The Employment Rights Act 2025 (ERA 2025) represents the most far‑reaching reform of UK employment law in a generation. Much of the commentary to date has focused on its impact on direct employment models. Less attention has been paid to the ERA 2025’s implications for outsourcing — yet several of its measures have the potential significantly to reshape outsourcing decisions and risk allocation.
While the prospect of increased employment costs resulting from ERA 2025 may prompt some organisations to revisit outsourcing as a means of achieving greater flexibility or cost control, the ERA 2025 also introduces new constraints and liabilities that parties to outsourcings will need to address.
Outsourcings often involve changes to the workforce, whether through staff transfers under TUPE or, in some cases, the dismissal of employees and their replacement with outsourced labour. From January 2027, ERA 2025 introduces a major new restriction in this area.
Where employees are dismissed in order to replace them with non‑employees (such as agency workers or independent contractors) to perform substantially the same duties, those dismissals will be deemed automatically unfair. Liability in connection with such dismissals will be uncapped, subject only to limited exceptions for genuine redundancy situations and severe financial distress. The provision was introduced in response to a number of recent high‑profile “fire and rehire” scenarios, and is...
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