How Chinese Businesses Can Navigate the UK’s New Employment Landscape

As Chinese businesses continue to expand their footprint in the UK, they are taking a more proactive approach to managing the employer‑employee relationship and mitigating litigation risk, at a time when the regulatory environment is undergoing one of its most significant periods of reform in over a decade. The Employment Rights Act (ERA) changes coming into force between 2026 and 2027 will reshape how companies hire, manage, reward and, where necessary, exit employees in the UK.

At our recent UK–China Legal Exchange event, we had an in‑depth discussion with Chinese‑owned companies on the ERA changes, the real challenges they face, and practical solutions for operating compliantly, mitigating litigation risks and building strong UK teams.

This article brings together key themes from that discussion, with practical guidance for China‑headquartered organisations preparing for the ERA changes and developing their workforce in the UK.

1. A New Era of UK Employment Rights: What’s Changing?

The UK is in the midst of a major evolution in employment law. Reforms scheduled throughout 2026 and 2027 will significantly increase employee protections and employer obligations. Among the most important changes are:

Shorter qualifying period and removal of the cap for unfair dismissal (January 2027)

• Employees will gain unfair dismissal rights after six months, rather than two years
• Compensation for unfair dismissal will become uncapped (currently the lower of £118,223 or 52 weeks’ pay), exposing employers to significantly higher financial risk

Fire‑and‑rehire restrictions (January 2027)

• It will be automatically unfair to dismiss employees in order to re-employ them under new terms, where the employer wishes to vary certain key terms including pay, pensions, hours and shifts. This will make it much more difficult for employers to make such changes unless they are permitted by existing contracts or where employees agree to the changes.
• Employers could face findings of automatic unfair dismissal in these scenarios, unless they can meet the extremely high threshold of proving changes were unavoidable due to financial difficulties.

Collective redundancies: wider scope and increased protective awards (April 2026 and 2027)

• The requirement to consult collectively about proposed redundancies will now apply to redundancies being made across different "establishments" of a business (e.g. across several stores or branches).  While the current threshold of 20 redundancies will continue to apply to redundancies at one establishment, a new threshold will apply where redundancies are proposed at multiple locations.  This will come into force in 2027.
• Failure to comply could result in protective awards of up to 180 days’ pay per employee (doubled from 90 days).  This increased penalty applies from April 2026. 

Further reforms include changes to statutory sick pay, enhanced family rights, flexible working rights, increased protections for whistleblowing and harassment, the right to guaranteed hours, and greater trade union access to workplaces. 

2. How Can Chinese Companies Prepare for the Changes?

Employers must plan ahead for the new rights being implemented across 2026 and 2027.

For Chinese companies new to the UK, understanding these obligations early is crucial, especially as many of the reforms increase litigation risk, documentation requirements and reduce flexibility in managing staff.

For existing Chinese companies, this means understanding the changes and reviewing and updating existing policies, contractual arrangements and current practices. Key areas employers should review include:

• Probation periods, KPIs and performance management
• Employment contract and benefit scheme terms
• Zero‑hours and low‑hours workers: auditing the current workforce (including agency workers) and practices around shift allocation, cancellation and monitoring working time
• Anti‑harassment policies and training
• Flexible working policies
• Systems for monitoring the number of redundancies across the business
• Anticipated trade union access requests and planning how to respond
• Settlement agreement terms, including confidentiality provisions

We also discussed several scenarios to demonstrate what could happen, how to deal with issues in practice, and the types of claims that may arise, including:

• Substantial future loss of earnings
• Failure to follow ACAS procedures
• Allegations of sexual harassment
• Compensation claims extending to two and a half years’ salary

The discussion highlighted a simple truth: strong commercial instincts do not replace the need for UK‑specific HR and legal processes.

3. What Chinese Businesses Often Struggle With - and How to Avoid the Pitfalls

Through our China Group and work with numerous Asia‑headquartered organisations, we consistently see recurring challenges.

Mismatched expectations

Communication styles differ. UK employment law requires clarity from the outset regarding:

• Performance objectives and standards
• Processes for addressing concerns
• What probation involves in practice

Limited paper trails

In China, issues may be managed informally. In the UK, clear processes and documentation are critical. A lack of written evidence can quickly weaken an employer’s position if a dispute arises.

Late engagement of legal advice

Seeking advice only after issues escalate often results in:

• Higher costs
• Limited strategic options
• Increased litigation exposure

The takeaway is clear: early advice provides greater control, better outcomes and fewer surprises.

4. Practical Steps for Success: Tips for Chinese Employers

Review employment documentation

• Review and update probation periods where necessary
• Ensure contracts accurately reflect employment terms and benefits
• Clearly set out expectations for each role

Recruit carefully and document thoroughly

• Use detailed job descriptions and person specifications.
• Request and check references early

Manage probation actively

• Make decisions before probation periods expire - a common risk area for China‑owned businesses

Strengthen performance management

• Use structured processes with clear KPIs and regular one‑to‑ones
• Maintain a strong paper trail to support decisions

Understand collective redundancy triggers

• Even small UK operations may fall within collective consultation requirements and the penalties for failure to comply are severe

Protect legal privilege

• Involve lawyers early to ensure sensitive communications remain protected

5. Building Stronger UK–China Teams

Cultural differences were a central theme of the session. UK employees often prioritise transparency, fairness and documentation, while Chinese management teams may emphasise trust, speed and flexibility. Neither approach is wrong — but misalignment creates risk.

To bridge the gap:

• Communicate expectations early and often
• Avoid assumptions based on cultural norms - ask questions, clarify expectations and seek legal advice
• Train UK managers and China‑based leadership on cultural differences

This approach forms the foundation of a resilient and engaged workforce.

Conclusion

The UK’s employment landscape is changing rapidly, becoming more regulated, more employee‑focused and more procedurally complex. For Chinese businesses entering or scaling in the UK, success will depend on early planning, strong documentation and a clear understanding of cultural expectations.

Our team at Howard Kennedy supports many China‑owned businesses with complex HR issues, UK expansion and cross‑cultural integration. With the right strategies in place, Chinese businesses can not only navigate these changes but thrive within them.

If you would like a tailored briefing for your leadership team or HR managers, or support with UK workforce planning and a one‑stop people solution covering employment, immigration, tax, rewards and data protection, please contact our China Group.