UK Employment – When can employees be terminated under ‘Up or Out’ Policies – and other updates

In this alert we cover the following need to know updates:

• Risks under Up or Out promotion models
• New guidance as to when Collective Redundancy Consultation is triggered
• Risks when inheriting staff under TUPE and Indirect Discrimination risks when inheriting staff on lower pay or benefits, and
• Important upcoming changes to UK employment law: Flexible Working Consultation, Employment Rights Act 2025, Gender Pay Gap Reporting & Action Plans.

‘Up or Out’ Policies: Pal v Accenture (UK) Ltd

This recent Employment Appeal Tribunal (EAT) case provides important guidance on the handling of ‘up or out’ policies. These are policies often seen in professional services firms, under which employees who are assessed as not ready for promotion within a set period may face dismissal.

The claimant, Ms Pal, was dismissed under Accenture’s ‘up or out’ model. The EAT held that her termination was potentially unjustified on grounds of capability (because her capacity to do the her current role, which was the job specified in her employment contract not the next level job to which she could have been promoted) and on the catch all ‘some other substantial reason’ (which again requires a justification based on the employee’s ‘position’). It was also potentially unfair based on lack of process – the employer did not have a policy to manage ‘up or out’ and instead relied on partially following its disciplinary policy.

The EAT acknowledged that an employment contract could, in principle, define required work as including the need to demonstrate readiness for promotion. However, the employer would still need to show that the dismissal was – in the circumstances – fair.

Practical Takeaways: 

Employers operating ‘up or out’ policies should proceed with caution. Template contracts may need updating to make clear that the role includes demonstrating promotion level capability or to incorporate separate ‘up or out’ career progression policies. These cases will become more expensive to contest – and settle – from January 2027 when the current cap on unfair dismissal compensation will be removed and the seniority requirement to qualify for this protection is reduced from 2 years to 6 months. As in the Pal case, employees can also bring in other issues such as breach of the disability adjustments duty.

Collective Redundancy Consultation: Micro Focus v Mildenhall

Under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), an employer has to carry out collective consultation when it is proposing to dismiss (as redundant) 20+ employees at one establishment within a 90-day period. This was previously understood to mean an employer needs to look both backwards and forwards across a 90-day period to assess whether it reached the 20-employee threshold.

In this case, the EAT found that – when assessing whether this threshold is met - employers only need to consider their future plans at the date in question. For example, if an employer proposes and carries out 15 redundancies and then, two months later, proposes a further 10 redundancies, it was not actually – at any one time - proposing 20 or more redundancies. Therefore, no collective consultation requirement will have been triggered under section 188 of TULRCA.

Practical Takeaways:

Although helpful, employers should expect scrutiny where dismissals appear to have been deliberately staggered to avoid the 20-employee threshold being met. Where 20 or more dismissals occur within 90 days in batches, an employer should make sure it can show when and how its plans changed to add the extra terminations.

This guidance is particularly timely given that, from 6 April 2026, the protective award for failure to collectively consult will double from 90 days' pay to 180 days' pay per affected employee.

TUPE and Indirect Discrimination: Anne & Others v Great Ormond Street Hospital

Although the facts of this case were unusual they raise an important new consideration for employers involved in transactions or reorganisations where they take on staff under TUPE (the UK legislation under which employees change employer automatically on the transfer of an ‘undertaking’).

The EAT upheld claims of race discrimination brought by a group of 80 cleaners of BAME (black and minority ethnic) background who transferred by way of TUPE from an outsourced contractor to be directly employed by the client the contractor had provided services to, an NHS Trust.

Following the transfer of their employment, the claimants remained on the London Living Wage rates (which were the rates paid to them by the contractor pre-transfer) pending consultation regarding harmonisation with the NHS Trust’s usual terms and conditions, rather than being moved immediately to the Trust's higher pay structure.

The EAT found that, by not immediately transferring the claimants to the higher rate of pay upon transfer, they had been treated differently to other employees of the NHS Trust for some time. Although the employees who have transferred across had no contractual right to the higher rate of pay the EAT held that the employees – who were predominantly of BAME background - were a disproportionately disadvantaged group and so disadvantaged because of their race.

It was found that there was no objective justification for maintaining the pay differential (even for a period of time pending consultation), particularly as the employees' contracts permitted reasonable changes to terms.

Practical Takeaways:

‘Day 1’ harmonisation of pay (i.e. immediately upon TUPE transfer), may be necessary, particularly where pay differentials may disproportionately affect protected groups (based on race, gender, age, or another protected category). However, where contracts do not allow for unilateral changes to employee contracts there may be scope to delay harmonisation.

Flexible Working Consultation

Under the Employment Rights Act 2025 (ERA), employers will from 2027 (exact date still to be confirmed) only be able to refuse a flexible working request where the refusal is ‘reasonable’.

Using powers under the ERA, the government also intends to require a specific process for handling flexible working requests. In February 2026, it launched a consultation on the proposed process, which would require employers to:

• hold a meeting with the employee without unreasonable delay (and within six weeks of the request);
• ensure the meeting is attended by a decision maker with appropriate authority;
• keep a record of the discussion;
• engage meaningfully with the employee about the request and any alternatives;
• clearly explain any concerns, including the statutory grounds for refusal;
• seek to resolve issues where possible, including by using trial periods where the impact of the request is uncertain; and
• provide a written record of the meeting and a written outcome to the employee.

The consultation is open until midnight 30 April 2026. Employers and other stakeholders are encouraged to submit their views. The new process and requirement for ‘reasonableness’ will require employers to document both their processes and the reason for their decisions.

Employment Rights Act 2025 – Recent and Upcoming Implementation

A number of new laws introduced by the ERA came into force on 18 February 2026:

• Paternity leave and ordinary parental leave: this will become a ‘day one’ right for employees from 6 April 2026. However, from 18 February 2026, employees have been able to give advance notice of the leave that they will be entitled to take from 6 April 2026.
• Trade union activity: the time required to give notice of industrial action has reduced from 14 days to 10 days; industrial action and ballot notices have been simplified; picket supervisors are no longer required to monitor picket lines; industrial action strike mandates have been extended from 6 to 12 months.
• Trade union ballots: the support threshold for industrial action has been removed for the public sector.

From 6 April 2026, a number of other new laws will take effect, including:

• Maximum protective award: the maximum penalty for failing to conduct proper collective redundancy consultations will double from 90 days’ pay to 180 days’ pay per affected employee.
• Sexual harassment disclosures: will amount to protected disclosures for the purposes of whistleblowing protection (subject to other, existing, requirements of a protected disclosure having been met).
• Paternity leave and ordinary parental leave: will become a ‘day one’ right for employees. Currently, there are continuous service requirements of 26 weeks and one year, respectively.
• Statutory sick pay: will be payable from the first full day of sickness absence and workers will not need to earn a minimum amount to be eligible.
• Fair Work Agency: is set to be established (7 April) and is intended to be a single labour market enforcement body. The Fair Work Agency will take on a number of responsibilities from existing bodies and will seek to enforce minimum wage, holiday pay and statutory sick pay breaches, as well as other employment law-related breaches.

Employers should ensure their company policies and protocols are updated in line with the recent and upcoming changes and be satisfied that their approaches to statutory payments can be robustly defended if challenged by the Fair Work Agency.

Gender Pay Gap Reporting & Action Plans

In March 2026, the government published guidance on gender equality action plans for large employers (those with 250 or more employees). These will be voluntary from April 2026 and mandatory from spring 2027.

In accordance with the ERA, the action plans will accompany gender pay gap reports and will need to set out the steps an employer is taking to (i) reduce the gender pay gap in the organisation; and (ii) support employees experiencing menopause. The guidance provides a helpful steer on how this may be achieved and the expectations on large employers in complying with the future requirements.

The guidance includes a list of recommended actions for employers to consider and implement. The list is divided into categories and sub-categories, with specific guidance available for each of the sub-categories. For example, under 'Recruiting staff', suggested actions include making job descriptions inclusive, encouraging applications from diverse candidates, reducing unconscious bias in CV screening, using structured interview techniques, and advertising leave and flexible working policies. There is guidance for each suggested action.

Given the 2026 gender pay gap reports need to be submitted by 4 April for private sector employers, it is likely many employers will have already submitted their reports and/or will not have time to prepare and submit a gender equality action plan in advance of the gender pay gap reporting deadline.

We recommend employers review the guidance now to prepare for the 2027 mandatory requirement. A voluntary 2026 submission could be a useful practice exercise or, where that is not possible, an internal-only 2026 action plan (not published) could serve a similar purpose.