A tribunal claim is one of the most expensive ways to discover that your employment contracts need updating. The average defended unfair dismissal case costs UK employers between £10,000 and £18,000 in legal fees alone, before any compensation award is counted. The average unfair dismissal award in 2023/24 was £13,749, and that figure excludes management time, operational disruption, and the reputational fallout. 

 

The Employment Rights Act 2025 received Royal Assent on 18 December 2025, and it is about to make the risk picture significantly more serious. From January 2027, the qualifying period for unfair dismissal protection drops from two years to six months. The statutory cap on compensatory awards, currently the lower of £118,223 or 52 weeks' gross pay, is removed from the same date. From October 2026, the time limit for employees to bring a tribunal claim doubles from three months to six months. 

 

A review of employment contract terms, handbook policies and people processes is one of the most cost-effective steps an SME can take before these changes apply to your business. 

 

What is an employment contract review? 

An employment contract review is a structured comparison of three things: what your written contracts say, what your handbook and policies say, and what your managers and processes do in practice. The gaps between the three are where tribunal claims start. 

 

For a UK SME, the review covers all employment contracts and offer letters, your employee handbook, recruitment and probation processes, the last 12 months of disciplinary and grievance records, sickness absence records, performance management documentation, pay basics, health and safety policies and risk assessments, and data protection and right-to-work checks. 

 

The end result is a risk register, ranked by severity, with a remediation plan. It is not a tick-box exercise. 

 

Why every UK SME needs a review of employment contracts right now 

Three forces are pushing a review of employment contracts from good practice to urgent in 2026. 

 

The unfair dismissal threshold is dropping 

From 1 January 2027, the qualifying period for unfair dismissal protection falls from two years to six months. Businesses that relied on the two-year window to manage early-stage performance issues or poor hiring decisions are about to lose that buffer entirely. Your dismissal procedures, probation policies and notice clauses all need to work from month six, not month 24. 

 

The compensation cap is being removed 

Also, from 1 January 2027, the statutory cap on compensatory awards for ordinary unfair dismissal disappears. Currently, compensation is capped at the lower of £118,223 or 52 weeks' gross pay. Once the cap is gone, a single mishandled dismissal carries open-ended financial exposure, putting it in the same category as discrimination claims, which have always been uncapped. 

 

Tribunal time limits are doubling 

From October 2026, employees will have six months, up from three, to bring a tribunal claim. That is twice as long for a grievance to develop, an ex-employee to take advice, or an early settlement conversation to fail before a claim lands. 

 

If your last review of employment contracts was before 2024, you are carrying clauses that no longer reflect the sexual harassment positive duty (October 2024), day-one flexible working (April 2024), carer's leave (April 2024), neonatal care leave, and pay (April 2025), or the SSP changes that came into force on 6 April 2026. 

 

Your review of employment contract: a step-by-step audit 

Run this against every active employment contract. If you have more than ten employees, start with a sample of one from each role type, then audit in full any contracts that are more than three years old.

 

Section 1 written statement 

Every worker is entitled to a written statement of employment particulars from day one. Since April 2020, this applies to workers as well as employees, including zero-hours and casual staff. Check your contract or offer letter covers all required terms: names of both parties, start date, continuous service date, pay and pay frequency, working hours and days, holiday entitlement, place of work, job title and brief description, notice periods for both parties, sick pay terms, pension, training entitlement, probationary period, collective agreements where relevant, and where to find the disciplinary and grievance procedure. 

 

Pay clauses 

Confirm that pay is at or above the National Minimum Wage for the relevant age band. From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour. The 18 to 20 rate is £10.85 per hour. The 16 to 17 and apprentice rate is £8.00 per hour. NMW rates change every April. If your contract states a fixed hourly rate, you need to update it each year. A clause that reads "the prevailing National Minimum Wage rate or the rate set out in this contract, whichever is higher" builds in self-correction and removes the need for a contract amendment every April. Also check overtime rules, bonus discretion language, and any deductions clauses, which must be authorised in writing under section 13 of the Employment Rights Act 1996. 

 

Working time, hours and holiday 

Under the Working Time Regulations 1998, the standard working week is capped at 48 hours unless the worker has signed a written opt-out. Check that holiday entitlement is at least 5.6 weeks, which is 28 days for a full-time worker, including bank holidays. Check how leave accrues during sickness absence and parental leave. If your contract does not address accrual during these periods, you may be under-calculating entitlement during long absences. 

 

Family leave 

Maternity, paternity, adoption, shared parental, parental, carer's, and neonatal care leave entitlements should each be referenced. You do not need the full statutory text in the contract. A clause confirming that entitlements are as set out in the handbook and in statute is fine, as long as the handbook is current. Carer's leave became a day-one right on 6 April 2024, providing one week of unpaid leave per year for employees with caring responsibilities. Neonatal care leave, which gives parents of babies admitted to hospital before 28 days old up to 12 weeks of additional paid leave, came into force in April 2025. If your handbook predates either of these changes, it needs updating now. 

 

Sickness absence and SSP 

Statutory sick pay became a day-one right on 6 April 2026, removing the previous three-day waiting period. The lower earnings limit, which was £125 per week in 2025/26, has also been removed, meaning all eligible workers now qualify regardless of how much they earn. The new SSP rate is the lower of £123.25 per week or 80 percent of average weekly earnings. Around 1.3 million low-paid workers now qualify for the first time. Any contract that references the old three-day qualifying period or the lower earnings limit threshold is now incorrect and needs to be corrected. 

 

Termination, notice and post-termination 

Notice periods must meet or exceed the statutory minimum under the Employment Rights Act 1996: one week per year of service up to a maximum of 12 weeks. Check garden leave clauses and payment in lieu of notice provisions. Where these clauses are absent or unclear, you may not have the contractual authority to place someone on garden leave or pay them in lieu rather than working out notice. 

 

Restrictive covenants 

Non-compete, non-solicit and confidentiality clauses are only enforceable where they protect a legitimate business interest and are reasonable in scope and duration. Template wording copied from US contracts is rarely enforceable in the UK, and courts may reject the covenant entirely rather than trim it to a reasonable scope. Check that covenants are tailored to each role, clearly drafted, and that there was adequate consideration for them at the point of signing. 

 

Mobility and place of work 

Hybrid and remote arrangements need to be reflected explicitly in the written contract. A contract that names a single office as the workplace, while employees regularly work from home, has drifted from the document. Verbal working arrangements can create implied terms that override the written contract and make it harder to require a return to the office if business needs change later on. 

 

Data protection 

A clause confirming how the employer processes employee personal data under UK GDPR and the Data Protection Act 2018 is required. Contracts written before 2018 often reference the Data Protection Act 1998, which no longer applies. If this clause is missing or refers to old legislation, it needs to be replaced. 

 

The 2024 to 2026 statutory updates 

Check that the following are reflected in either the contract or a handbook that the contract references: the sexual harassment positive duty (October 2024), day-one flexible working (April 2024), carer's leave (April 2024), neonatal care leave (April 2025), and the new SSP rules (6 April 2026). Looking ahead, the third-party sexual harassment duty and the extended six-month tribunal time limits both take effect in October 2026. 

 

Employment contracts for small business: what's different 

UK small businesses face exactly the same statutory floor as large employers. There is no SME exemption from core employment rights. The difference is in capacity, not obligation. 

 

For employment contracts for small business, the gap shows up in three places. 

 

Documentation depth. Large employers have HR teams maintaining detailed contracts and dozens of policies. SMEs need leaner contracts that reference a current handbook, plus the policies to back them up. Lean is fine. Out of date is not. 

 

Process evidence. A 200-person business probably has a written investigation procedure for grievances. A 10-person business might rely on the owner to handle issues. Either approach can work, but the smaller business needs to show, if challenged, that the process followed the ACAS Code of Practice on Disciplinary and Grievance Procedures. 

 

Threshold triggers. Several legal obligations only apply at certain headcounts: a written health and safety policy is required at five employees, collective consultation rules on redundancy apply when making 20 or more redundancies at one establishment within 90 days, and gender pay gap reporting applies from 250 employees. Know your thresholds and monitor them as the business grows. 

 

Employee contracts for small business: five common mistakes 

When reviewing employee contracts for small business, the same patterns come up repeatedly. These five mistakes create the highest risk for SME owners. 

 

Mistake 1: One contract template stretched across every role 

A single template applied to cleaners, account managers and senior leaders cannot serve any of them well. Build at least three tiers, front-line, mid-level and senior, with role-specific clauses covering restrictive covenants, expenses and intellectual property rights where relevant. 

 

Mistake 2: Self-employed contracts used for people who are employees 

Calling someone a contractor does not make them one. HMRC and employment tribunals both look at the working relationship. Who controls the work? Who supplies the equipment? Can the person send someone in their place? Is there mutuality of obligation? Misclassification creates back-tax exposure alongside employment rights claims, because the individual can claim the rights they were never formally given. 

 

Mistake 3: Probation clauses that do not match your policy 

A contract that refers to "a three-month probationary period to be reviewed in line with company policy" only works if that policy exists in writing and is consistently followed. With the unfair dismissal qualifying period dropping to six months in January 2027, a probation process that cannot be evidenced will leave you exposed on early-stage dismissals from the day the change takes effect. 

 

Mistake 4: Notice periods that fall below the statutory minimum 

Giving all employees one month's notice regardless of length of service breaches the statutory minimum at five years of service, when the statutory minimum rises to five weeks. At that point, the statutory minimum applies automatically and the contractual term you intended to rely on is overridden. Check notice periods against your current workforce, paying attention to longer-serving employees. 

 

Mistake 5: No version control on contract templates 

If your template was last updated in 2022, every employee hired since then has missed the April 2024 flexible working changes, the April 2024 carer's leave right, the April 2025 neonatal care leave entitlement and the April 2026 SSP changes. Date and version-number every template, keep a log of changes, and run a re-issue cycle whenever a significant legislative change takes effect. 

 

Employment contract change: how to do it lawfully 

A signed contract is binding. You cannot change the terms without consent, existing contractual authority, or legitimate operational reasons handled through a fair process. There are three lawful routes. 

 

Route 1: Mutual agreement 

The cleanest approach. Explain the proposed change, the reason for it, and what you intend to do if agreement cannot be reached. Get written acceptance from the employee before the change takes effect. 

 

Route 2: Existing contractual flexibility clauses 

Some contracts include clauses allowing the employer to vary certain terms after consultation, such as the location of work or shift patterns. Tribunals interpret these clauses narrowly. They will not cover fundamental changes such as a pay reduction or a substantial change in duties, even if the clause appears wide enough on its face. 

 

Route 3: Dismissal and re-engagement 

Terminating the existing contract and offering re-employment on new terms is a route of last resort. From 1 January 2027, the Employment Rights Act 2025 restricts this significantly. It will only be lawful where there is a genuine threat to the financial viability of the business and proper consultation has taken place. Fire and rehire as a standard tool for changing terms is no longer a viable option. 

 

For any employment contract change that affects written particulars, you must issue written confirmation of the change within one month under section 4 of the Employment Rights Act 1996. 

 

Employment contracts fair work: meeting UK fair work principles 

"Fair work" in UK usage refers to the principle that employment should be secure, fairly rewarded and meaningful. In Scotland, the Fair Work Convention formalises this through a five-pillar framework: security, opportunity, effective voice, fulfilment and respect. The Employment Rights Act 2025 is, in effect, legislating much of this framework for all UK employers. 

 

A review of your employment contracts against these five employment contracts fair work principles is a useful way to check whether your documents are aligned with the direction of travel. 

 

Security. Are hours, location and pay commitments clearly set out, or are workers exposed to short-notice changes? Zero-hours and one-sided flexibility clauses face new restrictions from 2027 under the ERA 2025 guaranteed hours provisions. 

 

Opportunity. Does the contract or handbook reference training, development and progression entitlements? 

 

Effective voice. Is there a clear grievance procedure with an explicit statement that raising concerns will not result in any detriment to the employee? 

 

Fulfilment. Are job descriptions current and specific enough to be useful? Vague duties create engagement problems and unfair dismissal risk, particularly when managing performance. 

 

Respect. Does the contract sit alongside an anti-harassment and equal opportunities framework that managers have been trained on? The October 2024 positive duty to prevent sexual harassment places a specific obligation on employers to take reasonable steps. From October 2026, this extends to third-party harassment as well. 

 

Risk assessment for HR: spotting the highest-impact gaps 

A risk assessment for HR follows the same logic as a health and safety risk assessment. List the hazards, score each one for likelihood and impact, then prioritise and plan your mitigation. 

 

For an SME HR risk assessment on employment contracts, the items that sit at the top of the risk register are: 

• Outdated disciplinary or grievance procedures. Under the ACAS uplift rule, a tribunal can increase a compensation award by up to 25 percent if the ACAS Code was not followed. 

• Contracts that predate the 2024 to 2026 statutory changes. 

• Probation and dismissal processes that will not survive the six-month qualifying period from January 2027. 

• Misclassified contractors where HMRC or a tribunal could find an employment or worker relationship. 

• Missing or unsigned written statements of particulars for any worker or employee. 

• Anti-harassment policies that do not reflect the October 2024 positive duty to prevent sexual harassment. 

• No documented evidence of right-to-work checks retained on file. 

• Sickness absence records that are incomplete or inconsistently maintained. 

• Pay clauses tied to a specific NMW rate that has not been updated since April 2026. 

• Restrictive covenants copied from template sources and never tailored to the individual role. 

 

Score each item on a scale of 1 to 5 for likelihood and 1 to 5 for impact, rank by the combined total, and then schedule remediation in priority order. A risk register reviewed quarterly turns the next 12 months into a planned programme rather than a reaction to a claim. 

 

HR compliance review checklist 

Use this as a final pass once you have worked through the audit above. Any box you cannot tick is a gap to close. 

• Every active employment contract reviewed in the last 12 months 

• Section 1 statements complete and signed for all employees and workers 

• Pay clauses reflect current NMW rates from April 2026 or self-correct annually 

• Holiday entitlement is at least 5.6 weeks (28 days for full-time staff) 

• Notice periods meet or exceed the statutory minimum for every member of staff 

• Restrictive covenants are UK-tailored, proportionate and role-specific 

• Hybrid and remote working arrangements are captured in writing in the contract 

• Disciplinary, grievance and health and safety policies are in writing and current 

• Anti-harassment policy reflects the October 2024 positive duty to prevent sexual harassment 

• Day-one flexible working, carer's leave and neonatal care leave are reflected in the handbook 

• Right-to-work checks completed, logged and retained for all employees 

• ACAS Code followed in every disciplinary or grievance case in the last 12 months 

• Probation reviews documented in writing with clear outcomes 

• Sickness records and return-to-work interviews kept on file consistently 

• HR risk register in place and reviewed at least quarterly 

 

When to bring in external support 

Three trigger points to a need for external HR support: a claim has been raised, threatened or looks likely; you are planning a restructure, redundancy or a significant headcount change; or a legislative milestone is approaching, and you do not have the time or resource to interpret and apply it in-house. 

 

For most SMEs, an annual external review costs considerably less than a single defended tribunal claim. Legal fees alone for a defended unfair dismissal case typically run between £10,000 and £18,000. A focused half-day review can identify the gaps, rank the risk, and give you a clear plan to work through. 

 

Frequently asked questions 

What should you look for when reviewing an employment contract? 

Check that the section 1 written statement covers every required term, that pay meets current NMW rates or includes a self-correcting clause, that holiday entitlement is at least 5.6 weeks, that notice periods meet or exceed the statutory minimum, and that the changes from 2024 to 2026 are reflected in either the contract or in a handbook the contract references. Also, check that what the contract says matches what managers are doing in practice. The gap between the document and the day-to-day reality is where claims start. 

 

How often should employment contracts be reviewed? 

At a minimum, once a year, ideally each April when statutory rates and key legislation typically change. Run a focused review whenever the law changes mid-year, your headcount crosses a reporting threshold, you change your working model, or a grievance or tribunal claim reveals a gap you were not previously aware of. 

 

Can an employer make an employment contract change without the employee's agreement? 

Not on fundamental terms. The lawful routes are mutual agreement, which is the cleanest; existing contractual flexibility clauses, which tribunals interpret narrowly; or dismissal and re-engagement, which the Employment Rights Act 2025 significantly restricts from January 2027. Any employment contract change affecting written particulars must be confirmed in writing within one month under section 4 of the Employment Rights Act 1996. 

 

What is the difference between an employment contract and a written statement of particulars? 

The written statement is a statutory document required under section 1 of the Employment Rights Act 1996, due on or before day one, covering the core terms of employment. The contract is the broader legally binding agreement that can include the written statement plus additional terms such as restrictive covenants, expense policies and intellectual property clauses. In most SMEs, a single document is structured to do both jobs at once, with the handbook referenced for procedural detail. 

 

What does it mean for employment contracts to meet fair work principles? 

Employment contracts fair work compliance means the contract meets current statutory requirements and clearly sets out the rights and responsibilities of both parties in line with the Fair Work Convention's five principles: security, opportunity, effective voice, fulfilment and respect. In practice, it means the contract is specific enough to be relied on, references current policies, and is backed up by HR processes that work the same way in practice as they do on paper. 

 

The time to review your employment contracts is now 

The best time to review your employment contracts was when you first wrote them. The second-best time is now, before the Employment Rights Act 2025 changes the unfair dismissal threshold, removes the compensation cap, and gives employees twice as long to bring a claim. 

 

A focused review costs a fraction of what a single tribunal defence will set you back. And it tells you something a tribunal will not: where your real exposure sits, ranked and ready to fix. 

 

If your contracts were written before the Employment Rights Act 2025, your documentation is carrying risk that has not yet surfaced. A single tribunal claim costs between eight and fifteen thousand pounds to defend, whether the business wins or loses.

 

The HR Doctor’s Compliance Confidence Kit covers a full review and update of employment contracts, a policy and handbook overhaul against current law, a compliance gap assessment and risk register, and a retained service to keep your documentation current. Book a free 30-minute discovery call or email [email protected].