Sir Keir Starmer's Labour Government pledged to introduce transformative employment law reforms within 100 days of taking office, and on Thursday 10 October 2024, they fulfilled that promise with the introduction of the Employment Rights Bill 2024 in Parliament.

Spanning over 150 pages and comprising 28 separate reforms, this much-anticipated legislation is both ambitious and wide-ranging, offering significantly more detail than the 'skeleton' bills many experts had expected. But what does this mean for you as an employer? Most of the proposals will undergo parliamentary debate and be subject to various public consultations. As detailed further below, some of these processes are expected to begin shortly, while others will continue into 2025 and 2026.

The Bill is so comprehensive that it’s easiest to begin by noting what's absent.

One key omission is the highly anticipated 'right to disconnect'. Instead of being included in the legislation, the proposal to limit employers from contacting staff outside working hours will be addressed through a statutory Code of Practice.

The Employment Rights Bill also avoids addressing equal pay issues or pay-gap reporting. Labour's plans to expand the equal pay framework to include disability and race will likely be introduced separately through the forthcoming Equality (Race and Disability) Bill, which may also mandate reporting of pay disparities related to these characteristics. This impact of these future additions should not be underestimated- these will impact both Payroll and People teams across the UK.

Another element postponed is the overhaul of employment status rules. The government acknowledges that its proposal to eliminate the distinction between 'employees' and 'workers' in favour of a two-tier system- defining individuals as either employed ‘workers’ or self-employed- will require lengthy consultations. As such, this reform is not included in the initial round of changes.

Lastly, reviews of Parental Leave, Carers Leave, and TUPE are highlighted in the Next Steps policy paper but fall outside the scope of the Employment Rights Bill.

In summary, the proposed bill will, in time:

• Provide protection against unfair dismissal from day one, while still permitting employers to implement probationary periods.
• Introduce parental and bereavement leave starting from day one of employment.
• Eliminate exploitative zero-hour contracts.
• Put an end to unethical practices such as fire-and-rehire or fire-and-replace tactics.
• Promote flexible working as the default option where feasible.
• Enhance dismissal protections for pregnant women and new mothers.
• Create a new Fair Work Agency with the authority to enforce holiday pay regulations.
• Strengthen Statutory Sick Pay.

Unfair dismissal - day one

Employees will no longer need two years of service to claim unfair dismissal. The Bill also introduces provisions for regulations to define an 'initial period' of employment, or a statutory probationary period, during which a modified version of unfair dismissal rights will apply. The exact length of this probationary period will be determined through consultation and finalised in regulations, with the government currently favouring a nine-month period.

In practice, this means employers will be able to dismiss employees fairly within this statutory probationary period, though they will be required to follow a specified process. The details of this process, like the length of the probationary period, will be set out in future regulations. The government has indicated that these changes are expected to take effect no earlier than Autumn 2026.

Parental and bereavement leave - day one

Employees will have day-one rights to take paternity leave and unpaid parental leave.

The Bill also introduces a new entitlement to unpaid bereavement leave. Currently, there is a statutory right to two weeks of parental bereavement leave and pay in the event of a child's death or stillbirth. The new right will be more inclusive, with the specifics to be outlined in secondary legislation, likely after consultation. Employers should consider the impact to occupational policies and the impact that this will have on them.

Zero-hour contracts

One of the key policies of the Bill is the government’s goal to eliminate ‘exploitative zero-hours contracts.’ This will be achieved through complex statutory amendments to Part 2A of the Employment Rights Act (ERA).

These amendments will require employers of workers on zero-hours (or low-hours) contracts to offer those workers a contract, or modify their existing one, guaranteeing a minimum number of hours based on the work performed during a specific reference period (initially proposed as 12 weeks, though the exact period will be determined through secondary legislation). Workers can choose to accept or decline the offer, and if they refuse, the employer must continue to make fresh offers at the end of each reference period.

Additionally, the Bill allows the Secretary of State to introduce regulations requiring that the offer not only guarantees the same number of hours worked in the reference period but also includes the same workdays, times, or patterns.

The new contract terms cannot be less favourable than the worker’s current terms unless there were multiple sets of terms in the reference period, in which case the employer must justify the new terms as a ‘proportionate means of achieving a legitimate aim.’

On the surface, these provisions allow zero-hours workers to secure the highest number of hours worked in a reference period as a guaranteed entitlement (and possibly even specific work schedules), making zero-hours contracts less attractive to businesses. However, there are important exceptions:

The right is only triggered if the hours worked during the reference period meet specific conditions regarding the ‘number, regularity, or other factors,’ to be clarified through secondary legislation.

Employers may limit guaranteed hours to a specific time frame if reasonable, but they bear the burden of proving this. Reasonableness may be shown if:

• The worker is only needed for a specific task.
• The worker is only required until a certain event; or
• The employer reasonably considers the need for the worker to be temporary (with further qualifications possible through secondary legislation).

The obligation does not apply if the employee has resigned (unless constructively dismissed), been fairly dismissed, or is serving notice for resignation or dismissal.

These provisions also extend to low-hours contracts, preventing employers from sidestepping the rules by offering contracts for very few hours, such as one-hour agreements.

If employers fail to comply with these guaranteed hours provisions, workers can file claims in the Employment Tribunal. Remedies may include declarations and compensation (with a cap yet to be determined), though the Tribunal cannot compel employers to offer guaranteed hours or impose such terms.

This framework could discourage businesses from using zero-hours contracts due to the risk that workers may convert them into guaranteed-hours contracts during busy periods. However, the true impact of these provisions will depend on details not yet specified, such as:

• The conditions regarding the number or regularity of hours needed to trigger the right;
• The cap on compensation, which could determine whether businesses treat claims as a cost of maintaining zero-hours contracts or shift their practices;
• The minimum hours threshold for these provisions to apply, which will need to balance preventing avoidance while considering genuinely part-time workers.

While these measures aim to curb the abuse of zero-hours contracts, they may have unintended consequences for workers:

• Workers who prefer zero-hours contracts (though a minority in most surveys) may find employers less willing to offer them due to the risk of contract conversion.
• Employers may reduce the number of hours offered to zero-hours workers to limit their exposure if those workers opt to convert the contract into a guaranteed-hours arrangement.

Fire and rehire

Another key aspect of the Bill targets the practice of firing and rehiring employees who refuse to accept changes to their employment terms. This is addressed through the creation of a new category of automatically unfair dismissal, which, if enacted, would represent a significant legal shift.

Under the Bill, a dismissal would be considered unfair if the reason (or primary reason) for it was the employee’s refusal to accept a proposed variation to their contract. Even more notably, a dismissal would also be deemed unfair if the employer replaced the dismissed employee with someone else performing the same duties but who agreed to the altered terms.

Employers could only avoid an unfair dismissal ruling in very limited circumstances. They would need to demonstrate that the contract change was necessary to address ‘financial difficulties that, at the time of dismissal, were affecting or likely to imminently affect the employer’s ability to continue as a going concern or to carry on its business activities.’ Additionally, the employer would need to show that the variation was unavoidable. If these conditions are met, the fairness of the dismissal would then be assessed based on a set of prescribed factors and any regulations issued by the Secretary of State.

The term ‘going concern’ suggests a very high threshold, potentially nearing insolvency, or liquidation.

Overall, the Bill would significantly restrict an employer’s ability to impose changes to employment terms. Notably, the barriers to making such changes would be much higher than those for dismissing employees due to redundancy or reorganisation.

Flexible working

The last government made the right to flexible working a “day one” right. This Bill enhances that right by expressly setting out that in addition to the existing requirement that an employer can only refuse a request on specified grounds, such a refusal must also be reasonable.

Employers are required to respond to these requests within two months and must consult with employees before denying a request.

In the King’s Speech, the government committed to making “flexible working the default from day one for all workers.” While the Employment Rights Bill aims to impose additional obligations on employers regarding flexible working requests, the proposed changes do not fully align with the government's initial rhetoric and are limited to the following:

• Employers will only be allowed to refuse a request if it is deemed "reasonable" to do so.
• When informing an employee of a refusal, employers must state the grounds for their decision and provide an explanation of why they consider it reasonable to deny the request based on those grounds.

However, several aspects will remain unchanged:

• The eight statutory reasons for refusing a request will stay the same.
• The right to request flexible working will continue to apply exclusively to employees, not to workers (despite indications in the King’s Speech suggesting otherwise).
• Compensation for failing to comply with statutory provisions will remain capped at a maximum of eight weeks’ pay (currently £700 per week).

The flexible working framework has often been characterised as merely a "right to request," drawing criticism for its lack of enforceability. It remains to be seen whether these reforms will enhance this situation and, as the government hopes, lead to a higher approval rate for requests.

Statutory Sick Pay

The Bill proposes changes to Statutory Sick Pay (SSP), allowing it to be paid from the first day of sickness absence, rather than starting on day four as it currently does. Additionally, the Bill removes the minimum earnings threshold for SSP eligibility. Instead, SSP will be set at the lower of either the full amount (currently £116.75) or a specified percentage of a worker's weekly earnings, with the exact percentage to be determined through secondary legislation. We anticipate that this may follow similar thresholds used for Maternity, being 90% of average weekly earnings.

Fair Work Policy

The establishment of a Fair Work Agency marks a significant initiative in the UK government's efforts to enhance compliance with employment rights and promote fair working conditions. This agency is designed to enforce workers' rights more effectively and provide clear guidance to both employers and employees, facilitating a better understanding of their respective obligations and rights.

The creation of this agency aligns with the principles outlined in the Good Work Plan, launched by the UK government in December 2018. The Good Work Plan emphasises the importance of fair and decent work for all, aiming to create an environment where employees are treated fairly, and employers can thrive. It recognises the need for comprehensive reform in employment practices, ensuring that workers benefit from fair treatment, job security, and the opportunity to develop their skills.

By establishing the Fair Work Agency, the government seeks to implement several key objectives of the Good Work Plan:

• Enhancing compliance: the agency will focus on improving compliance with existing employment laws, ensuring that businesses adhere to legal obligations regarding pay, working hours, and conditions. This is crucial in creating a level playing field where all companies operate under the same standards.
• Simplifying guidance: the Fair Work Agency aims to provide clear and accessible guidance on employment rights, making it easier for both employers and employees to understand their responsibilities. This is especially important in a rapidly changing work environment, where new forms of employment and contracts are emerging.
• Encouraging fair treatment: the agency will play a vital role in promoting fair treatment in the workplace, ensuring that all employees are aware of their rights and have the means to seek recourse if those rights are violated. This supports the Good Work Plan's emphasis on the importance of fair pay, job security, and working conditions.
• Supporting vulnerable workers: one of the agency's key goals will be to protect vulnerable workers who may be at higher risk of exploitation, such as those on zero-hour contracts or in low-paid jobs. By providing support and enforcement mechanisms, the agency aims to safeguard the rights of these individuals.
• Facilitating collaboration: the Fair Work Agency will encourage collaboration between employers, employees, and trade unions, fostering a culture of mutual respect and understanding. This approach aligns with the Good Work Plan’s vision of engaging all stakeholders in improving working conditions.

In summary, the Fair Work Agency represents a proactive step towards achieving the goals outlined in the Good Work Plan, reinforcing the UK Government's commitment to creating a fair and equitable work environment. By focusing on enforcement, guidance, and support, the agency aims to foster a workplace culture where employees are empowered, and employers can thrive in compliance with the law.

Conclusion

Significant concessions and some compromises have been made to ensure the Bill is passed in time to meet the government’s self-imposed deadline and to avoid discouraging employers from hiring new staff during this critical period for the UK economy. As a result, the Bill likely strikes a balance between the interests of employers and employees.

Many of the Bill’s most-publicised provisions are aimed at improving conditions for individuals on casual and low-paid contracts, such as day-one sick pay, the removal of the lower earnings limit for sick pay, and the right to guaranteed hours. Certain reforms, particularly those related to paternity and parental leave, will be crucial for individuals seeking to change jobs while starting a family. However, the more significant changes for most employers pertain to issues like unfair dismissal, sexual harassment, collective redundancies, flexible working, fire-and-rehire practices, and collective rights.

While the government has stepped back from implementing full day-one unfair dismissal rights, the Bill represents the beginning of a generational shift in employment law, inevitably increasing the potential for grievances and disputes- even among employees who have only been in their roles for a short time.

Regarding practical steps for preparation, there is currently little that employers can or should do. The Bill will now proceed through Parliament and may undergo various amendments. Indeed, in a sign of how hurried the Bill's passage has been, the government has already indicated that it is likely to propose some amendments of its own. Once the Bill is enacted and consultation documents are released, the situation may become clearer, but for now, it remains largely a wait-and-see approach.