What employers need to know about the latest updates to the Employment Rights Bill

The UK government has introduced significant changes to the Employment Rights Bill and published the results of its recent consultations. We explain what the changes are and what they mean for employers.

As the Employment Rights Bill works its way through Parliament, the government has put forward a raft of amendments to it. Responses to recent consultations on various key topics have also been published. We explain what employers need to know about the latest developments.

Unfair dismissal protection to be a day one right

A key Labour government proposal is to give all employees the right not to be unfairly dismissed from day one of their employment, rather than after two years’ service as is currently the case.

The new right not to be unfairly dismissed from day one will be subject to an “initial period” of employment (like a probationary period), when a lighter touch procedure for dismissal can be followed by employers if a new hire turns out not to be suitable. 

Although the government has expressed a preference for this initial period to be nine months, it is not confirmed in the amendments to the Bill and a separate consultation is planned.

These changes are not expected to come into force before Autumn 2026.

Collective redundancy consultation

Changes to when the duty to consult collectively arises

As it stands, employers proposing to dismiss as redundant 20 or more employees “at one establishment” (or site as we’ll call it) within a 90-day period must collectively consult with appropriate representatives of those employees before making any redundancies. 

“Redundant” for collective consultation purposes includes, as you would expect, traditional redundancies (for example, where there is a business closure or downturn in work), but also employees who face dismissal where their employer is proposing to dismiss and reengage them on new terms of employment.

Originally, the Bill proposed to change the rules so that collective consultation would be required whenever an employer proposed to make 20 or more redundancies, regardless of whether they are employed at one site or not (by removing the references to “at one establishment” in the legislation). In what seems to be a concession for employers, this proposal has been changed.

Under the new proposals, in a case where employees are being made redundant at more than one site, separate regulations will set out the threshold for deciding whether the obligation to collectively consult is triggered. How much of a concession this is for employers will depend on where that threshold is set.

There is an indication that the threshold may be determined by reference to whether the proposed redundancies amount to a particular percentage of the total employees – but we will have to wait and see what the regulations say. 

The latest amendments also clarify that when carrying out collective consultation, the employer does not need to consult all employee representatives together or try to reach the same agreement with all representatives. This is presumably to address concerns that the Bill would require representatives to be brought together to be consulted with over separate batches of unconnected redundancies at different sites. 

Increasing the penalty for failing to collectively consult

The government has confirmed it plans to double the penalty (known as the ‘protective award’) that can be awarded by Tribunals where employers fail to meet their obligations to collectively consult - from 90 days to 180 days’ gross pay per employee.

The award is designed to be punitive rather than compensatory and can already be one of the most significant liabilities an employer can face. The potential cost of these claims will increase significantly with the doubling of protective awards. 

Proposals to remove the cap on protective awards altogether have been abandoned.    

The government has also dropped plans to make interim relief available as a remedy to employees dismissed in breach of collective consultation requirements. Instead, it plans to consult on other ways to strengthen the regime. 

The government has also said it will issue further guidance for employers on collective consultation processes.

Fire and rehire

Fire and rehire as a means of changing employee’s terms and conditions has been under a significant degree of scrutiny for the past few years. There has been a growing concern that employers have carte blanche to vary key contractual rights and obligations by terminating existing contracts of employment and offering re-engagement on new, typically less favourable terms.

The Bill introduces a new category of automatically unfair dismissal where an employee is dismissed because they did not agree to a variation of their contract of employment or to enable the employer to hire a new employee or to re-hire the existing employee under a varied contract.

The government was consulting on whether interim relief should be available to employees who bring claims unfair dismissal in ‘fire and rehire’ and ‘fire and replace’ scenarios.

The government has decided not to go ahead with this but is pressing ahead with its plans to make the practice of ‘fire and rehire’ automatically unfair except in very limited circumstances where an employer is in severe financial distress. In those (narrow) situations, an employer would need to comply with the Code of Practice on dismissal and re-engagement that came into effect on 18 July 2024 and which the government has promised to update. 

Statutory Sick Pay

Currently, Statutory Sick Pay (SSP) is payable from day 4 of sickness absence, and employees need to earn at least £123 a week to qualify for it. 

The government plans to scrap the waiting period so SSP will be payable from the first day of absence, and remove the lower earnings limit to make sick pay accessible for lower earners. 

Under the new plans, lower earners will be eligible to receive 80% of their average weekly earnings where this is lower than the flat weekly rate of SSP, currently £116.75 and rising to £118.75 in April 2025. 

This means that all employees will be entitled to the lower of the SSP weekly flat rate or 80% of average earnings as soon as they are off sick from work.

This measure seeks to achieve a balance whereby lower earners are not completely excluded from the scheme but equally are not better off on SSP than they are while at work. 

Labour reports that this measure will widen SSP eligibility to up to 1.3 million employees who are currently excluded from the scheme.

SSP will be payable from the first rather than the fourth day of absence due to the removal of the current system of “waiting days” whereby no SSP is paid for the first three days of absence. 

Many will welcome these developments as a step in the right direction for lower earners and for those who experience genuine short-term periods of ill-health. However, critics of the SSP scheme will argue that the reform doesn’t go far enough as they believe that the weekly rate of SSP remains too low, as does the reduced percentage available to lower earners. 

Conversely, some employers fear a spike in short-term attendance issues as the promise of pay – even at the relatively low rate of SSP – during absences of any duration may act as an incentive for some employees to take unnecessary time off work.

Requirement to keep records of holiday entitlement and pay

Employers will be required to keep records to show they have complied with their obligations under Working Time Regulations relating to annual leave, including in relation to the amount of leave, holiday pay and pay in lieu when a worker leaves employment. 

These records will need to be retained for six years from the date they were made.

It will be up to the employer to decide the exact format of those records. Failure to comply will be a criminal offence punishable with a fine.

The right to disconnect 

The right to disconnect has not been included to the Bill. Press reports suggest this right will not be taken forward at all.

Dismissals during and after pregnancy

The government has given further insight into its plans to crack down on dismissals of employees who are pregnant or on maternity leave or within six months of returning to work. 

An amendment to the Bill provides for regulations to set out specific notices and “other procedures” that will need to be followed. The explanatory notes indicate that the intention is to ban such dismissals except in specific circumstances. 

We will need to wait for the regulations to be published to see exactly what will be required in practice and when these changes will come into effect.

Zero hours contracts and agency workers 

One of the major reforms proposed by the Labour Government was the ban on “exploitative” zero hours contracts. When published, the Bill revealed that zero hours contracts would not be banned altogether but that a series of protections would be introduced for those on zero or low hours contracts. 

This would include introducing a duty to offer guaranteed hours contracts after a certain period, providing reasonable notice of shifts and compensating workers for short notice of cancellation, postponement or shortening of shifts.  

However, the government was concerned that there was a potential loophole whereby employers could maintain flexibility in their workforce by deploying the services of agency workers instead of recruiting zero or low hours worker themselves. 

The response to the consultation addresses that risk by confirming that the same protections will apply to agency workers: they too will have a right to be offered guaranteed hours contracts, as well as having a right to reasonable notice of shifts and any changes to their shifts.

The obligation to offer a guaranteed hours contract will rest with the end hirer. This is on the basis that they are best placed to predict the amount of work in the pipeline. The regulations will, however, maintain the flexibility, in certain scenarios, to place obligations on agencies/other entities instead.

The hirer and the agency will share responsibility for providing reasonable notice of shifts. How this will operate in practice remains to be seen as further regulations will specify the form and way in which workers should receive notice of shifts and any shift cancellations, curtailments or movements.

Finally, it has been decided that agency workers will be eligible for compensation for shifts cancelled or changed at short notice and that responsibility for making these payments will fall to the agency. This may be an unwelcome move for agencies as typically it will have been the hirer’s decision to cancel or curtail a shift; the agency would have no power to influence the situation, yet they are left footing the bill. 

To overcome this issue, Government has confirmed agencies will have the ability to recoup such payments in certain circumstances.

Another key change is a new provision which will allow a collective agreement to contract out of the rights to guaranteed hours and reasonable notice of shifts, for both workers and agency workers. This will enable an employer and an independent trade union to reach an agreement that excludes the new rights and agree something else, as long as these new terms are incorporated into the contract. In the case of agency workers, the collective agreement can be with the person who has the contract with the agency worker. 

Umbrella companies

The government plans greater regulation of umbrella companies. An umbrella company employs temporary workers on behalf of employment businesses and end clients.

This is to address government concerns that umbrella companies can potentially deprive workers of employment rights.

An amendment to the Bill will define umbrella companies and bring them within the definition of employment businesses. This means that they will be regulated by the Employment Agency Standards Inspectorate (expected to be taken over by the Fair Work Agency when that is set up), with the aim being to address concerns about workers being deprived of their rights.

Another planned change relates to tax. Responsibility to account for PAYE/NICs for umbrella company employees will shift from the umbrella company that employs that worker to the agency that supplies the worker to the end-client, or to the end-client where no agency is involved. 

This change is planned to take effect from April 2026. 

Trade unions and industrial action

The Labour government plans to reform trade union law. The response to a recent consultation on this reveals that original proposals in the Bill have been amended in various ways including:

• The new right of access of trade unions to the workplace can include digital access (the detail of what this will entail is to be set out in regulations). 
• The introduction of new penalties where an employer breaches a trade union’s right of access to the workplace
• Limiting the scope for employee numbers within the bargaining unit to be adjusted in order to impact the outcome of a trade union recognition process
• Simplification of the information required to be included in ballot and industrial action notices
• The requirement for unions to give ten days’ notice to employers for industrial action, compared with the previously proposed seven days
• Doubling the period of an industrial action mandate from six to twelve months, giving trade unions substantially more time to call for industrial action following a successful ballot
• A commitment to introduce e-balloting, following consultation
• The 50% industrial action ballot turnout threshold will be repealed by regulations, as will the Strikes (Minimum Service Levels) Act 2023 and the 40% support threshold in the Trade Union Act 2016.

The amendments do not deal with the membership requirement for an application for union recognition. This is currently 10% of the bargaining unit. The Bill gives the government the power to reduce the required threshold for union membership down to as low as 2% of the proposed bargaining unit in future, but the consultation response does not cover this.

Enforcement of employment rights and protections

The Bill creates a new state enforcement agency, to be called the “Fair Work Agency”.

Initially, it will cover specific areas which are already covered by existing enforcement agencies, with the addition of holiday pay enforcement. The Bill also gives the government a wide power to extend the Agency’s remit to cover other types of employment rights.

Amendments to the Bill significantly increase its remit. The new enforcement powers include the ability to:

• enforce a failure to keep adequate records of holiday pay. We cover this requirement above
• enforce failure to pay some types of statutory payments to workers – including holiday pay and statutory sick pay – by issuing a notice of underpayment to employers
  
  This notice will require the employer to pay the required sum to the worker within 28 days. Penalties of 200% of the sum due up to a maximum of £20,000 and a minimum of £100 to be paid to the government’s Consolidated Fund will also apply 
  
  If the employer pays the underpayment in full and 50% of the penalty within 14 days of the notice being given, the penalty will be treated as having been paid. This could have significant implications for employers who get holiday pay wrong
   
• bring Employment Tribunal proceedings on behalf of a worker, if the worker has the right to bring a claim but it appears they are not going to. Any award by the tribunal may still be made in the worker’s favour
• provide legal assistance for employment-related proceedings
• recover enforcement costs incurred by the Secretary of State from employers who are not complying with the law.

The Fair Work Agency is unlikely to be up and running before late 2026 at the earliest.

When will these changes come into effect?

The Bill is still working its way through Parliament and further amendments are likely to be proposed and revisions made as it does, so this is not the final position.

Most of the provisions of the Bill will not come into effect immediately when it is passed. Many of the changes require commencement regulations to bring them into force, and much of the detail is still to be set out in substantive regulations – some of which will require further consultation. 

The majority of the reforms are anticipated to take effect from 2026, but some changes will happen sooner for example, once the Bill is passed, the provisions repealing minimum service levels in strikes will come into force. Most other union related provisions will come into force two months later.  

We will continue to keep you updated as more details become clear.

How can you prepare for the changes ahead?

Despite some key issues and details still to be worked out as the Bill continues its progress through Parliament, many employers are turning their minds to how to prepare. 

Many will view the introduction of day 1 unfair dismissal rights as being the most significant impact of the Bill for employers. We are still waiting for the detail on how this will work in practice and the government has committed to consult on this.

For now, employers should tighten up their recruitment and capability/performance management processes, particularly during and towards the end of probationary periods. Employers should also review their contracts to ensure they have clear and flexible probationary periods in line with the new rules (when further details become available) and train managers on effective performance management during probationary periods.

Employers are also grappling with the significant impact of changes to NICs and the National Minimum Wage from April 2025.

For more information on the Bill and how it may impact your business, please don’t hesitate to get in touch with us.