Employment Rights Bill unveiled

Labour promised it would introduce legislation to reform employment law within 100 days of entering government. It has now published its Employment Rights Bill (on day 98) and – as many of us predicted – this self-imposed deadline has resulted in compromises and fudges.  Some measures have not made it into the Bill, others need fleshing out through consultation and accompanying regulations and the government is at pains to reassure businesses that most reforms (including those to unfair dismissal) will not actually take effect until 2026.

Alongside the Bill, Labour has published a Next Steps document outlining what’s in the Employment Rights Bill and the reforms it will look to implement in future.

Here are the key highlights.

Rowing back on unfair dismissal

Employees will have a new right not to be unfairly dismissed from day one. However, there will be a light touch procedure for dismissals during an ‘initial period’ which are shown to be for poor performance, misconduct, capability or some other substantial reason relating to the employee.

The exact nature of the ‘light touch’ procedure is still to be defined – but the Next Steps document says it could consist of simply holding a meeting. Press leaks around the Bill had suggested the emphasis would be on providing a letter (rather than holding a meeting) but this does not feature in the Bill.

The light touch process appears not to apply to redundancy dismissals.  At first glance, there may be questions about why employers should go through a longer, more difficult, process to make a new hire redundant. Presumably the rationale lies in the fact that such a dismissal is not the employee’s fault. 

The length of the ‘initial period’ is also to be decided after further consultation but the government’s current preference is nine months. The termination date could then be up to three months after the initial period, as long as notice is given during the initial period, meaning that the light touch procedure can effectively apply to the employee’s first year.

There may also be a lower compensation regime for unfair dismissals in the initial period – the Next Steps document says that the government intends to consult about this.

The document also makes clear that these changes won’t take effect until Autumn 2026 and, until then, the current two-year qualifying period remains in place. Substantial further consultation is expected between now and then, and major questions remain about the compensation regime, the procedure that will need to be followed and the extent to which employees can challenge the reasons they are given for dismissal. Is it enough just to tell an employee they are a poor performer, or do employers have to prove this? Could the employee bring a claim to determine the ‘real reason’?

There can be no doubt this amounts to a rowing back from the original plans in relation to day one unfair dismissal rights. While this still represents a major change to employment law, and a shift significantly in favour of the employee, it is difficult to assess the full impact without seeing what emerges through consultation. Some employers will question if they should change the length of contractual probationary periods, although there will be no need to do so, and it is too soon to make changes before we have further details.

Stronger laws against harassment – including from third parties

The Bill strengthens the new duty to take “reasonable steps” to prevent sexual workplace harassment coming into force later this month, stretching it to a duty to take “all” reasonable steps. What amounts to “all reasonable steps” will be set out in regulations. On the face of it, this puts the compliance bar much higher, as employers will need to show they have taken every reasonable step towards preventing sexual harassment. Much depends, however, on how this is interpreted by tribunals and whether it will be enough to follow current Equality and Human Rights Commission guidance.

Separately, the Bill would make employers explicitly liable for permitting a third party to harass an employee, if harassment happens in the course of employment and the employer did not take all  reasonable steps to prevent this. The Equality and Human Rights Commission takes the view that the sexual harassment preventative duty already covers third party harassment, but this can only be enforced by the EHRC whereas the Bill would give workers the right to claim compensation for third party sexual harassment. Importantly, the Bill also makes employers liable for harassment by third parties on any ground – not just sexual harassment.  

In short, the third-party harassment measures amount to a very material shift, which puts heightened importance on complying with the new preventative duty when it comes into force later this month.

Collective rights boost

As expected, the Bill includes a raft of changes designed to make it easier for trade unions to gain access to workplaces, secure statutory recognition and take industrial action in the event of a dispute. The Bill simplifies the recognition process by lowering membership thresholds and removing certain support requirements. Additionally, it requires employers to inform workers of their right to join a trade union, repeals restrictive legislation on strikes and paves the way for electronic balloting

Whether unions themselves are ready to capitalise on these reforms and attract sufficient workforce support remains to be seen, but the reforms will undoubtedly make it easier for unions to secure statutory recognition, including in workforces that are largely apathetic.

Collective redundancy consultation trigger change

Under the current law, employers proposing 20+ redundancies “at one establishment” within a period of 90 days must go through a process of collective consultation before making any redundancies. The Bill removes references to "at one establishment” meaning that employers would need to count redundancies across all sites/workplaces. More redundancy exercises will fall within the scope of collective consultation requirements and employers are going to have to find a way of keeping a close track of redundancy proposals across multiple sites.

The Next Steps document suggests that the government may be open to increasing the protective award for failing to collectively consult, which would materially increase the risks associated with not handling redundancy processes in line with these requirements.

Fire and rehire possible in only very limited circumstances

The Bill makes it automatically unfair to dismiss an employee for refusing to agree a change in terms, or to replace them with another employee on varied terms to carry out substantially the same role. There will be a very limited exception where the business is in financial distress (the details will be consulted on) but it’s clear that the Bill will severely restrict an employer’s ability to change contractual terms without employee buy-in.

No outright ban on zero-hours contracts – but tough rules on guaranteed hours

The Bill does not seek to ban ‘exploitative’ zero-hours contracts, as had been expected. This is, however, presumably the intended net effect of a range of provisions, including the introduction of a new requirement to offer guaranteed hours to a worker on a zero-hours or ‘low hours’ contract.

These new rules are complex, but the concept that employers must offer guaranteed hours is potentially concerning – since not all employees will want them. The offer will need to be repeated after the end of every reference period - which is not defined, but a period of 12 weeks has been mentioned previously. Employees can, of course, decline the offer (or not respond) but the offer must be made regardless, which (if nothing else) increases the administrative burden on employers. It’s currently unclear how seasonal variations will be accommodated. The operational details will need to be fleshed out in further regulations which will be subject to consultation. The rules currently don’t apply to agency workers but the government has reserved the right to introduce similar legislation covering them.

Employers who rely on very flexible workforces will be left with more questions than answers from these sections of the Bill.

The Bill also introduces a right to reasonable notice of a shift an employee is required to work, including the time, day and how many hours are to be worked. This duty will apply to workers employed on a zero-hours or minimum hours basis, as well as workers who do not have a set working pattern. There is also a right to reasonable notice of any change or cancelled shift. What is ‘reasonable’ notice will depend on the circumstances, but regulations will set out a specific minimum time.

Stronger flexible working rules but no extra penalties

The Bill requires any refusal of a flexible working request to be reasonable, but the eight permitted business reasons for refusing a flexible working request will remain the same. There is no change to the penalty, which remains 8 weeks’ pay, capped at (currently) £5,600. The introduction of a reasonableness test is a material change. The relatively low penalty means that it is not ground-breaking, but the change will make it easier for employees to challenge any refusal to allow flexible working and, in the current climate, that seems likely to increase the number of disputes.

Gender pay gap reporting tweaks

The Bill requires employers to publish action plans for closing their gender pay gaps (many already do). It also introduces a new requirement on employers to identify the providers/employers of contract workers when publishing their gender pay reports. Presumably the idea behind this second measure is to allow concerned stakeholders to assess whether an employer’s pay gap is artificially lowered by the usage of contract workers and/or to investigate the provider’s own wage gaps.  Employers won’t need to go as far as to include contract workers in their pay gap calculations, but the requirement to compile a list is going to make gender pay gap reporting into a bigger exercise.

The Bill does not introduce compulsory ethnicity and disability pay gap reporting. The government still intends to extend the regime to cover disability and ethnicity – but that is happening later down the line as part of new legislation expected later in the parliamentary session (probably next year).

Day one family rights but wider review coming later

As expected, the Bill removes the existing service requirements for paternity and parental leave, making these into day one rights. This signals that taking family leave is normal, and arguably removes barriers to new parents switching jobs, but is not a radical move.  There will be a new right to at least one week’s bereavement leave (details to follow in regulations) and consideration given to whether paid carer’s leave should be introduced.

A wider review of the UK’s overly-complex family leave system still looks likely to be scheduled later in the first year of the government’s term.

The Bill also contains a power for the government to introduce stronger protections against dismissal for pregnant employees and family returners, but the details are left for further regulations.

According to press leaks before the Bill was published, the government was planning to change statutory maternity pay rules so that pregnant new hires would have the right to statutory maternity pay if they started a new job at any time up to six months into their pregnancy (improving on the current position which is that an employee must effectively start work before becoming pregnant to qualify for SMP). However, curiously, the Bill is silent on this.

More to come on equal pay

The government’s Next Steps document confirms that the government still plans to extend the equal pay regime to cover race and disability, and intriguingly says that it will set up a “regulatory and enforcement unit” for equal pay.  This may be a public body with powers to pursue claims which are notoriously difficult, costly and time consuming for individuals.

Statutory sick pay from day one of sickness

Currently, statutory sick pay is payable from day four of sickness, and employees need to be earning above £123 per week to qualify. The Bill scraps the waiting period so that SSP will become payable from day 1 of sickness and removes the lower earnings limit. These reforms are likely to happen relatively fast.

Single enforcement body with teeth

The Bill creates a new state enforcement agency, likely to be called the Fair Work Agency. Initially, this will combine the Employment Agency Standards Inspectorate, the Gangmasters and Labour Abuse Authority and HMRC’s National Minimum Wage Enforcement Team and gain a remit over enforcement of holiday pay. It will not - at least initially - take over enforcement of discrimination law, family rights, the new rules about guaranteed hours or any other area of employment law. However, the Bill gives the government broad powers to extend the Fair Work Agency’s remit to cover other employment rights.

The Bill sets out a range of enforcement powers, including powers to appoint enforcement officers, require individuals to provide information and enter business premises to get documents. This could be a big change towards more state enforcement of employment rights. The new agency will, to some extent, be generating revenue (by recovering taxes on unpaid wages and holiday pay) but much depends on whether it will get sufficient government resources to be effective. 

Most of the reforms are not happening quickly……

The government does not expect to begin detailed consultations until 2025, seeking significant input from all stakeholders. This means that most reforms will not happen until 2026. The Next Steps document makes clear that unfair dismissal reform will definitely not take effect sooner than Autumn 2026. 

The most notable exceptions relate to sick pay and the trade union reforms that return the law to its position when Labour was last in power such as repealing minimum service levels and certain strike requirements, which are expected to come in much sooner.

….and single worker status and right to disconnect are not in the Bill

The right to disconnect has not made it into the Bill at all. Instead, the government plans to create a new Code of Practice after further consultation, expected to start some time next year.

Labour has been committed to abolishing the three-tier framework for employment rights for years but, despite this consistent position, this has proved to be another thorny issue which is so difficult to address that it has been left out of the Bill altogether. Instead, the Next Steps document makes clear that the government will start consulting with a view to eventually moving towards a single worker status, abolishing the distinction between workers and employees.

Conclusion

Some major concessions and a bit of fudging has gone on to get the Bill over the line in time to meet the government’s self-imposed deadline and to avoid deterring employers from taking on new staff at a critical time for the UK economy. The result is probably more of a balance between employer and employee interests.

Many of the Bill’s most-publicised measures aim to improve the position for people on casual and low paid contracts (day one sick pay, removal of the lower earnings limit for sick pay and right to guaranteed hours). Some measures (reform to paternity and parental leave) will be important for people looking to change jobs while starting a family. The bigger changes for most employers, however, are around unfair dismissal, sexual harassment, collective redundancies, flexible working, fire and re-hire and collective rights.  While the government has rowed back from full day one unfair dismissal rights, the Bill still marks the start of a generational shift in employment law, and inevitably increases the scope for grievances and disputes, even with people who’ve only worked in a job for a short time. 

In terms of practical steps to prepare, however, there is little employers could – or should - currently do. The Bill will now start its journey through parliament and may be subject to various amendments – in fact (and in a sign of how rushed the Bill was) the government has already said it’s likely to want to add some amendments of its own. When the Bill is passed and the consultation documents are published, things may become clearer but – at least for now – it’s still mostly a case of wait and see.

We will be setting out all the key planned reforms in our Employment Rights Bill dashboard and will be commenting in more detail over on our Labour policy impact hub.