The Employment Rights Bill, which gives effect to the government’s “Make Work Pay” manifesto, is now working its way through Parliament. And as such, we are getting more and more detail about what the new legislation means for businesses. The government has recently published its Next Steps to Make Work Pay policy paper which provides further information on how the Make Work Pay reforms will work.
A lot of the detail about exactly how the new laws will operate will be provided for in regulations or Codes of Practice that will sit under the new legislation. The government is currently consulting on a number of matters before deciding on exactly how to implement the new laws, so we still don’t have a complete picture of how the changes will work.
What we do know is that the majority of the Employment Rights Bill changes will not come into effect until 2026, so employers will have a reasonable period of time to prepare for the changes.
In this three part blog series, we take a detailed look at some of the most significant changes proposed by the Bill.
Unfair dismissal a day-one right
One of the most important changes under the Employment Rights Bill is to make unfair dismissal a day-one right, meaning that employees can claim unfair dismissal from the first day of employment. This differs from current legislation as generally employers have to wait until they have at least two years service before they can claim unfair dismissal.
To address concerns from employers that this change will now mean that they have to follow onerous and bureaucratic dismissal processes even for new employees who are clearly not a good fit for the organisation, the legislation provides that employers will be able to follow a modified or light-touch dismissal procedure in an employee’s “initial period of employment”.
The initial period of employment will, in effect, create a statutory probationary period during which the light-touch dismissal procedure can be followed.
Details of exactly what will be involved in this light-touch dismissal procedure will be set out in regulations and subject to consultation. However, the government has indicated in its Next Steps document that any procedure should at least consist of holding a meeting with the employee to explain the concerns about their performance, and give them a chance to respond, before they are dismissed.
Similarly, the length of what is considered to be “initial period of employment” will be set out in regulations and is subject to consultation, but in the Next Steps document, the government have suggested that in their view it should be a 9 month period.
Interestingly, there is no mention that any light-touch procedure can be followed where employees are dismissed due to reason of redundancy. It would therefore appear that one of the effects of making unfair dismissal a day-one right might be that employers have to follow a full redundancy process even when an employee has a short length of service, to avoid the risk of the employee being able to claim unfair dismissal.
Unlike some earlier suggestions, it is clear that the day-one right to unfair dismissal is only for employees. Workers remain ineligible to claim unfair dismissal.
Making unfair dismissal a day-one right is likely to feel concerning for employers, as it will add significant extra administration for an employer who wishes to let go a newly hired employee. Our advice for getting prepared for this change is to ensure your business has robust procedures in place for underperformance and dismissal.
Restrictions on fire and rehire
Fire and rehire is when an employer dismisses an employee and re-engages them on less favourable conditions, such as a lower wage or less appealing hours.
New legislation is aiming to put restrictions on these practices. However, rather than banning fire and rehire practices completely, the new laws will severely limit the situations where firing and rehiring can take place, meaning that it will only be acceptable to do this “where there is genuinely no alternative”.
The law will operate so it will be automatically unfair to dismiss an employee and re-engage them on less favourable terms, or to dismiss them for refusing to agree to vary their contract of employment, subject to a limited exception.
The exception will be where the employer can show evidence of financial difficulties and demonstrate that they need to vary the contract to address these financial difficulties which would otherwise affect the viability of the business. This will be a very high threshold for an employer to meet.
We are aware that fire and rehire practices are generally only done when businesses are forced to make tough staffing decisions to keep their company financially viable. Although The Government has not yet elaborated on what constitutes “evidence of financial difficulties”, we are hopeful that the legislation will not be applied so strictly that businesses in genuine financial difficulties are prevented from negotiating changes in terms and conditions with employees in order to stay afloat.
Collective redundancies
Currently, where an employer proposes to make large scale redundancies of 20 or more employees at one establishment, within a period of 90 days or less, it must consult on its proposal with any representatives of the affected employees and also notify the Secretary of State.
Changes under the Employment Rights Bill will mean that employers will need to collectively consult where they propose to dismiss 20 or more employees as redundant within a period of 90 days or less, across the business as a whole, regardless of where the employees are based. They will also be required to inform the Secretary of the State.
Wrapping Up
With so many changes on the horizon for business owners, it is a nerve-wracking time. However, the good news is that business owners have until 2026 to understand and prepare for these changes.
If you’re struggling to get to grips with what the new laws mean for your business, or how you can get organised ahead of time, talk to our HR Advisory team. Or keep an eye out for our next blog in this series, we will be covering limiting the use of zero hours and low hours contracts, duty to provide reasonable notice of shifts and sexual harassment.
