The Employment Rights Bill: what it means for employers

On 10 October 2024, the Government published its much-anticipated Employment Rights Bill – just within its promised one hundred days of getting into power. Touted as “the biggest upgrade to workers’ rights in a generation”, the Bill and its accompanying Next Steps to Make Work Pay document set out detailed plans about how Labour intends to implement its sweeping employment reforms.

At nearly 300 pages and containing over 30 employment measures, the scope of the new Employment Rights Bill should not be underestimated. Much of what it is proposing is ambitious and will represent a marked shift from existing practices. That is not to say it provides all the answers; much of the detail has been left to consultation and secondary legislation. Change will also take time – the Government expects to begin consulting on reforms in 2025 and anticipates that the majority of changes will take effect no earlier than 2026 following a “substantial” transition period. It is safe to say that these reforms will remain a central talking point in employment circles for some time to come.

The aim behind Labour’s employment changes is to improve worker protections, job security and working conditions. Coming at the same time as increases to employers’ National Insurance Contributions and the National Minimum Wage, these reforms are likely to have a considerable impact on employers.

In this blog, we outline some of the key provisions of the new Employment Rights Bill, providing a summary of the current legal framework alongside what we now know about Labour’s plans to change it.

Unfair dismissal

Current position

Employees must have at least two years’ service to bring a claim for unfair dismissal (subject to a few exceptions where dismissal is deemed automatically unfair). There are no specific statutory restrictions on the length or terms of probationary periods, which tend to be governed by an individual’s contract of employment. Only employees have the right not to be unfairly dismissed; workers cannot bring an unfair dismissal claim.

What is planned?

One of Labour’s flagship employment manifesto pledges was to make unfair dismissal a day one right. The Employment Rights Bill delivers on this by removing the qualifying period for unfair dismissal protection altogether.

However, there are caveats:

• The Government intends to legislate to “introduce fair and proportionate processes for dismissal” during probationary periods.
• Quite what that process will look like is unclear, though in the Next Steps document the Government indicates it will introduce “a lighter-touch and less onerous approach for businesses to follow to dismiss someone who is not right for the job”. As a starting point, it suggests holding a meeting with the employee to explain performance concerns (at which the employee could be represented).
• The Government intends to undertake extensive consultation on the details of this proposal, including on:
  
  
  • The length of the statutory probationary period, indicating a preference for nine months.
  • What “meaningful safeguards” should be put in place during that time.
  • How any process might interact with the Acas Code of Practice on disciplinary and grievance procedures.
  • What compensation should be available for a successful claim for dismissal during the probation period, with a suggestion it should not be as high as the current compensatory levels.

It is also confirmed that the new unfair dismissal protection will not apply to:

• Employees who have not yet started work.
• Workers: despite a suggestion in the King’s Speech that protection from unfair dismissal would be available “for all workers”, under the Bill it will be available for employees only (the Government has confirmed a review of worker status will be a longer-term aim).

Although this will be a significant change for employers, it is not one that will happen quickly. The Government is very clear that “reforms of unfair dismissal will take effect no sooner than autumn 2026”, in order to ensure sufficient time for detailed rules to be confirmed and for employers to prepare. Although the two-year qualifying period will continue to apply in the meantime, in practice it may start to erode from now onwards, meaning people recruited over the next two years could increasingly face a shorter wait before being protected from unfair dismissal. Employers could therefore start laying the groundwork for the anticipated changes, for example by reviewing recruitment procedures to ensure robust processes are in place before someone joins, setting clear performance expectations at the start of employment, and training for managers on effective management of probationary periods.

Employment tribunal time limits

Current position

For the majority of employment claims, the time limit for bringing a claim in the Employment Tribunal is three months from the date of termination or the date of the act being complained about. 

What is planned?

The Government intends to double the time limit for bringing all Tribunal claims to six months (which will include discrimination, unfair dismissal and whistleblowing claims to name a few).

This change will provide employees with significantly more time and flexibility to bring an employment claim. Arguably it may also allow both parties greater opportunity to explore internal procedures and resolution without quite the same time pressure as there is now. However, when viewed alongside the removal of the unfair dismissal qualifying period, it is also likely that we will see increased uncertainty for employers and a higher number of claims overall.

Fire and rehire

Current position

‘Fire and rehire’ (also known as dismissal and re-engagement) refers to the practice where an employer dismisses an employee and offers to re-engage them on new, often less favourable, contractual terms.

Despite controversy over the practice, the Conservative Government resisted calls for an outright ban of fire and rehire and instead put in place a Statutory Code of Practice on dismissal and re-engagement. This provides that fire and rehire should only be used as a last resort, following an exploration of alternatives and in consultation with staff representatives. Employment tribunals have the power to increase compensation by up to 25% if an employer unreasonably fails to follow the Code of Practice.

What is planned?

In perhaps the most fundamental and radical change in the Employment Rights Bill, the Government is pushing ahead with its plan to end fire and rehire (and fire and replace). The Bill will make it automatically unfair to dismiss an employee if the principal reason for the dismissal is either:

• The employer sought to vary the employee’s contract of employment, and the employee did not agree to the variation; or
• To enable the employer to re-engage the employee, or employ another person, under a varied contract of employment to carry out substantially the same duties as the employee did before being dismissed.

The Bill does provide an exception to this, if an employer can show:

• The reason for the variation was to prevent or significantly reduce financial difficulties.
• The financial difficulties were affecting the employer’s ability to carry on the business as a going concern.
• In all the circumstances the employer could not reasonably have avoided the need to make the variation.
• In determining fairness, the Employment Tribunal must consider whether any consultation was carried out about varying the contract and if anything was offered to the employee by the employer in return for agreeing to the variation.

This appears to be a high bar for employers to meet. As it makes clear in its Next Steps document, the Government is serious about ensuring fire and rehire will only be available where there is “genuinely no alternative”. As drafted, these provisions are likely to have extensive ramifications for employers seeking to restructure or change contractual terms.

Collective consultation

Current position

The obligation to collectively consult is triggered when an employer proposes to dismiss 20 or more employees as redundant within a period of 90 days. The number of dismissals is currently calculated based on dismissals proposed "at one establishment".

What is planned?

The Government also seeks to curb the misuse of fire and rehire by strengthening the collective redundancy framework. It plans to do this in several ways:

• Where an employer is proposing to dismiss as redundant employees from more than one establishment, the Government will introduce a new “threshold number of employees” at which the duty to collectively consult will be triggered. This number will be confirmed in future regulations but will not be less than 20. This proposal could have a particular impact on charities with multiple offices or locations. For example, dismissals at one location that would be under the threshold for collective consultation under current rules, could instead become subject to collective consultation if there are dismissals at other locations which take effect during the same 90-day period.
• It will increase the maximum protective award from 90 days to 180 days. By doubling the penalty, the Government aims to stop it being financially beneficial for employers to "buy-out" employees’ rights. This change means that the Employment Tribunal’s power to uplift compensation by up to 25% if an employer fails to comply with the Code of Practice on Dismissal and Reengagement could be worth up to an additional 45 days’ pay.

The Government has confirmed it will not go ahead with its proposal to introduce interim relief as a remedy for failure to comply with collective consultation obligations. 

Harassment

Current position

On 26 October 2024, the new duty for employers to take reasonable steps to prevent sexual harassment in the workplace comes into effect. Although the ECHR is clear that the preventative duty extends to sexual harassment by third parties, employers are not liable for third party harassment under the Equality Act 2010.

What is planned?

The Employment Rights Bill introduces a number of notable changes to harassment under the Equality Act:

• Employers will be placed under an obligation to take all reasonable steps to prevent sexual harassment. The Bill opens the door for the Government to publish regulations specifying what steps will be regarded as “reasonable”.
• It introduces liability for third party harassment on employers, including an obligation to take all reasonable steps to prevent it. “Third party” is defined broadly as anyone who is not the employer or an employee of the employer (so could include, for example, clients, customers and members of the public).
• A disclosure about sexual harassment will become a “protected disclosure”, entitling anyone who makes it to protection under the current whistleblowing regime.

These proposals make it particularly important for employers to ensure full compliance with the new preventative duty which came into effect on 26 October. More information on practical steps charities can take can be found here: Final EHRC guidance on preventing sexual harassment at work.

Zero-hours contracts

Current position

A zero-hours contract is a type of ad hoc employment agreement where no minimum hours are guaranteed, and typically a worker is not required to accept any hours offered. Since 2015, employers have not been allowed to include exclusivity clauses in zero-hours contracts.

What is planned?

In the King’s Speech, the Government committed to “banning exploitative zero-hours contracts”. While the Bill does not go as far as an outright ban, nor is there any reference to exploitative, what it does do is:

• Require employers to offer guaranteed hours to both zero-hours workers, agency workers, and workers on “low” guaranteed hours who regularly work more than those hours. The provisions in the Bill relating to guaranteed hours are detailed and complicated, but in summary, guaranteed hours should reflect the hours someone regularly works over a reference period, and employers should set out details of the days and times when they will make work available for the worker. Subsequent review periods will provide parties with the opportunity to reflect changes over time.
• Give workers the right to reasonable notice if they are required to work a shift, or if a shift is cancelled or changed. Compensation will be payable for any shifts which are cancelled or curtailed at short notice. We don’t currently have any information about what will amount to “reasonable” notice or “proportionate” compensation.

Specific details about how this will operate in practice will be subject to consultation and secondary legislation.

There has been much concern about the impact of this reform on employers who rely on the flexibility of zero-hour contracts, such as those with seasonal or fluctuating levels of work. In its Next Steps document, the Government confirms that “where work is genuinely temporary, there will be no expectation on employers to offer permanent contracts”. Employers will also not be under an obligation to offer guaranteed hours if a worker’s contract terminates before the end of the relevant reference period. Recent amendments to the Bill provide for these provisions to be excluded by a collective agreement with a trade union. Moreover, workers who wish to remain on zero-hours contracts will continue to be able to do so. Whether this is enough to alleviate concerns in affected sectors will have to be seen.

Flexible working

Current position

Since April 2024, the right to request flexible working has been a day one right for all employees, irrespective of their length of service. Employers must respond to requests within two months and must consult with employees before refusing a request.

What is planned?

The Government promised in the King’s Speech to make “flexible working the default from day-one for all workers”. While the Employment Rights Bill will place additional obligations on employers when dealing with requests, the changes do not appear to go as far as the Government’s rhetoric had originally suggested and are limited to the following:

• Employers will only be able refuse an application if it “reasonable” to do so.
• In notifying an employee that their request has been refused, employers will also need to state the ground(s) relied upon and explain why they consider it reasonable to refuse the application on that ground(s).

In contrast, the following is not changing:

• The eight statutory reasons for refusal will remain the same.
• The right to request flexible working will continue to apply to employees only, not workers (the wording in the King’s Speech seemed to suggest otherwise).
• The compensation for failing to comply with the statutory provision remains a maximum of eight weeks’ pay (subject to the statutory cap – currently £700 per week).

The flexible working regime has often been described as a “right to request” only and has been criticised for lacking teeth. It remains to be seen whether these reforms will change that and, as the Government hopes, “ensure more requests are agreed”. Indeed, the immediate reaction from campaign groups is that the new provisions are “weak and disappointing”.

Other provisions in the Employment Rights Bill

• Trade Union reform – During its time in office, the Conservative Government implemented several legislative measures to restrict the powers and activities of trade unions. The Government intends to reverse this. The Employment Rights Bill will update trade union legislation to remove restrictions on union activity, introduce a process for requesting access to the workplace and require written particulars to include a statement that a worker has the right to join a trade union. Alongside the Bill, the Government intends to consult on measures to update and reform the legislative framework that underpins trade unions.
• Statutory Sick Pay (SSP) – Currently, employees are only entitled to SSP from the fourth day of sickness and if they meet the lower earnings threshold (currently at least £123 per week). The Employment Rights Bill removes both the waiting period for SSP and the earnings limit, meaning all workers will be entitled to SSP from their first day of illness. For individuals earning less than the lower earnings threshold, SSP will be calculated at 80% of their normal weekly earnings, instead of the flat weekly rate. This rate will apply where 80% of a worker’s normal weekly earnings is less than the flat rate.
• Parental and paternity leave – The Employment Rights Bill will remove the qualifying service requirement for paternity leave (currently 26 weeks) and unpaid parental leave (currently one year). Both will become day one rights.
• Bereavement leave – Current provisions on parental bereavement leave will be extended beyond parents to create a general right to bereavement leave. It will be confirmed in later regulations what conditions about relationship will apply to this leave. It has recently been reported that the Government plans to extend bereavement leave and pay to employees who experience pre-24-week pregnancy loss. Leave will remain as two weeks following the death of a child, and will be one week for any other bereavement.
• Maternity protection – Additional protection is currently given to pregnant women and those on or returning from extended family leave in a redundancy situation. The Bill will strengthen protections for pregnant women and new mothers. In the Next Steps document the Government indicates it intends to make it unlawful to dismiss a pregnant worker within six months of their return to work, except in specific circumstances.
• Equality action plans – Large employers (with 250 or more employees) will be required to produce action plans on matters relating to gender equality, including addressing their gender pay gaps and supporting employees through the menopause.

Wider reforms outside the Employment Rights Bill

Not all of Labour’s Manifesto promises have made their way into the Employment Rights Bill. However, the Government has reiterated its commitment to implementing additional reforms through alternative routes, acknowledging that some reforms may take longer to undertake. These include:

• Taking forward the Right to Switch Off through a statutory Code of Practice.
• Delivery of the Equality (Race and Disability) Bill, extending pay gap reporting to ethnicity and disability for large employers. A consultation on how to implement mandatory pay gap reporting for large employers has just been published and can be found here.
• A full review of the parental leave system and of carer’s leave.
• Consultation on a simpler framework for employment status, including moving to a single “worker” status which is differentiated from the genuinely self-employed.
• A call for evidence on issues relating to TUPE regulations.
• Consultation with Acas on enabling employees to collectively raise grievances.

Just the beginning

Of course, a bill is only legislation in draft form, and as such represents the very start of the legislative process. The Employment Rights Bill must now be scrutinised by both Houses of Parliament, who will have the opportunity to propose amendments to the drafting. Only once both Houses have agreed the final content of the bill will it receive Royal Assent and become law.

The Bill is also only part of the picture. Further detail about many of the policies has been left to secondary legislation, and in some cases, codes of practice. Proposals will also be subject to what the Government itself describes as “extensive” consultation.

What is clear is that the Employment Rights Bill is just the beginning of a period of significant upheaval for employment law and employment practitioners, though where we might end up in several years’ time may look very different from the draft Bill that has just been published.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2025