Estimated reading time: 13 minutes

What does the Employment Rights Bill (ERB) mean for Employers & HRs? This “once in a generation overhaul of workers rights” was laid before parliament on the 10th October, and is making its way through parliament now.

This article outlines the changes, and the potential impact on UK businesses.

Because Labour pledged to get the bill out within 100 days of entering Government, they haven’t had enough time to think through the detail. There is a huge amount of it still to be filled in by Statutory Instruments, which rarely make legislation simpler. This method also tends, perhaps conveniently, to reduce the amount of parliamentary scrutiny.

As predicted, nothing will change soon. In its Next Steps To Make Work Pay (Next Steps) document which accompanied the Bill, the Government stated that the majority of reforms will not take effect until April 2026 at the earliest, and the biggest change, the day 1 right to protection from unfair dismissal, won’t take effect until Autumn 2026 at the earliest.

When it finally comes into force, the Bill will impose considerable new responsibilities on employers, with small and medium-sized enterprises (SMEs) most affected and the seasonal, retail and hospitality sectors facing particular challenges. Hiring people and bringing their contracts to a close is going to be far riskier, and more complex, as well of course, as more expensive.

The Government’s Next Steps document states that the majority of reforms will not take effect until April 2026 at the earliest, and day 1 right to protection from unfair dismissal won’t take effect until Autumn 2026 at the earliest.

Download our Timeline on the Employment Rights Bill, which includes the consultations planned for 2025.

Key features of the Employment Rights Bill

The Employment Rights Bill includes the following new laws:

Day 1 rights to: protection from unfair dismissal, parental leave, sick pay and earlier right to take paid maternity leave

This proposal has the potential to cause the biggest impact on employers and on day-to-day HR practice. It includes providing enhanced individual rights from day 1 for all employees.

Day 1 rights to protection from unfair dismissal. The 2 year qualifying period goes and employees will have the right to claim unfair dismissal from day 1, as long as they have started work.

The qualifying period is reducing as we countdown to Autumn 2026; so just be mindful that an employee starting a role in March 2025 will earn protection after 18 months, an employee starting work in October 2025 will earn this protection after a year, and so on.

The most important part of this reform is the new statutory probationary period. The Bill doesn’t refer to probationary periods at all, but it has introduced an “initial period of employment”. In the the Next Steps document, the Government has indicated its preference for a 9 month initial period of employment, giving room for a 6 month initial period, and a 3 month extension. There will be consultation on this in 2025.

The Bill also makes it clear that a lower test for unfair dismissal will apply if the employer terminates an employee’s contract during their initial period of employment. This ‘light touch’ unfair dismissal test during this period will only apply if the reason for dismissal is related to the employees conduct or capability, the employee is not entitled to work in the UK, or some other substantial reason.

This means that employees who are dismissed for redundancy during their initial period of employment can claim unfair dismissal in the same way as any other employee, and the same test of fairness (fair redundancy procedure) will apply. This is huge and we wait to see how it will work in practice as the consultation on this gets underway in 2025.

What does the introduction of a statutory probationary period mean for employers and HRs? More determined efforts to vigorously evaluate new hires during the initial period of employment, stricter monitoring of hiring practices.

Statutory sick pay from 1st day of sickness Central to the Bill will be a universal entitlement to statutory sick pay (currently £116.75 a week from April 2024) for all workers from the first day they are ill, removing the need to wait until day 4. Currently those earning less than £123 a week are unable to claim at all. The original proposal was to make this available to all workers, regardless of how much they earn.  After businesses lobbied against the “perverse incentive” of workers to take time off work, the Government seems to have bowed to setting a lower rate of sick pay for those who earn below the threshold.

Parental Leave right from day 1 Employees and workers will also have the right to take parental leave from day 1 in the role. This is unpaid time off to care for children, that can be taken in blocks of a maximum of 4 weeks per year, (up to 18 weeks in total) rather than waiting a year to start using this right.

Ban on ‘exploitative’ zero hours contracts / late notice of shift cancellations

The Bill will ban what the Government terms ‘exploitative’ zero hours contracts (ZHC), which Unions have long opposed, by forcing employers to offer guaranteed hours.

1.3 million people in the UK (3.1 % of people in employment) are on zero hours contracts. They, and alot of employers, are going to be affected by these rules.

The headline provision in the Next Steps document says ‘To ban exploitative zero hours contracts the Government will give workers on zero hours contracts and workers with a low number of guaranteed hours, who regularly work more than these hours, the ability to move to guaranteed hours contracts which reflect the hours they regularly work over a 12 week reference period”

Workers will have the right to reasonable notice of shift changes, and will receive compensation ‘proportionate to the notice given’ for shifts which are cancelled or curtailed. This does ensure more predictability and security for workers, and at the same time less workforce flexibility and potentially more employment costs for those businesses using freelancers, bank, seasonal or gig economy workers, especially those in the residential care and hospitality sectors.

Line Managers will need to be ‘on top of’ the shifts of zero hours teams, to ensure they give adequate notice of changes, and to avoid costly compensation pay-outs.

To offer some reassurance to employers, there is a specific reference in the MWP that ’employers will not be prevented from offering fixed-term contracts including seasonal work.’

A genuine Living Wage

The Bill will introduce a genuine living wage, a new remit for the Low Pay Commission to reflect the ‘cost of living’ as well as median wages and economic conditions when setting minimum wage rates. It will remove the lower age bands, which Government’s sees as ‘age based wage-discrimination’ and extend the living wage rate to 18-20 year olds.

It remains to be seen if recruiters faced with paying fresh-out-of-school 18 year olds the same living wage as more experienced 25 year olds, are willing to allow the 18 yr olds to make the shortlist.
Employers will certainly see increases in their wage bills, on top of the Autumn 2024 budget increases in Employers’ national insurance . It will be essential to budget for these changes and to ensure they are able to meet the new wage standards. This inevitably means price hikes and inflation. Current National Minimum Wage and National Living Wage rates are here and usually change every April.

Ending ‘Fire and Rehire’ Practices

Think P&O ferries. This is a practice where a business in trouble and unable to agree changes to terms and conditions of employment with its workforce, dismisses its workers and re-engages them on new, less favourable terms.

The Government wants to outlaw the practice which it terms in the MWP the ‘scourges of ‘Fire and Rehire’, and ‘Fire and Replace’, a similar practice which sees workers dismissed and replaced by a workforce willing to work for less favourable pay, terms, and conditions.

The Bill will end both practices, but not entirely. The MWP seems to say it will permit its use in limited circumstances and the SOS for Business and Trade, Jonathan Reynolds, has since confirmed that whilst the current Code of practice, which came into effect on 18 July, will remain in place for now, the Bill will bring in a new strengthened Code of practice.

Hire and Fire practices make headlines but are relatively rare, as they are invariably devastating to a corporate brand and to employee relations. Of course, if an employer in trouble is denied the option to dismiss and re-engage, the danger is they are left with only one option – dismissal and business closure. That’s a zero sum game.

Flexible working from Day 1

Flexible working will become the default option from day one of employment, with employers required to accommodate it, except where it’s not reasonably feasible. This of course isn’t new. Since April 2024, employees have had the right to request flexible working from day 1. However making it the default option is changing the balance of power considerably in favour of the employee.

The MWP refers to ensuring workers can benefit from flexible working including opportunities for contracts and hours that better accommodate school terms. Term time working has long been the unreported holy grail for mothers who work, and its to the Government’s credit that, however easily accommodated or not, it is putting this on the agenda.

Strengthening protections for new mothers

The Bill will make it unlawful to dismiss a woman who is pregnant or who has had a baby for six months after her return, except in specific circumstances. The MWP proposals say this will give ‘new mothers certainty that the law is on their side’.

But again, this isn’t a new initiative. Since April 2024 we have had enhanced protections from redundancy for pregnant women and those on/returning from maternity leave, for 6 months after maternity leave ends. Its only those as yet un-specified ‘specific circumstances’ that will or may make the difference.

A New Single Enforcement Body

The Bill will establish a Single Enforcement Body, also known as a Fair Work Agency, to protect the most vulnerable workers and strengthen enforcement of workplace rights and the minimum wage.

A well-resourced dedicated enforcement body will mean stricter enforcement of workplace rights. This may well lead to more litigation and regulation. This will require businesses to make more efforts than ever to ensure they are fully compliant with all aspects of the new legislation, to avoid penalties, naming and shaming and legal issues. Again, this isn’t a new initiative. Following the Taylor Review, the previous Government consulted at length on the creation of a single enforcement agency in July 2019.

Establishing a Fair Pay Agreement in the adult social care sector and other industries

The Bill will establish ‘Fair Pay Agreements’ in the adult social care sector, in order to, as the MWP states, “resolve the recruitment and retention crisis in this sector that has long been having such detrimental knock on effects on the NHS”. The aim is to ensure fair pay and conditions in social care and to assess the same to be rolled out to other, but not all sectors.

This means the introduction of collective bargaining, empowering unions and the workers whom they represent, to collectively negotiate increased pay and conditions.

This may ease recruitment and retention issues and meet demand in the social care sector. All well and good. Businesses in this sector, and other sectors in future, will need to adhere to new pay and conditions standards which will involve adjustments to current pay structures. The flip side is that the the cost of care is going to increase seismically. An eye watering concept with private care home fees already between £5600-£8000 per month.

Trade Union Legislation Updates

Labour now in Government is seeking an enhanced role for trade unions. The King’s speech briefing notes specifically mention that the Bill will strengthen the unions, update trade union legislation, introduce new rights, reverse the restrictions on trade union activity – including the previous Government’s approach to minimum service levels – and promote what it calls ‘good faith negotiation and bargaining in industrial relations’. It will be interesting to see how this plays out. We haven’t seen very much in the way of ‘good faith negotiations’ in recent years in some disputes.

Nevertheless, there will need to be a more collaborative approach to industrial relations. Employers and Unions will both have to move significantly towards each other. Businesses will need to engage in good faith negotiations and be ready for increased union activity.

Simplifying Statutory Recognition

The process for statutory recognition of trade unions will be simplified, ensuring workers have a reasonable right to access a union within the workplace. There will be rights for unions to access the workplace for recruitment and organisation purposes. A new duty on employers to inform all new employees of their right to join a union (to be included in the S1 statement of terms). Some employers may well wince.

School Support Staff Negotiating Body

The Bill will reinstate School Support Staff Negotiating Body to establish national terms and conditions, career progression routes and fair pay rates for teachers.

How will the Employment Rights Bill affect your business?

Increased compliance and disciplined assessment of Employees and Employee Relations

As the details of the Employment Rights Bill are finalised and the consultation processes on each of the proposals proceed, the detail and time lines for these changes will become clear.

Actions to take now:

• Update your employee contracts for the enhanced leave rights and sick pay to be ready for when these changes come into force.
• Ensure all contracts have probationary periods of no longer than 6 months.
• Be very disciplined in the assessment of employees during their probationary periods and ensure line managers know how to monitor and assess new hires within that period.
• Update and stick to your disciplinary and poor performance procedures as all employees will have unfair dismissal protection from day 1.
  The perception that dismissing staff within their first 2 years of service is easier will no longer exist.
• Review and update as necessary your zero hours worker contracts to deal with late notice of shift cancellations and providing more regular working hours.
• Regularly check that your businesses are paying at or over the minimum wage level, mindful of the cancellation of the age bands system when it comes.
  

More regulation, more litigation & ET Claims

The Employment Tribunal case management system is being digitised onto a cloud platform with the roll-out taking place over the Summer 2024. This will make it easier for employees to file claims.

These new employee rights, the new Fair Work Agency and a streamlined digital system for filing claims will make it easier for employees to enforce a raft of boosted employment rights.

The Employment Rights Bill may also include proposals on the gender pay gap, menopause and Sexual harassment at work.

Please remember the new duty for employers to prevent sexual harassment at work still comes into force on 26th October 2024, and that the day 1 right to request flexible working remains in place.

Draft Equality (Race and Disability) Bill

Alongside the Employment Rights Bill, the Government also plans a draft bill to:

• extend the equal pay regime to cover race and disability as well as sex, and
• introduce mandatory ethnicity and disability pay reporting for employers with at least 250 or more staff.

Commentators think these plans to change discrimination law to extend the complex equal pay regime to race and disability are flawed. And that its possible that this plan will be dropped before the Bill is finalised.

Guiding you through it all

Adapting to these regulations will be challenging. But they won’t all happen at once, and the changes may not be as significant as they appear. We will have to wait and see. We will know a lot more when we see the Employment Rights Bill.

Our team of employment law experts have been advising clients for over 20 years and have seen numerous Governments come and go, and we are here to support you through this latest transition.

We will provide as usual clear, comprehensive guidance and tailored resolutions to ensure your business remains de-risked, compliant, can deal with more employee disputes and thrives under the new legal framework.

If you would like to discuss how these changes will impact your business, or advice on preparing for and implementing the changes effectively, please contact Philippa Mullett or your usual employment team contact.