Groundbreaking Legal Reforms Under the Employment Rights Bill: What Is the Impact for UK Employers?

October 11, 2024

The Employment Rights Bill was introduced to Parliament on 10 October 2024, representing the biggest change to UK employment law since the 1990s. Delivering on its promise to introduce legislation within 100 days of coming into power, the new Labour government’s Bill proposes new and enhanced employee rights, makes provisions regarding pay and conditions in specified sectors, and reforms aspects of trade union conduct and industrial action. However, the Bill also rows back on several campaign pledges and stalls the implementation of some of the more complex proposals, such as ethnicity and disability pay gap reporting and the shift toward a two-part framework for employment status.

The Bill’s provisions are not expected to come into effect before 2026. Many of the requirements also depend on secondary legislation, the outcome of consultation, and codes of practice. The government has also explicitly said that reforms of unfair dismissal will take effect “no sooner than Autumn 2026.” Nonetheless, it is critical for employers to understand the implications these changes might have for their businesses.

We summarise below the Bill’s key points as well as comment in more detail about some of the more notable provisions. We also highlight which of Labour’s original proposals will likely form the subject of separate consultation processes beyond the scope of the Bill.

KEY POINTS

Topic	Details
New “Day 1” rights	Employees shall receive new “Day 1” rights, namely statutory sick pay, parental, paternity and bereavement leave entitlements, and unfair dismissal protection. Statutory sick pay is currently subject to a three-day waiting period (although this was temporarily waived during the COVID-19 pandemic). Eligibility for statutory parental and paternity leave currently requires 26 weeks’ service. Employees currently only benefit from ordinary unfair dismissal protection after two years’ service. Under these reforms, the qualifying period will be removed. However, employers will be allowed to operate probationary periods during which a “lighter-touch” dismissal process will apply. There will be a consultation on the length of this initial statutory probation period, but the government’s stated preference is nine months. Bereavement leave is a new “Day 1” right and is adapted from the existing parental bereavement leave entitlement, which was already a “Day 1” right.
Zero-hours workers	Zero-hours workers will benefit from the right to guaranteed hours that reflect the hours such workers regularly work over a 12-week reference period, rights to reasonable notice of shifts, and the right to payment for cancelled, moved and curtailed shifts at short notice. These provisions are intended to address the government’s concerns regarding one-sided flexibility. The government has expressly recognised that some zero-hour contracts can work well (e.g., for students or those with caring responsibilities), which is why we expect the Bill does not prohibit zero-hour contracts more broadly.
Flexible working	The grounds on which flexible working requests can be refused are unchanged. However, a flexible working application can only be refused under the Bill if an employer considers that it should be rejected on one or more of the specified grounds and it is reasonable for the employer to refuse the application on the particular lawful ground or grounds relied upon. An employer’s reliance on one or more of the prescribed grounds does not currently have to be reasonable. If an application is refused, the employer’s notification to the employee must state the ground or grounds for refusing the application and explain why the employer considers that it is reasonable to refuse the application on that ground or those grounds.
Sexual harassment	The Bill requires employers to take all reasonable steps to prevent sexual harassment rather than just reasonable steps. The Bill provides that regulations will be issued specifying what steps are to be regarded as reasonable. This new obligation therefore supplements the requirements in a sexual harassment context, which are already due to be enhanced by virtue of the new preventative duty to combat sexual harassment due to come into force on 26 October 2024. Sexual harassment–related disclosures will now also constitute “protected disclosures.” Such disclosures would therefore not be covered by a nondisclosure agreement. A dismissal for making a “protected disclosure” is also treated as automatically unfair, although the distinction between ordinary and automatic unfair dismissal will be less significant once the provisions of the Bill are in force given the removal of the unfair dismissal qualifying period.
Third-party harassment	Employers will have a new obligation not to allow third-party harassment of their employees. Under the Bill, an employer will be considered to permit a third party to harass their employees if the third party harasses an employee during that employee’s employment and the employer fails to take all reasonable steps to prevent it happening.
Pregnancy discrimination	The Bill strengthens existing provisions concerning dismissals during pregnancy. The precise obligations will be contained in further regulations, but it is expected that dismissal protection will be extended to six months following the employee’s return to work.
Collective redundancies	The concept of “at one establishment” is removed from collective redundancy legislation. The threshold at which burdensome collective redundancy obligations is triggered is therefore where 20 or more dismissals are proposed across an entire business, rather than at particular establishments. The relevant obligations will therefore be triggered more often going forward.
Fire and re-hire	Dismissing an employee who does not agree to a contract variation, or to enable the organisation to employ another person, or to re-engage the same employee, under a varied contract to carry out substantially the same duties, will be regarded as an unfair dismissal. The exception to this under the Bill will be if an employer can show that the reason for the variation was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect, the employer’s ability to carry on the business and in all the circumstances the employer could not reasonably have avoided the need to make the variation. The Bill provides for various matters that need to be considered in determining the fairness of the dismissal (e.g., any consultation carried out by the employer with the employee about varying the employee’s contract).
Trade unions	Workers will have the right to receive a written statement of their right to join a trade union. The statement must be given at the same time that they receive their written particulars of employment (i.e., on “Day 1” of employment). Unions will have new rights relating to their ability to access workplaces in order to meet, represent, recruit or organise workers, and to facilitate collective bargaining (but not organising industrial action). Unions will be able to challenge responses before the Central Arbitration Committee. Various other trade union–related reforms are made under the Bill, including modifications to the conditions for union recognition, removing restrictions on trade union activity, and measures intended to make ballots simpler and more flexible (e.g., electronic balloting).
Equality action plans	The Bill provides that further regulations may require certain employers to develop and publish equality action plans. Such plans would need to show the steps that employers are taking in relation to their employees with regard to prescribed matters concerning gender equality and publish prescribed information relating to the plan. A matter is related to gender under the Bill if it is related to advancing equality of opportunity between male and female employees, and the Bill expressly refers to matters addressing the gender pay gap and supporting employees going through menopause as relating to gender equality. This requirement will not apply to employers with fewer than 250 employees and will not require information to be published more frequently than annually.
Enforcement	The Bill will establish the Fair Work Agency. This agency will bring together existing enforcement functions, have various enforcement powers, and offences will apply with the potential for personal and/or body corporate liabilities.

IN MORE DETAIL

Unfair Dismissal – A ‘Day 1’ Right?

Employees currently need two years’ continuous service to bring an ordinary unfair dismissal claim. Employers therefore have a degree of flexibility when it comes to terminating an employee’s employment within the first two years. The Bill removes this qualifying period, thereby ensuring that the right not to be unfairly dismissed begins on an employee’s first day of employment.

While in theory employers will therefore need to carefully consider their obligation to dismiss for a fair reason and carry out a fair procedure in all dismissal cases, the government plans to consult on a statutory nine-month probationary period, referred to in the Bill as the “initial period of employment.” Within this initial period, a “lighter-touch” and “less onerous” dismissal process will apply that employers will need to follow to dismiss an employee who is not considered suitable.

In this new initial period, the Bill provides that modifications will be made to the existing obligations concerning procedural and substantive fairness, provided that the reason for dismissal falls within categories that will be familiar to UK employers (i.e., capability, conduct, statutory restriction and some other substantial reason, but not redundancy). Subsequent regulations will clarify what those modifications entail and the meaning of the “initial period of employment.” The government has already suggested that this “lighter-touch” process would necessitate a meeting with the employee to explain the performance concerns.

We expect that many employers will reflect on and strengthen their probationary practices going forward considering the enhanced unfair dismissal protections provided for by the Bill. Employers should note now, however, that their ability to dismiss lawfully during a probationary period will likely be curtailed in comparison to present circumstances once the proposed statutory probationary period framework is in force. As explained above, the government has clarified that the unfair dismissal reforms will not come into effect any sooner than autumn 2026 and the current two-year qualifying period continues to apply until such time.

Flexible Working

Delivering on Labour’s promise to improve employees’ ability to work remotely by making flexible working arrangements the default where practical, the Bill modifies the current statutory flexible working framework with the intention of ensuring more requests are agreed to. Under the Bill, an employer’s reliance on any of the existing lawful grounds to refuse a flexible working request must now be reasonable. The employer must also state the ground or grounds for refusing the application and why it considers that it is reasonable to refuse the application on that ground or those grounds.

While the changes do require employers to consider flexible working requests more carefully, the lawful grounds on which a request can be refused remains the same and these are wide-ranging. The Bill also states that subsequent regulations may provide for other lawful grounds on which a request can be lawfully rejected. The Bill also does not change the penalty for breaching an employee’s right to flexible working. As such, whether these modifications ultimately result in making flexible working the default in reality remains to be seen.

Liability for Third-Party Harassment

A new obligation for employers to prevent harassment of their employees by third parties is inserted under the Bill into the Equality Act 2010. An employer will be considered to have permitted a third party to harass its employees where an employee has been subjected to harassment by a third party during the course of their employment and the employer is deemed to have failed to take all reasonable steps to prevent the third party from harassing the employee.

This provision will be particularly important for employers whose employees regularly interact with third parties due to the nature of their business. Such high-risk sectors include those in which it is common for employees to have public-facing roles, such as the retail, leisure and hospitality sectors, the transport sector, and industries which regularly engage third-party contractors, such as construction. These types of employers will likely have to conduct a harassment risk assessment (amongst other things) if they are to establish that they have taken all reasonable steps to prevent third-party harassment.

In our experience, this is a compliance gap in many organisations’ harassment-related procedures that will likely need revisiting with this new obligation in mind, as well as the new duty to prevent sexual harassment coming into force later this month.

The Fair Work Agency

The Bill establishes the Fair Work Agency, which shall unite the Gangmasters and Labour Abuse Authority, Employment Agency Standards Inspectorate, and the HM Revenue & Customs team that polices minimum wage. The Bill providers for powers to obtain documents or information, enter business premises to obtain documents, and the retention of documents. Offences for individuals and organisations are established as well as imprisonment and/or fines being potential liabilities for contraventions.

If properly resourced, the Agency could lead to a much more aggressive and interventionist approach to employment law enforcement than is presently the case, presenting disruption for employers across a wide range of industries. While the government has verbally committed to providing such support, it remains to be seen how the Agency will work in practice and whether its unified enforcement powers prove to be a more effective in enforcing employees’ rights against employers.

LOOKING AHEAD – PLANNED CONSULTATIONS AND TIMEFRAMES

Following the introduction of the Bill, the government has also set out its vision for implementing its wider Make Work Pay plan. Potential further reforms that could be implemented via means outside of the Bill include the following:

Consultation is expected in due course regarding the Equality (Race and Disability) Bill, which would extend pay gap reporting to ethnicity and disability for employers with more than 250 staff and introduce other measures concerning equal pay.
A full review of the UK’s parental leave system and carer’s leave.
Consultation will be undertaken on an employment status framework that only differentiates between workers and the genuinely self-employed.
The government plans to launch a Call for Evidence to examine reported issues related to the Transfer of Undertakings (Protection of Employment) Regulations.
A Call for Evidence on tightening the ban on unpaid internships is expected by the end of the year.
A review of health and safety guidance and regulations.
Consultation with Acas on enabling collective grievances will also be undertaken.

HOW WE CAN HELP

Morgan Lewis lawyers stand ready to assist employers in keeping abreast of these important changes and the applicable implementation timelines to appropriately plan for the impacts such changes could have on their workforce.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Matthew Howse (London)

Louise Skinner (London)

William Mallin (London)