The government is walking a fine line as it consults on its Employment Rights Bill, while pursuing a growth agenda. For employers, the stakes are high, says Jonathan Mansfield, employment law partner at Spencer West, and the clock is already ticking.
In her Mansion House speech in November 2024 Rachel Reeves complained about UK watchdogs “regulating for risk but not regulating for growth”. Just before Christmas she co-signed a letter to 17 regulators asking for their pro-growth proposals. In other words she wants a new regulatory culture not just about new rules when things go wrong.
At the same time consultation is well underway on proposals in the Employment Rights Bill first introduced in October 2024. These represent “the biggest upgrade to workers rights in a generation”, in the PM’s own words. In the employment field, tightening of regulation is the main theme.
Of no less than 28 reforms to employment law, the most significant are:
- A right from day 1 not to be unfairly dismissed
- Outlawing ‘fire and rehire’ where employees resist contract changes
- Extending the scope and rules on collective redundancy consultation
- Simplifying and relaxing some restrictions on industrial action
- More protection for workers on zero hours contracts
Most changes will not be in effect until the second half of 2026 but consultation is moving ahead fast.
There is also a question of how employers will react as the dates approach for the new rules to be in place. Will there be a reluctance to hire or will firms lay off workers in anticipation of the changes?
As might be expected, critics have emphasised the conflict between pro-growth aims and tougher regulation. They have pointed up the impact on jobs.
CBI chair Robert Soames said in BBC interview that reforms would result in firms shedding workers and “create an adventure playground for employment rights lawyers.”
A Federation of Small Business survey indicated that 90 per cent of their members were worried about the legislation with over half having a particular concern about unfair dismissal rights kicking in on day 1 of employment.
For its part, the government argues that better rights in the workplace will create a more productive workforce. A Department for Business and Trade spokesperson has said: “Our plan to make work pay is a crucial part of the mission to grow the economy, boost workers’ pay and raise living standards…”
Given the long lead time, other factors will come into play such as the overall performance of the economy and business confidence by the second half of 2026. Compounded by concerns about hikes in Employers’ NI, business reaction is generally negative.
Of the above measures the one which will have the by far the widest impact on employers is the right from day one to be protected from unfair dismissal.
The current situation is that an employee has to be employed continuously for two years before they can claim for unfair dismissal.
New employees currently do have some protection from day one. For example, if they are fired for certain reasons like pregnancy, whistleblowing or suffer unlawful discrimination. However, in most
cases dismissing an employee with less than two years of service is a low risk. Making firing decisions quickly avoids drawn out processes for dealing with poor performance or disciplinary issues.
Critics of the present rule argue that two years is a long time for an employer to realise they have made a mistake with a new hire and for employees to be in such a precarious position.
Some would prefer a return to the one year rule under the Blair government. This was a compromise between a general principle that no employee should be treated unfairly and a pragmatic approach giving firms leeway to identify a poor fit.
Consultation and some fairly strong lobbying from employers’ organisations (countered of course by unions) will lead to some compromise allowing for a lower standard of fairness during a probationary period. This might be subject to a basic procedure being followed.
However, there is no getting around employers needing to:
- Review their recruitment processes to reduce hiring mistakes.
- Train managers on the legal principles relevant to avoiding successful claims plus practical ways to handle things like disciplinary and performance issues.
- Keep a close eye on updates on the progress of legislation and its detail.
One particular pitfall for the unwary is the fact that the two year qualifying period cannot be relied upon for existing employees as the date of implementation could well be less than two years away already.
