should be treated as a European employment, reward, data, and employee relations project. Existing U.S. pay transparency processes may be helpful for recruitment disclosures, but they will not answer EU-specific issues such as equal-value categories, worker representative involvement, General Data Protection Regulation–compliant data handling, joint pay assessments, and local enforcement risk.

Summary of core elements of the Directive

The Directive supplements the long-standing EU principle of equal pay for equal work or work of equal value between men and women. Its policy shift is that equal pay should be capable of being proven, tested, and enforced through transparency rather than left to individual claims brought with limited information.

1. Recruitment: pay transparency prior to employment
   Employers will be required to inform job seekers about the initial pay or pay range of an advertised position, based on objective and gender-neutral criteria. Where applicable, employers must also provide information about relevant collective agreement provisions relating to the role. Employers will also be prevented from asking applicants about their pay history and must ensure that job vacancy notices, job titles, and recruitment processes are gender-neutral and non-discriminatory.
2. Pay-setting and progression
   Employers will need to make easily accessible to workers objective and gender-neutral criteria for pay, pay levels, and pay progression, although EU member states may exempt employers with fewer than 50 workers from the obligation relating to pay progression. Workers will also have the right to request written information about their own pay level and the average pay levels, broken down by sex, for categories of workers performing the same work or work of equal value, which employers must provide within two months of the request. In practice, employers will need a process for identifying comparator categories, responding within the applicable time period, issuing annual reminders about the right to request this information, managing any requests for clarification and controlling the onward use of personal data. Pay secrecy provisions will also need to be reviewed, as the Directive protects workers who disclose their pay for the purpose of enforcing the principle of equal pay, although employers may still impose confidentiality obligations around pay information obtained through the statutory information process.
3. Reporting: key dates
   The dates below are the Directive-level dates by which employers must provide gender pay gap information, subject to any amendments by national-level laws, which may impose more onerous requirements and/or adjust practical filing mechanics and enforcement processes.
   

   Worker count	First reporting date	Frequency
   100-149	7 June 2031	Every three years
   150-249	7 June 2027	Every three years
   250+	7 June 2027	Every year

4. The 5% trigger
   The Directive is not limited to a headline organisation-wide gap. If reporting identifies a difference in average pay of at least 5% between male and female workers in any category of workers performing the same work or work of equal value, and the employer cannot justify the gap by objective, gender-neutral criteria and has not remedied it within six months of the date of submission of the pay reporting, the employer must conduct a joint pay assessment with worker representatives.
5. Enforcement and consequences
   The Directive strengthens the enforcement toolkit. It requires effective remedies and penalties, including full compensation or reparation for workers who have suffered damage as a result of an infringement of rights or obligations relating to equal pay and shifts the burden of proof in certain cases, including where an employer has failed to comply with specified transparency obligations. Limitation periods for equal pay claims must be at least three years and must not begin to run before the claimant is aware, or can reasonably be expected to be aware, of the infringement.

Notable developments in your jurisdiction as at April 2026

The Directive will not result in a single, uniform EU compliance regime. As already discussed, while it establishes minimum standards, the detailed compliance landscape will be shaped by national implementing legislation, including the extent to which member states choose to go beyond the Directive’s baseline requirements. As at mid-April 2026, none of the 27 EU member states had fully transposed the Directive, although early indications of potential “gold-plating,” where a member state goes beyond the Directive’s minimum requirements, have emerged in jurisdictions, including Lithuania, France, Ireland, and Denmark.

1. Changes to scope (Denmark, France, and Lithuania)
   Gender pay gap reporting obligations are triggered under the Directive when an employer has 100 or more workers, but France has lowered this to 50 workers, and Denmark has included employers in the 50–99 band through its statistics-based model. Lithuania presents the most extensive scope in that its draft imposes mandatory remuneration policies on all employers irrespective of headcount, further removes all size-based exemptions for formal gender-balanced pay structures, and introduces monthly pay and working-time reporting through local social-security channels.
2. Changes to pre-employment transparency (Ireland)
   The Directive requires employers to disclose pay ranges before the interview. Ireland has taken this further by requiring employers to publish such ranges in job advertisements, in addition to further website publication obligations.
3. Changes to procedural requirements (Poland)
   Poland aims to impose a shorter 30-day deadline for right-to-information responses, an annual notice date fixed at 31 March, and tighter timelines for explanations following information requests from trade unions or similar equality bodies.
4. Changes to works-council rights (the Netherlands)
   The Netherlands grants works councils consent rights in certain areas where the Directive only requires lighter consultation.
5. Delay (Sweden)
   Sweden is the only EU member state that reportedly does not plan to transpose the Directive, deeming it too administratively burdensome. According to the Swedish government, unjustified gender pay imbalance must continue to be discussed, but the design of the Directive should be simplified and its implementation deadline postponed.

What employers should do now

1. Map scope and thresholds
   Identify the scope of EU employing entities, worker populations, and representative structures and headcount bands by member state. For U.S.- and UK-headquartered groups, include local branches, secondment structures, and employer-of-record arrangements.
2. Build or validate job architecture
   The Directive depends on categories of workers performing the same work or work of equal value. Employers should test whether job levels, grades, and career frameworks are sufficiently consistent and gender-neutral to withstand scrutiny.
3. Run a privileged pay equity review
   Analyse pay gaps by equal-value category, not only by entity or function. Identify legitimate explanatory factors, evidence them consistently, and decide whether remediation should be made before the first reporting cycle.
4. Update recruitment processes
   Job adverts, recruiter scripts, interview guidance, and offer approval processes should be amended to include pay range information at the required stage and to remove salary history questions.
5. Establish an information request process
   Employers will need a repeatable workflow for logging requests, identifying the relevant worker category, producing average pay information broken down by sex, and communicating the response in a controlled way.
6. Review policies and contracts
   Pay secrecy clauses, salary review policies, and progression criteria should be checked for consistency with the new rights.

5. The new Equality Action Plan regime

At a glance

Under the ERA 2025, large UK employers are encouraged to publish an Equality Action Plan (EAP) alongside their annual gender-pay-gap data. The EAP regime is intended to compel employers to take more decisive action to improve workplace gender equality, and each plan must show the steps the employer is taking to (i) address the gender pay gap in its organisation and (ii) support employees experiencing menopause.

The regime is already in motion. Employers in England, Scotland, and Wales with 250 or more employees have been able to publish their EAPs voluntarily since 6 April 2026. The government’s current position is that EAPs will be mandatory from spring 2027, subject to secondary legislation.

Who needs to report?

The EAP regime applies only to employers with 250 or more employees, and government guidance indicates that once mandatory, the measure will mirror the territorial extent of the existing gender-pay-gap reporting regime.

For corporate groups, the existing gender-pay-gap rules operate at entity level rather than at group level. Each employing entity must therefore assess separately whether it meets the 250-employee threshold annually on either 31 March (for most public authority employers) or 5 April (for everyone else) (snapshot date).

For headcount purposes, employers must include full-time workers, part-time workers, each job-sharer, self-employed workers who are required to perform the work personally (typically those within scope of IR35), certain overseas workers, salaried partners, and LLP members treated as employees for payroll purposes. Agency workers are not included.

Practical guidance for employers: What must an EAP cover?

Each eligible employer must identify at least two actions: one that addresses its gender pay gap and one that supports employees experiencing menopause. At least two of the selected actions must be “new or in progress,” although employers may also include additional actions that are already embedded in their working practices.

The government has published 18 evidence-informed actions across five broad areas, namely recruitment, development and promotion, building diversity into the organisation, increasing transparency, and supporting employees experiencing menopause. General examples of actions identified in the government’s list for each category:

1. Recruitment: inclusive job descriptions; broader candidate attraction; reducing bias in CV screening; fair and structured interviews; advertising leave and flexible working policies.
2. Development and promotion: automatically considering eligible employees for promotion; encouraging employee development through actionable steps; offering mentoring, sponsorship, and development programmes.
3. Building diversity: targets to improve gender representation.
4. Transparency: improved transparency around pay, promotion, and rewards; stronger promotion of flexible working and leave policies.
5. Menopause support: manager training; occupational health advice; setting up employee networks; workplace adjustments; conducting menopause risk assessments; policy and procedure review.

Outlook

Although EAPs are currently voluntary, employers should not treat the regime as a purely future compliance exercise. The transition towards mandatory publication from spring 2027 signals a clear policy shift in that large employers will be expected not only to report on gender pay disparities but also to explain what practical steps they are taking to address them.

Employers within scope should therefore use the voluntary period to assess their existing gender-pay-gap reporting processes, identify any gaps in current workplace equality initiatives, and consider which “new or in progress” actions would be most meaningful for their workforce. In practice, this is likely to require input from HR; legal; diversity, equity, and inclusion; payroll; and senior leadership teams, particularly where corporate groups need to determine reporting obligations on an entity-by-entity basis.

Care should also be taken to ensure that any EAP is specific, evidence-based, and capable of being tracked over time. A generic or aspirational plan may satisfy the minimum form of the obligation but is unlikely to meet the broader expectation that employers demonstrate measurable progress on gender equality and menopause support. Employers that begin preparing now will be better placed to publish credible action plans once the regime becomes mandatory.

This will also be a further compliance diligence item for those companies in scope, which buyers and investors will need to consider in the context of investments and acquisitions.

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