On 18 February 2026, the first wave of significant employment law reforms under the Employment Rights Act 2025 comes into force.
For many Scottish SMEs, this may not feel urgent — particularly if you don’t currently recognise a trade union or operate in a heavily unionised sector. However, these changes affect dismissal risk, industrial action handling, and family leave administration.
Further changes are due in April and October 2026, so now is the time to act.
Why This Matters for Small and Medium-Sized Businesses
Large organisations often have in-house HR and legal teams to manage legislative updates. SMEs typically don’t.
That means the risks fall directly on:
- Business owners
- Directors
- Office managers
- Line managers
If your contracts, policies or procedures are outdated, you could face:
- Unfair dismissal claims
- Automatically unfair dismissal claims (higher risk)
- Compensation awards
- Legal costs
- Reputational damage
- Significant management time dealing with disputes
Prevention is far less expensive than defending a claim.
Key Changes Taking Effect on 18 February 2026
1. Repeal of Most of the Trade Union Act 2016
The majority of restrictions introduced under the 2016 Act are being removed. This simplifies processes for trade unions, including:
- Industrial action ballots
- Notice requirements
- Political fund rules
This makes industrial action procedurally easier to organise.
SME Risk:
Even if your business is not unionised, employees can still be union members. Managers must be careful when handling:
- Disciplinary processes
- Dismissals
- Situations involving industrial action
The risk of claims linked to union-related activity increases if procedures are not carefully followed.
2. Removal of the 10-Year Political Fund Ballot Requirement
Trade unions will no longer need to renew political fund ballots every 10 years.
SME Risk:
This reflects a broader shift towards strengthening union rights. Employers should ensure managers understand how to lawfully engage where union activity arises.
3. Simplification of Industrial Action Notices
Notice requirements around industrial action and ballot processes are being simplified.
SME Risk:
If your business faces industrial action, timelines may move more quickly. Mishandling communication, pay deductions or dismissals during industrial action can result in serious legal exposure.
4. Protections Against Dismissal for Taking Industrial Action
Employees will have stronger protection from dismissal when participating in lawful industrial action.
SME Risk:
Dismissing an employee in these circumstances could result in an automatically unfair dismissal claim — which carries greater legal and financial consequences.
5. “Day 1” Paternity Leave and Unpaid Parental Leave (Notice Provisions)
From 18 February, employees newly eligible for:
- Day 1 Paternity Leave
- Day 1 Unpaid Parental Leave
can begin giving notice ahead of the wider April implementation.
SME Risk:
- Payroll systems may not be ready
- Policies may not reflect Day 1 rights
- Managers may refuse leave incorrectly
- Notice requirements may be misunderstood
Errors here can quickly escalate into grievances or tribunal claims.
What’s Coming Next?
This is just the first phase.
Further reforms are expected in:
- April 2026
- October 2026
These will continue to reshape dismissal rights, family leave protections and worker entitlements.
SMEs who take a “wait and see” approach risk being permanently behind the curve.
The Real Risk to SMEs
The biggest risk isn’t the law change itself.
It’s assuming it doesn’t apply to you.
Many tribunal claims arise not from deliberate wrongdoing, but from:
- Outdated handbooks
- Managers following old guidance
- Inconsistent documentation
- Informal conversations that should have been formal
- Failing to recognise protected activity
Once a claim is lodged, legal defence costs and management time can quickly outweigh the cost of proactive compliance.
What Should You Be Doing Now?
Before 18 February, Scottish SMEs should:
✔ Review employment contracts
✔ Update staff handbooks
✔ Check family leave policies
✔ Review dismissal procedures
✔ Ensure managers understand new protections
✔ Audit industrial action handling processes
If you haven’t reviewed your documentation in the last 12 months, it is highly unlikely to reflect the 2026 reforms.
How LBJ Consultants Can Help
We are offering Scottish employers a complimentary HR compliance review, including:
- Gap analysis of your policies against new legal requirements
- Clear priority actions for February and April deadlines
- Contract and handbook update recommendations
This is a practical, risk-focused review designed specifically for SMEs.
Don’t Leave Compliance to Chance
18 February is here.
April isn’t far behind.
Staying compliant now could save significant time, unnecessary stress and costly legal risk later.
LBJ Consultants support SMEs across Ayrshire and the wider West of Scotland with practical, commercial HR and employment law advice tailored to small businesses.
📞 Book your complimentary HR consultation today call 07984 568523 to book an appointment.
FAQs: Employment Law Changes 2026
Do these employment law changes apply to small businesses?
Yes. The Employment Rights Act 2025 applies to businesses of all sizes, including SMEs in Scotland.
What happens if my policies are out of date?
Outdated policies can increase the risk of unfair dismissal or discrimination claims.
When do the new family leave rules start?
Notice provisions begin 18 February 2026, with further changes in April 2026.
