The Employment Rights Bill was a key pillar of the Government's election manifesto and proposes significant changes to UK employment law that will have a huge impact on business owners.
Key changes
Unfair dismissal: The two-year qualifying period for ordinary unfair dismissal claims will be repealed. However, the requirements for a fair dismissal will be modified during the "initial period of employment" (effectively the probation period), if the dismissal is for conduct, capability, a substantial reason relating to the employee or because their employment is unlawful (e.g. if they don't have the right to work in the UK). The Government is to consult on the length of the probation period, although it has stated that its preference is nine months.
Extending the limitation period: The Government has proposed extending the limitation period for most Employment Tribunal claims from three to six months. Doubling the length of the period will almost certainly result in more claims, particularly from claimants who struggle to access legal advice and must rely on the Citizens Advice Bureau or free advice clinics.
Fire and Rehire: The Bill would make it automatically unfair to dismiss an employee because they refused to accept varied contract terms or to replace them with another employee on the varied terms, except where the employer can show that:
• The purpose of the variation was to eliminate or substantially reduce the financial difficulties threatening the business's viability; and
• The employer could not reasonably have avoided the need to make the variation.
Effectively, fire and rehire will be unlawful in all but the direst financial situations.
Zero-hours contracts: Although the bill falls short of an outright ban on zero hours contracts, it creates a new duty for employers to offer staff on zero hours contracts/arrangements (or those with a low number of guaranteed hours, with the threshold to be confirmed) a guaranteed hours contract which reflects the hours they have actually worked in a reference period. These rights will be complex for employers to manage.
The Bill also creates rights for these staff to be given reasonable notice of shifts (or cancellation, curtailment or movement of shifts) and to payment of reasonable compensation for cancellation, curtailed or altered shifts. The minimum length of notice and compensation payment will be set out in regulations.
Collective redundancies: Employers proposing to make 20 or more redundancies in a 90-day period at one establishment are obliged to carry out collective consultation with employee or union representatives. According to case law, “establishment” means the entity to which employees are assigned; in practice, this often means a branch/store for multi-site employers such as retailers. As a result, employers making 19 or fewer redundancies at one site are often not caught.
The Bill deletes the words “at one establishment”, meaning that employers will need to aggregate the number of redundancies across sites when assessing whether they need to consult collectively. As the 90 day period is backwards-looking as well as forwards-looking, and the penalties are significant (starting at 90 days' pay per affected employee) this will create major headaches for large employers.
Trade Unions: a wide range of changes, including a requirement for all workers to be given a statement of their right to join a union along with their written contract, and rights for trade unions to request access to the workplace to recruit members and facilitate collective bargaining.
Harassment: the preventative duty regarding sexual harassment (which came into force on 26 October) will be converted to a duty to take all reasonable steps, which will be harder for employers to comply with. Regulations will set out the steps to be regarded as reasonable.
Employers will be liable for acts of third-party harassment (not limited to sexual harassment) against their staff, unless they took all reasonable steps to prevent such harassment. Again, this will have a major impact in customer-facing environments.
Family leave: A new right to bereavement leave will be created (building on existing provisions for parental bereavement leave). Parental and paternity leave will be “day one” rights and employees will be able to take paternity leave following a period of shared parental leave. There will also be additional protections against dismissal during and after pregnancy, and after a period of maternity, adoption, shared parental, paternity or neonatal care leave.
Statutory Sick Pay will be payable from day one of absence and the lower earnings threshold will be removed.
Tips: There will be additional duties for employers to consult staff about their policy for distributing tips and review the policy every three years.
Enforcement: There will be a new “Fair Work Agency” taking over labour market regulation from various existing agencies. The new agency will have wide-ranging powers of entry and access to documents, but it remains to be seen how much budget will be allocated.
When will the proposed changes come into effect?
The changes will be consulted on during 2025, with a view to them coming into force no earlier than 2026. The changes to unfair dismissal will not come into force until autumn 2026, to give employers time to prepare.
What can business owners do to prepare for these changes?
• Review template employment contracts particularly the probation, flexibility and variation clauses, to prepare for the incoming changes.
• Review hiring practices and introduce additional assessments of prospective candidates to reduce the chance of hiring employees who then need to be terminated for poor performance. Businesses will need to manage performance and conduct of new hires much more closely.
• Implement preventative measures such as training, reviewing and updating policies and ensuring that complaint mechanisms are working effectively to reduce the chance of sexual harassment and promote effective reporting mechanisms.
• Implement monitoring systems to track the number of redundancies the business proposes to make to confirm whether collective consultation obligations will be triggered.
• Bear the new proposed obligations in respect of collective consultation in mind when planning large reorganisations across multiple different sites.
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