The Employment Rights Bill – What Can We Expect?

The Labour government introduced the Employment Rights Bill (“the Bill”) on 10 October 2024 and notwithstanding the geopolitical diversions, it has been steadily making its way through the parliamentary process.

Having completed its scrutiny and amendment by the House of Commons, it has had two readings in the House of Lords and is currently at the Committee stage which is due to commence on 29 April 2025.

Given that progression to date, it is not anticipated that significant changes will arise, although there will be further consultation after Royal Assent of the Bill and before the drafting of substantial secondary legislation which will detail some of the finer aspects of the changes. On current running, the Government expects it to take effect from 2026. With that in mind, we consider the significant changes which are likely be introduced by the Bill.

Removal of the two-year qualifying period for Unfair Dismissal

Currently, employees have to work for their employer for 2 years before they have a right to bring a claim for unfair dismissal, save for some ‘automatically unfair’ reasons (for example, whistleblowing claims).

The Bill will remove the 2 year qualifying period meaning everyone will be protected against unfair dismissal from day one of employment, but the Bill will introduce a statutory probationary period which it is suggested would be for a period of 9 months (which will be the subject of further consultation). During that probationary period, a ‘less onerous process’ for dismissal will apply where someone is ‘not right for the job’.

If someone is dismissed within the statutory probationary period because they are ‘not right for the job’, and they bring a successful claim before the Employment Tribunal, it is suggested that the ‘cap’ on the compensation that the Tribunal could award will be lower than the ‘usual’ cap on compensation for unfair dismissal (currently £118,223).

Employers will be able to have contractual probationary periods which are longer than 9 months, but if there is a dismissal after 9 months, the ‘less onerous process’ will not apply and employers will have to operate as they do now for those with over 2 years’ service.

It is also proposed that employers must provide written reasons for dismissal upon request after the statutory probationary period or after 3 months if notice was given during the statutory probationary period, and the process will not apply where the dismissal is for reasons unrelated to the individual, such as redundancy.

The Government has stated that there will be extensive consultation surrounding this proposal which will include how this will interact with the ACAS Code of Practice on Disciplinary and Grievance Procedures.

Employment Tribunal claims time limits

The time limit for bringing the majority of claims in an Employment Tribunal will be increased from three to six months.

The Government’s intention with this increase is to reduce the pressure on the Employment Tribunal system by giving the parties a longer opportunity to resolve disputes.

Flexible working

The Bill will amend the current flexible working regime to provide that an employer may only refuse a request for flexible working where it is ‘reasonable to do so’ on one of the eight specified grounds on which it can refuse a request for flexible working and the employer has to explain why the decision is reasonable.

Statutory Sick Pay (“SSP”)

The Bill will amend the current SSP rules to provide that it will be payable from day one of any sickness and then payable for the first three qualifying days of sickness; at the moment, SSP is payable from day four of sickness.

The Bill will also remove the requirement for employees to be earning the ‘lower earnings limit’ meaning all employees will be entitled to SSP although those earning below the lower earnings limit will be entitled to sick pay at the rate of 80% of their average weekly earnings. This measure aims to reduce the number of people going to work when unwell, and the spread of infections in the workplace.

Harassment protection

The Bill strengthens the duty on employers to take steps to prevent sexual harassment in the workplace which was introduced in October 2024.

The Bill will require employers to take all reasonable steps (as opposed to the current obligation to take ‘reasonable steps’) to prevent sexual harassment and introduces a power for the Government to specify the steps which would be regarded as ‘reasonable’; these are likely to include:

• Carrying out assessment of a specified description
• Publishing plans or policies of a specified description
• Steps relating to the reporting of sexual harassment to ensure effective reporting
• Steps relating to the handling of complaints
• Undertaking risk assessments
• Engaging and training staff
• Evaluating all steps taken on a regular basis.

However, the obligation on the employer will be to take the specified steps as well as all other preventative steps that it is reasonable for them to take in the particular circumstances.

The Bill will also amend the list of what amounts to a protected disclosure (currently including a criminal offence, breach of a legal obligation, endangering someone’s health and safety etc) to specifically include reporting sexual harassment.

Harassment by Third Parties

The Bill will extend the current protections from harassment under the Equality Act 2010 in respect of all protected characteristics (age, disability, gender reassignment, race, religion or belief, sex and sexual orientation) to protection from harassment by third parties. The employer will have to demonstrate that it took all reasonable steps to prevent third party harassment of its employees. The policy guidance makes it clear that employers will not be penalised for failing to anticipate the unforeseeable or take other impractical steps; the requirement will be for employers to do what is reasonable and it recognises that the steps that an employer can reasonably take in respect of the actions of third parties are more limited than the steps an employer could take in respect of their employees.

Fire and Rehire

Where an employer wants to make any changes to an employee’s contract of employment, to introduce those changes it needs to reach agreement, one process used by employers to introduce such changes, is to ‘fire and rehire’. This is where, after full and meaningful consultation, an employer will terminate the employment contract of the relevant employees and offer to immediately rehire them, with no break in their continuity of service, on the revised terms. If an employee refuses to be rehired, the employer can deploy the fact of the consultation process, the business reasons for needing to introduce the changes and the offer to rehire as a ‘defence’ to any unfair dismissal claim that may then be brought by the employee.

This Bill will restrict an employer’s ability to use fire and rehire. It will change the law on unfair dismissal by providing that if the dismissal arising from a failure by the employee to agree to a change in their contract of employment, those dismissals will be ‘automatically’ unfair unless the employer can show:

• evidence of financial difficulties that were affecting, or were likely to affect, their viability;
• the changes were to eliminate, prevent, significantly reduce or significantly mitigate the effects of those financial difficulties; and
• the need to make the change in contractual terms was unavoidable.

If the employer meets the above test, the Tribunal will then assess if the dismissal was fair in the circumstances, and it will take into account whether there were consultations and if the employee was offered something in return for agreeing the variation.

Bereavement Leave

There is currently no right for employees to take bereavement leave save for parents who lose a child from 24 weeks until the age of 18. The Bill therefore creates an entitlement to Bereavement Leave which will apply from day one of employment following the death of a loved one. Regulations will be drafted to set out the length of such leave (a minimum of one week), the period of time within which it must be taken (at least the period of 56 days after the person’s death) and the relationships with the deceased which will be covered.

Currently, there is not suggestion that this will be paid leave; it deals with the question of leave only.

Paternity and Unpaid Parental Leave

Employees are currently required to work for their employer for 26 weeks before they are entitled to paternity leave and for a year before they are entitled to Unpaid Parental Leave.

This Bill will remove those time bound requirements and give employees the right to give notice of their intent to take leave from day one of employment. The Bill will also remove the restriction on taking paternity leave after taking shared parental leave and the Government has confirmed that in addition to these changes to paternity leave, it has committed to undertaking a wider review of the parental leave entitlements.

Strengthening collective redundancy rules

Collective Consultation obligations currently arise where an employer proposes to dismiss 20 or more employees from one establishment (usually a particular office location) over a 90 day period. If it fails to do so, the employer can be liable to pay each employee affected up to 90 days gross pay for that failure (known as the protective award).

The Bill proposes to amend these provisions to provide that collective consultation will apply where 20 or more redundancies are proposed over 90 days, across the whole business, and not just at one ‘establishment’. Further, it will increase the protective award from 90 days to 180 days gross pay.

Gender Pay Gap Reporting and Outsourcing

Currently, employers with 250 or more employees are required to publish data on their Gender Pay Gap on an annual basis. It is ‘just’ a reporting obligation, but the Bill intends to introduce requirements for employers with more than 250 staff to report on the ‘evidence based actions’ they are taking to improve gender equality, and to support employees during the menopause. The Government will provide employers with information and guidance about effective actions and appropriate actions to take.

The Bill will also require employers to name who they received outsourced work from in their gender pay gap reporting.

Enhanced Dismissal Protections for Pregnant Women and New Mothers

Currently, pregnant women and new mothers have enhanced protections against redundancy over their ‘protected period’ (from date of pregnancy to 6 months after returning to work). There are also protections against dismissal for a woman because of her pregnancy or because she has or is about to take maternity leave or due to pregnancy related ill health. Those dismissals are automatically unfair.

This Bill intends to create further protections for pregnant women and new mothers by making it unlawful to dismiss pregnant women and mothers on maternity leave (or within 6 months after their return to work) save in specified circumstances. Further detail of those ‘specified circumstances’ is awaited as is the question of whether or not this protection will be extended to those on adoption leave or shared parental leave.

Public Sector Outsourcing (Protection of Workers)

This Bill intends to introduce measures to protect employees where the public sector outsources a service contract, as a result of which, employees transfer from the public sector to the private sector service provider, resulting in a ‘two tier’ workforce where the private sector employees have worse terms and conditions than the public sector employees.

The Government intends to introduce requirements where the public sector outsource contracts to the public sector, for the contracting authority to include model contract clauses in their outsourcing contracts which will prevent employees of the private sector supplier who are performing the same tasks to not be treated differently by the private sector employer in respect of their terms and conditions.

Tips and Gratuities

The Employment (Allocation of Tips) Act 2023 came into effect on 1 October 2024 which made it mandatory for all tips, gratuities and service charges that employers have “control or significant influence” over, to be passed on to workers in full.

Where qualifying tips, gratuities and service charges are paid (save where payment is on an occasional or exceptional basis), the employer must have a written policy on how it deals with tips and the statutory Code of Practice provides guidance on the fair and transparent distribution of tips and encourages (but does not mandate) consultation with workers.

The Bill will make it mandatory for employers, when developing their tipping policies, to consult with workers at the place of business and will require the employers to review the policy on tipping at least once every three years. Employers will be required to make an anonymised summary of the views expressed in the consultation which should then be available to all staff.

If an employer fails to consult properly with their workers, the workers will be able to present a complaint to an employment tribunal and a tribunal could make an award of compensation to those staff of up £5,000 for financial loss sustained by the worker and attributable to the employer’s failure.

Trade Unions and Industrial Relations

The Bill will repeal the current legislative framework relating to trade unions and their recognition under the Trade Union Act 2016 and the Strikes (Minimum Service Levels) Act 2023 and introduce alternative provisions designed to update existing trade union legislation and ‘reset’ industrial relations between unions, employers and workers.

Enhanced entitlements for paid time off work for undertaking union duties will be introduced and it will update the rules on blacklisting to broaden the scope of those covered by the protections and will cover lists compiled for non-discriminatory reasons which are subsequently used for discriminatory purposes.

The rights and protection for individuals engaged in union activities or industrial action will be widened and will explicitly protect against suffering a detriment as well as dismissal.

The Bill will also introduce a legal duty for employers to inform their workers about their right to trade union membership by means of a written statement to be provided at the same time as the particulars of employment under Section 1 of the Employment Rights Act 1996.

Currently, where an employer refuses to recognise a trade union voluntarily, that union can apply to the Central Arbitration Committee (CAC) for statutory recognition. This Bill will simplify that process, to include removing the requirement for a union to have at least 40% of the workforce in the proposed bargaining unit.

Umbrella Companies Regulation

Employment Agencies and Employment Businesses are currently regulated by the Employment Agencies Act 1973 and the Conduct of Employment Agencies and Employment Businesses Regulations 2003.

Umbrella companies usually employ individuals on behalf of employment businesses and provide payroll functions. Umbrella companies as payment intermediaries are not covered by the legal protections listed above.

The Bill aims to ensure that those who work through an umbrella company have the same rights and protections as those who work directly through an employment business. This will be done by the expansion of the definition of an ‘employment business’ to include umbrella companies.

Zero-hours contract measures to extend to agency workers

The Government has committed to ending one sided flexibility and ‘exploitative’ zero hours contracts. The Bill will therefore introduce a right to guaranteed hours reflecting the hours individuals regularly work over a 12 week reference period (there will be an ‘offer process’), reasonable notice of shifts, a right to payment for shifts cancelled and curtailed or moved at short notice.

Provisions will be included to extend to those protections for those who are engaged through an agency, giving the agency the right to recoup any payments from the hirer although the responsibility to offer guaranteed hours will be the responsibility of the end hirer.

Zero hours contracts can remain but will be operated on the basis that the worker must be offered the guaranteed hours but can turn them down. There will also be a mechanism for collective agreements between employers and trade unions for opting out of the zero contract measures.

The Bill also makes clear that a worker who is not offered the guaranteed hours can bring an employment tribunal claim, with the maximum award to be set out in the regulations.

Zero hours workers will also be entitled to compensation payments if at short notice their shifts are cancelled or significantly reduced, the regulations will set out a specific minimum time.

Fair Work Agency (“FWA”)

Finally, the Bill will also create a state enforcement agency, called the Fair Work Agency. Initially, this will oversee existing state enforcement functions (such as HMRC’s enforcement of National Minimum Wage) and over time will take on the responsibility for the enforcement of a wider range of employment rights; creating a single place where workers and employers can turn for help. It will have strong powers to investigate and take action against businesses including the right of access to premises and documents.

The FWA will have responsibility for exiting state enforcements as well as functions relating to holiday pay and statutory sick pay.  There will be a civil penalty regime where there have been any breaches and will have the power to bring proceedings in the Employment Tribunal on a worker’s behalf; it will also be able to give legal advice and assistance where someone is a party to civil legal cases. There will also be a costs regime where the FWA can impose charges to recover enforcement costs.

The objective is that the FWA is a ‘strong, recognisable single brand so workers know where to go for help”.

Concluding thoughts

The Bill represents the most significant programme of employment law reform in the UK in many years and will affect all employers, employees, HR, and employment lawyers.

Whilst the Bill is not yet in its final form, it is well progressed through the Parliamentary process and significant changes are not anticipate; however much of the detail is yet to be provided by means of secondary legislation following further Government consultation on some of the finer details.

This blog has provided an update on the current status of the Bill, and we will report further once the Bill has gone through the House of Lords review.

Should you have any queries in relation to the Employment Rights Bill and would like practical advice as to what steps should be taken, please contact Linky Trott or any other member of the Employment Team.

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