The Employment Rights Act 2025 has been widely framed as a compliance burden. But for financial services firms with genuine cultural ambitions, it may be one of the most strategically useful pieces of legislation in years. Here is the case for the optimists.
A different way to read the ERA
The Employment Rights Act 2025 is described by the UK government as the biggest upgrade to workers’ rights in a generation. That glowing description has not been shared by UK employers and indeed by other professional associations. Many small businesses will find the new provisions especially challenging, as my informal discussions with owners of small businesses have revealed.
What is not in doubt is that the impact of the ERA will make the UK employment landscape look materially different.
While accepting the new legislation, many organisations still have their doubts, for example, in the joint statement from 6 associations consulted by the government, including the CBI, the CIPD, the FSB: “Businesses will still have concerns about many of the powers contained in this Bill. This includes guaranteed hours contracts, seasonal and temporary workers and thresholds for industrial action.”
The ERA provides a practical incentive to close the gap between the workforce firms think they have and the one they actually operate
Yet for firms that have already invested in culture, flexibility, and fairness, much of what the ERA demands could simply be a formal codification of what good employers were already doing. More importantly, the Act creates a set of structural advantages that forward-thinking financial services organisations can actively leverage. Here are six of them.
1 A sharper edge in the war for talent
Financial services firms compete for talent against technology companies, professional services firms, and increasingly, the public sector — where day-one employment protections have long been the norm. The ERA removes a meaningful asymmetry: previously, a candidate moving from a larger or public-sector employer to a smaller financial services firm effectively forfeited key rights during their first year.
Day-one SSP and parental leave rights change that calculation. Firms that can credibly communicate ‘your rights begin on your first day’ have a stronger employee value proposition — particularly when recruiting mid-career professionals with families, or those considering a move from a competitor with more established HR infrastructure. In a market where talent scarcity continues to drive up salary costs, non-pay benefits and security signals matter more than many finance directors acknowledge.
2 A level playing field on employment costs
One of the more underappreciated features of the ERA is competitive neutrality. Firms that have invested in robust sick pay schemes, flexible working arrangements, and comprehensive harassment training have historically been undercut by competitors keeping costs lower by doing the bare minimum. The ERA raises the floor for the entire industry.
This is particularly significant in financial services, where the pressure to deliver returns has sometimes allowed a ‘good enough’ approach to HR to persist. The Act effectively forces laggards to catch up — reducing the cost advantage they previously held over responsible employers. For firms that have already made these investments, the ERA levels the competitive landscape rather than adding to their burden.
3 Lower turnover and its substantial hidden costs
The financial services sector has relatively high attrition, particularly at junior and mid-levels. The fully-loaded cost of replacing a professional employee — including recruitment fees, onboarding time, lost productivity, and the erosion of client relationships — is routinely estimated at 50–200% of annual salary.
The research on employee engagement is consistent: perceived fairness and job security are among the strongest drivers of retention. If the ERA succeeds in improving employees’ sense of security and trust in their employer, firms stand to benefit from reduced voluntary turnover. The maths of prevention versus replacement are unambiguous, and yet retention is not universally used as a financial metric by CFOs. The ERA provides a compelling catalyst to do so.
The firms most exposed to the ERA’s costs are those whose employment practices were already out of step with where the industry needs to be.
4 Stronger ESG and regulatory credentials
The FCA’s Consumer Duty, SMCR culture expectations, and the growing supervisory focus on non-financial misconduct all require financial services firms to demonstrate that their internal culture genuinely matches their external commitments. The ERA’s enhanced harassment provisions — particularly the tougher ‘all reasonable steps’ standard and the forthcoming restrictions on NDAs in harassment cases — push firms to address cultural problems they may have been managing financially rather than structurally.
For firms under supervisory scrutiny, getting ahead of these requirements is far preferable to being caught behind them. More positively, firms that can demonstrate genuine compliance with the ERA’s culture provisions have a substantive, evidenced story to tell regulators, investors, and ESG-focused clients. The degree to which institutional investors increasingly scrutinise social and governance metrics may still be questioned, yet the narrative may retain some commercial value.
5 Workforce transparency and better strategic planning
The ERA’s guaranteed-hours regime — requiring employers to offer stable contracts to workers whose regularly worked hours exceed their contracted minimum — will force firms using flexible or contract staffing to genuinely understand the shape of their workforce. Many financial services back-office and technology functions have relied on informal arrangements that obscure true headcount, cost-per-output, and dependency on key workers.
While the operational adjustment may feel unwelcome, the resulting clarity has real strategic value. Firms that understand their workforce architecture are better placed to plan for growth, manage regulatory headcount disclosures, and design workforce strategies that reflect actual operating models..
6 Reduced long-term settlement risk on harassment claims
The ERA’s restrictions on using NDAs to silence harassment and discrimination claims may initially feel threatening to legal and compliance teams accustomed to managing these issues quietly. But the medium-term logic runs in the opposite direction: when the option to pay for silence is removed, the incentive to invest in prevention increases substantially.
Firms that build genuinely safe, inclusive working environments will face fewer claims — and the investment required to get there is typically far lower than the cumulative cost of settlements, management distraction, legal fees, and reputational risk. The ERA effectively prices the cost of a poor culture more accurately than the previous regime did. For well-governed firms, this is a feature, not a bug.
One tactical thought
The reduction in the unfair dismissal qualifying period to six months will influence thinking on probation periods. At a recent CIPD Employment Law event, an employment lawyer, Ruby Rai from Thomas Flavell and Sons, was asked whether the default probationary period should now be six months. Her response was unequivocal: it should now be three or four months, so that the employer retains the flexibility to extend the probation if required without exceeding the six-month unfair dismissal period. Reflecting on this, I think that shorter probationary periods could result in more focus on training, successful onboarding, and delivering productivity earlier.
The provocation for leadership teams
The six advantages above share a common thread: they accrue most powerfully to firms that treat the ERA not as a compliance exercise to be minimised, but as a strategic prompt to be engaged with seriously. The question for every financial services CEO, HR Director, and Finance Director is not simply ‘are we compliant?’ but ‘are we better placed than our competitors to attract, retain, and develop the people this industry needs?’
There is also a harder provocation embedded in the ERA. The legislation effectively prices the cost of poor employment practice more accurately than the previous legal framework did. The removal of the unfair dismissal compensation cap is the starkest example: a mis-handled dismissal of a senior financial services professional could now generate a claim running into seven figures. That is not a compliance risk to be managed by a lawyer. It is a governance risk to be owned by the board.
The good news — which may need emphasis among the voices of concern — is that the firms best positioned to benefit from the ERA are not those with the largest legal budgets. They are those with the clearest values, the most consistent management behaviours, and the most honest relationships with their people. In financial services, those things have always been competitively significant. The ERA simply makes them more so.
Key Provisions at a Glance
For reference, the ERA’s main changes are being phased in as follows:
- April 2026: Day-one SSP (paid from day one, lower earnings limit removed); day-one paternity and parental leave rights; industrial action law reforms
- October 2026: Zero-hours contract reform (guaranteed hours offers, shift notice requirements); enhanced harassment duty (‘all reasonable steps’); Employment Tribunal claim windows extended to six months; strengthened trade union rights
- January 2027: Unfair dismissal qualifying period reduced from two years to six months; compensation cap removed; fire and rehire restrictions; enhanced protections for pregnant employees and those returning from family leave
- 2027 onwards: Mandatory gender pay gap and menopause action plans; new bereavement leave rights; NDA restrictions in harassment cases
Note: This article is for informational purposes only and does not constitute legal advice. Employers should seek specialist employment law counsel in relation to their specific circumstances.
