Workforce Matters The Employment Rights Bill - can business and government bridge the divide?

As the legislation enters its final stages, this blog examines the divergence between government and business on this issue — and whether compromise might still be found.

By this point, there will be few businesses which don’t have the Employment Rights Bill on their radar. The Bill, which is enacting the bulk of the Labour government’s manifesto commitments on employment rights, represents the biggest shake up of employment rights in at least 30 years.

Keir Starmer’s leadership of the Labour Party saw concerted efforts to rebuild relationships with the business community. The economic turmoil which had resulted from Liz Truss’ short-lived premiership, combined with the ongoing effects of Brexit and Johnson’s infamous ‘f-ck business’ view, meant that Labour was effectively pushing at an open door. As a result, although its manifesto included sweeping changes to employment laws, its repeated and firm commitments to properly consult with business meant that Labour largely managed to keep both unions and business onside in the run up to the election.

However, this relationship has been tested in recent months, as the Bill progresses through Parliament and evidence of government taking onboard business concerns about the reforms is  limited. Taken together with this month’s hike in Employer’s NICs, the costs and risks of employing staff are set to increase substantially under this government. It is no wonder, then, that IoD polling shows business leaders’ hiring intentions over the coming year at lows last seen during the COVID-19 pandemic.

What are the key measures in the Bill?

The Bill is wide-ranging and contains 28 different employment reforms. Key reforms include:

• Expansion of ‘day one’ employment rights: the Bill will remove the existing two-year qualifying period before an employee can claim ‘ordinary’ unfair dismissal at a tribunal, where under the current system staff must be employed for at least two years before they qualify. The government has promised a probationary period with a ‘light touch’ dismissal process, but the threat of tribunal will remain.
• Restrictions on the use of ‘fire and rehire’ and ‘fire and replace’: these practices will constitute automatic unfair dismissal unless the employer can prove that any other course of action would compromise its ability to stay afloat.
• Banning’ of ‘exploitative’ zero hours contracts: any worker on a zero hours contract will have the right to a contract reflecting the hours they regularly work over a given reference period, likely to be set at 12 weeks.
• Statutory Sick Pay (SSP): employees will be eligible for SSP from their first day of sickness, SSP will become a day one employment right, and SSP will be expanded to all workers regardless of income.
• Establishment of a new Fair Work Agency to police the changes.
• Expansion of trade union powers: the Bill gives trade union officials a wider right to access workplaces (including digital access) for recruitment, organising, and collective bargaining purposes. The Bill also simplifies the statutory recognition process for trade unions and gives the Secretary of State the power to reduce the membership threshold for recognition applications to as low as 2%.

Has government listened to business’ concerns?

Government has been at pains to portray its employment reforms as ‘pro-business and pro-worker’ and claims to have consulted extensively with business on the details of the reforms.

However, thanks to its manifesto commitment of publishing an Employment Rights Bill within 100 days of government, the Bill was hurriedly written and published with little opportunity for genuine engagement. Consequently, it received a rebuke from the Regulatory Policy Committee for supplying it with the Impact Assessments of the measures too late, with the overall assessment red-rated as “not fit for purpose”.

The Report Stage of the Bill, at the end of its passage through the Commons, represented an opportunity for government to demonstrate that it had taken onboard concerns repeatedly raised by businesses since the publication of the Bill in October 2024. Unfortunately, the amendments announced failed to shift the dial on any of the top issues of concern for business.

Are further changes to the reforms likely?

While progress in addressing business’ concerns has thus far been limited, there are some reasons for cautious optimism.

At the same time as introducing a package of employment reforms which will, according to its own impact analysis, cost UK businesses around £5 billion a year, the government has boldly announced that it plans to cut the administrative cost of regulation on business by a quarter. We can only hope that this new zeal to unlock economic growth through cutting costly red tape will begin with its own legislative agenda. The government can also expect the OBR to pass judgement on its measures and their implications for growth, productivity and employment in its next forecast update in the Autumn.

Businesses will also be hoping that the House of Lords properly scrutinises this incredibly important legislation and makes changes to reduce negative economic effects stemming from the Bill.

The IoD has identified four key changes to the Bill which would go some way to restoring business confidence in hiring:

• Amend the planned introduction of additional protections against unfair dismissal so that they only come into effect after six months of employment, rather than on day one.
• Increase the planned reference period for the entitlement to guaranteed hours to 52 weeks, and make it a right for employees to request, rather than to be proactively offered, a contract reflecting hours regularly worked.
• Retain one waiting day before employees can access Statutory Sick Pay (SSP).
• Retain existing thresholds for statutory recognition of trade unions.

The passing of the Bill will also not represent the end of the debate, primarily due to the fact that much of the detail of implementation will be decided at a later date. In fact, this Bill could be fairly described as a ‘skeleton bill’, that is, one which sets out the principles of policy but leaves the detail to be filled in later by ministers through delegated powers. While the use of such an approach warrants a separate discussion around governance and executive power, it does present opportunities for further engagement on key issues, from the length of the reference period for guaranteed hours contracts to thresholds for trade union recognition and collective redundancy consultation.

The coming months will test whether the government’s ‘pro-growth’ rhetoric aligns with its approach to employment law. While the Bill’s core framework now seems inevitable, businesses must prepare for both its risks and opportunities. Keep an eye out for future Employment Matters blogs, in which we will deep dive into individual reforms.