The Employment Rights Bill – what’s planned and what can employers do?

With the Employment Rights Bill due to be passed imminently, Sarah Furness, Partner in the Employment Team, explains what employers should expect.

As a side note, the ACAS Conciliation period has just been extended to 12 weeks for all notifications received by ACAS as of 1 December 2025. There is a huge backlog with tribunals issuing claims to employers and it is possible employers may not therefore become aware of tribunal claims being pursued against them for a significant amount of time after an employee’s employment has ended.

Unfair dismissal
The Labour government has backtracked on its original proposal to give all employees the right to bring an unfair dismissal claim from day 1 of their employment. Six months service will now be required in order to pursue an unfair dismissal claim. Good news for employers and a major U-turn! Turning to the bad news, it is now proposed that the compensation cap for unfair dismissal claims is abolished. Previously compensation was limited to 12 months gross pay and an overall numerical cap (currently £118,233). The removal of the compensation cap will undoubtedly increase financial exposure for employers and impact on settlement negotiations.

These changes are currently proposed to come into force on 1 January 2027 ensuring that employees with at least six months service at that date will be protected from unfair dismissal.

Zero-hour contracts
The Bill still proposes a right for zero-hour or “low-hour” contract workers to be
offered guaranteed hours based on an average amount of hours that they have worked over a certain reference period – likely to be 12 weeks.

The Bill also introduces an entitlement for workers to reasonable notice of a cancellation of or change to a shift, and importantly, a right to payment if a shift is cancelled, moved or curtailed at short notice. Recent changes to the Bill have made it clear agency workers are also to be protected and that liability can be apportioned in certain situations between the employment agency and the hirer.

The House of Lords are continuing in their push to try and water down these provisions and have suggested giving workers the option to ‘opt-out’ from being offered guaranteed hours contracts and have suggested exceptions for seasonal work.

Fire and re-hire
The Bill makes it automatically unfair to dismiss an employee for refusing to accept a “restricted variation” to their employment terms where re-engagement is offered, with a very limited exception if the employer can show evidence of severe financial difficulties (likely to be near-collapse). A “restricted variation” will include terms governing pay, pensions, holidays and hours.

Flexible working
The Bill provides that flexible working will be the default “unless the employer can prove it is unreasonable”. This heavily caveated right only really requires the employer to state why the request is unreasonable, meaning that, in practice, there is no significant change in this area. The potential reasons for refusing a flexible working request are to remain the same.

New day-one rights
Employees will gain the right to parental leave (unpaid), paternity leave,
bereavement leave and statutory sick pay from day one of their employment. There will also be an entitlement to statutory sick pay from the first day of sick leave and the lower earnings limit to qualify will be removed.

Collective redundancies
The Bill now retains the requirement to collectively consult if an employer is proposing to make 20 or more employees in one establishment redundant although it is still being proposed that collective consultation will be required where a threshold number of redundancies are to be made across a business and the threshold may be a number or percentage. If there is a failure to collectively consult, a protective award of up to 180 days can be awarded per employee and this potential award has doubled!

Sexual harassment
The recently introduced pro-active duty on employers to take reasonable steps to prevent sexual harassment in the workplace, (which came into force last Autumn), will be amended by the Bill to require employers to take all reasonable steps and it will extend the duty so that it applies in respect of third-party harassment. It is likely this duty will be extended to cover the other protected characteristics too.

What can employers do?
There are other changes proposed which will, amongst other things, make trade union recognition and the ability to take industrial action easier. A review of our entire family/parental leave system is also incoming as is a need to create equality action plans for certain size employers.

Whilst these are all certainly changes employers need to be aware of, the most impactful are likely to be the changes to the law on unfair dismissal and the protections for zero/low-hour workers. It is important that employers begin to plan for these changes and that they focus in particular on:

• Ensuring recruitment processes are thorough and robust when considering it is likely employees will be able to pursue unfair dismissal claims if they have six months service as at 1 January 2027.
• Managing well and this includes investing in people, managing their performance and having highly skilled managers rather than “accidental managers”.
• Reviewing the use of zero/low hours contracts and planning for the impact of having to offer guaranteed hours contracts. Query is there an alternative?
• How sickness absence management is managed when considering the SSP changes.
• Equality, diversity and inclusion when considering the increased focus on the importance of this.

If you have any questions about how the new rules may affect your business, from unfair dismissal reforms to changes for zero-hour workers our Employment Team is here to help. Please don’t hesitate to get in touch for clear, practical guidance. Call us at 0191 232 8345, or contact the team here.