An early Christmas present or coal in your stocking? The Employment Rights Bill finally passes

After months of wrangling and some dramatic last minute changes, the Employment Rights Bill has finally been passed and will now receive Royal Assent.   We're still waiting for numerous consultation papers which will flesh out the detail, but the basic framework of the Act is clear. 

To recap, the key changes are as follows:

Unfair dismissal:   Employees who have 6 months' continuous service will have the right to claim unfair dismissal (a significant reduction from the current two year period).   Importantly, the cap on compensation for unfair dismissal has been lifted.   This means that employees will no longer be limited to the lower of 52 weeks' pay or a maximum figure (currently £118,223).   Instead, compensation will need to be assessed in each case based on the employee's losses.   This will have a major impact on the costs of termination for highly-paid staff or those with valuable benefits such as stock options, defined benefit pensions or insured benefits such as PHI and critical illness cover (where there is a significant chance that the employee would have been in a position to claim those benefits). 

This is due to come into force on 1 January 2027. 

Collective redundancies:  The Bill makes it possible for the Government to introduce a new threshold for collective redundancy consultation requirements to apply where the redundancies are not all at one "establishment" – so this will affect multi-site redundancies.   The maximum "protective award" which a Tribunal can require an employer to pay where it has breached the requirements is to be doubled from 90 to 180 days' pay per employee.   We are awaiting a consultation setting out further details of these proposals.  These changes were due to come into force in April 2026, but given the need to consult about the proposals this may be pushed back. 

Fire and rehire and fire and replace

It will now be automatically unfair to dismiss an employee for refusal to agree to a "restricted variation" to their employment contract (including changes to pay, hours, pension and time off) unless the employer is in dire financial straits, or in order to replace them with a self-employed contractor, agency worker or other non-employee.  This is due to come into force in October 2026 (but this may change). 

Guaranteed hours 

Zero hours workers, workers with a specified number of minimum hours and agency workers will have the right to be offered a guaranteed hours contract, to receive reasonable notice of shifts, shift cancellations and shift changes and to receive compensation for cancelled shifts.   This is arguably the most complex aspect of the Bill and we are still awaiting key details of how precisely this will work.   It is currently due to come into force in 2027, but the precise date is unknown.   

Other changes

The Bill introduces a host of other changes, due to come into force over the next 2 years.   It remains to be seen whether this timetable will change. 

Immediate measures

Some changes to trade union law will come into force as soon as the Bill gets Royal Assent, including relaxation of balloting and notice requirements for industrial action and enhanced protections against dismissal for taking industrial action.

April 2026

The following further changes are due to come into force in April 2026 

• Day 1 paternity leave and unpaid parental leave: Introduction of these rights from the first day of employment.
• Whistleblowing: Specifying that disclosures related to sexual harassment are protected disclosures under whistleblowing law
• Fair Work Agency: Establishment of a new labour law enforcement body
• Statutory sick pay: Removal of the Lower Earnings Limit and waiting period.
• Trade union recognition: Simplification of the statutory recognition process for trade unions
• Electronic balloting: Introduction of electronic balloting for trade unions.

October 2026

• Tipping policies: requiring employers to consult with employees about their written tips policy.
• Trade union information and access rights: Duty on employers to inform workers of their right to join a trade union, and introduction of workplace access agreements for trade unions.
• Sexual harassment: Employers will be required to take “all reasonable steps” to prevent sexual harassment and harassment of staff by third parties.  There will also be changes to the enforceability of non-disclosure agreeements (including confidentiality clauses in settlement agreements), so that they will not prevent disclosures about harassment or discrimination, or an employer's response to such allegations.
• Employment Tribunal time limits: Extending time limits for bringing claims from 3 to 6 months.
• Industrial action protections: New protections against detriments for taking industrial action (or to deter the worker from doing so).
• Fair Pay Agreement: Establishment of the Adult Social Care Negotiating Body.
• Procurement Two-Tier Code: regulations relating to contractual terms for workers on outsourced public contracts.

2027 - precise date TBC

The following reforms are due to be introduced in 2027: 

• Gender pay gap and menopause action plans: Introduction of mandatory action plans for larger employers.
• Pregnancy-related rights:  enhanced protection against dismissal for pregnant employees.
• Sexual Harassment: Further regulations specifying reasonable steps employers must take to comply with the preventative duty.
• Blacklisting: Strengthening of the trade union blacklisting laws, to include blacklists generated by AI or by third parties.
• Umbrella companies: Umbrella companies to be regulated similarly to employment businesses.
• Flexible working:  a requirement that any refusal of a flexible working request must be reasonable.
• Bereavement leave: Introduction of bereavement leave rights.

After a long period of uncertainty, employers will need to focus on these issues promptly and ensure that contracts, policies and HR practices are updated to reflect the new employment law landscape.