The unveiling of the Employment Rights Bill – EPL Claims Implications

Earlier this year, we published two articles outlining the anticipated impact of the general election result on the Employment Practices Liability (“EPL”) claims market.  You can read those here: “Things Can Only Get Better”?  An EPL Claims Perspective and The King's Speech - EPL Claims Implications

Just in time to meet their commitment to publish legislation within the first 100 days of taking office, the government has now published the keenly-awaited Employment Rights Bill, which was hoped would put more flesh onto the bones of the election manifesto commitments. 

In this further update, we look at key provisions from the Bill from an EPL claims perspective. 

Unfair Dismissal

Readers will recall from the King’s Speech that the government committed to making “protection from unfair dismissal available from day 1 on the job for all workers” but that it “will continue to ensure employers can operate probationary periods to assess new hires.”

Today’s Bill answers those uncertainties to only a limited degree.  In its current first draft form, the Bill proposes that:

• The current two-year qualifying service period requirement will be removed.
• A new power will be added to allow the government to make regulations to modify the normal application of unfair dismissal law where a dismissal takes place or is notified within the ‘initial period of employment’ and is for the reason of capability, conduct, contravention of law, or some other substantial reason relating to the employee (but not redundancy).
• The length of this ‘initial period of employment’ (in other words, a probationary period) is not specified in the Bill but would be specified by the regulations in future. In the covering press announcement to the Bill, the government has said that its preference is a period of 9 months but that such will be consulted upon.
• The regulations may provide that a relevant initial period of employment dismissal shall be “treated as fair if, or only if, the employer has taken any steps specified in the regulations”. We currently have no details of such ‘steps’
• A dismissal will be caught by these provisions if the last date of employment falls within the initial period of employment or if notice of dismissal is given within that period, and the last date of employment falls no later than 3 months after the initial period of employment.

So where does that leave us? 

It appears that the government’s proposed compromise is that, whilst unfair dismissal will, in theory, become a day-one right, a dismissal on grounds of capability (including health, performance or qualifications), conduct, contravention of law or some other substantial reason that is notified within the first 9 months of employment and taking effect within the first 12 months of employment will be deemed to be fair, as long as some minimum level of procedure is followed, even if the dismissal would have otherwise been found to be unfair if the employee had longer service.

For example, an employee who is dismissed for a minor act of poor performance that would not ordinarily be considered sufficiently serious to justify dismissal could be dismissed fairly within their initial period of employment as long as the employer went through a minimum procedure, notwithstanding that the dismissal of a longer-serving employee for the same reason would likely be considered to have been unfairly dismissed.

It appears that dismissals for redundancy will not enjoy this initial period of lowering the bar and would be subject to normal unfair dismissal law principles from day one.  This is presumably to reflect the purpose of the proposals being to enable employers time to assess an individual’s performance, conduct or other suitability for a role before being exposed to the full effect of unfair dismissal law.

The government’s proposals, in effect, provide for reduced unfair dismissal protection for a period of up to 12 months.  As commented on in our previous articles, the length of qualifying service to claim unfair dismissal has yo-yoed over decades between 1 year and 2 years, depending on the government in power.  During the previous Labour administration, the qualifying service length was 1 year.  So, in essence, it appears that the new Labour government’s proposal is to revert to something quite similar – an initial period of up to 12 months where a dismissal for reasons personal to the employee rather than redundancy will be deemed fair as long as some minimum procedural hoops are satisfied.

As before, the devil will be in the detail to come as to what the regulations will ultimately specify as to the ‘initial period of employment’ and as to what ‘steps’ will need to be taken to ensure a dismissal in that period is fair. 

Our expectation is that the steps will be similar to those already provided for in the ACAS Code of Practice regarding disciplinary dismissals, in that employers will be required to provide written information about the reasons for a proposed dismissal, hold a meeting, offer an appeal, and allow a right to be accompanied. However, it is possible that they will be more onerous and/or be tailored according to the particular type of reason for dismissal.

Employment Tribunals

The Bill does not address proposals to reform the Employment Tribunal system (such as increasing the time limit to bring most claims to 6 months), but that is most likely because it is considered that they can be achieved through secondary legislation.  It is unlikely that they have been abandoned.

Workplace Rights

The Bill contains numerous amendments to a variety of workplace rights as foreshadowed in our original article that are beyond the scope of this update.  Of particular interest, however, is that the Bill includes:

• Complex proposals regulating zero hours contracts, including rights to be offered guaranteed hours after a certain period of time, and rights to reasonable notice of shifts or their cancellation (and to payment for such).
• An amendment to flexible working law such that, as well as maintaining the existing requirement that a flexible working request may only be refused for one of a number of listed reasons, a new requirement has been added that the refusal must also be ‘reasonable’. The previous suggestion of making flexible working the default position therefore appears to have been abandoned in favour of imposing an additional obligation on an employer to justify the reasonableness of any refusal.
• A proposed new obligation on employers to take all reasonable steps to prevent protected characteristic related harassment of employees by third parties. This is potentially significant, meaning potential liability for employers if, for example, an employee is racially or sexually abused by a customer.

Redundancy and ‘Fire & Rehire’

The Bill provides for a new category of automatic unfair dismissal to address the practice of ‘hire and refire’. 

In particular, it proposes that a dismissal will be deemed to be unfair if the reason for dismissal was that the employee did not agree to a contract variation sought by the employer, or was otherwise for the reason of enabling the employer to employ someone to do the role under a varied contract. 

However, the Bill provides that such a dismissal will not be automatically unfair if the employer can demonstrate that the contract variation it sought was to “eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which at the time of the dismissal were affecting, or were likely in the immediate future to affect, the employer’s ability to carry on the business as a going concern or otherwise to carry on the activities constituting the business” and that “in all the circumstances the employer could not reasonably have avoided the need to make the variation.”

If an employer can demonstrate such stringent factors, the Bill proposes that the fairness of the dismissal will then be assessed by considering particular matters such as whether adequate consultation was carried out and whether the employee was offered benefits in return for agreeing the variation.

Finally, as was expected, the Bill separately seeks to broaden the scope of collective redundancy consultation obligations such that they should apply where 20 or more redundancies are proposed across an entire business, rather than (as currently) only when such are proposed at one ‘establishment’ (i.e. workplace) within a business.

Employment Status

Again, as was expected (see comments under ‘Timing and Scope’ in our original article) the Bill does not address the ambition to merge the current ‘employee’ and ‘worker’ forms of status, consistent with the acknowledgement in the manifesto documents that such was likely to be a longer-term project.  It remains to be seen when (or if) this proposal is taken forward.

Trade Unions

The Bill contains numerous amendments to trade union related legislation as foreshadowed in our original articles.

Of particular interest, however, is that the proposed new right of trade union access to workplaces is given more detail, including that it shall be limited to a right of “physical entry into the workplace” for the purposes of “to meet, represent, recruit or organise workers” or “to facilitate collective bargaining” but expressly not to organise industrial action.  The right is subject to a procedure providing for formal union requests for access, formal employer responses, and negotiation periods to agree terms of access.

Timing and Scope

The Bill will now pass through the normal Parliamentary process and a number of key aspects appear to be subject to further consultation, in particular those relating to unfair dismissal and probationary periods.  We can anticipate changes to the Bill in the coming months. 

It is currently uncertain as to when the Bill might all be finalised and entered into law, but such is unlikely to be until 2026.  Indeed, within the government’s various announcements today, it commented that, “We expect to begin consulting on these reforms in 2025, seeking significant input from all stakeholders, and anticipate this meaning that the majority of reforms will take effect no earlier than 2026. Reforms of unfair dismissal will take effect no sooner than autumn 2026.”

Comment

The Employment Rights Bill progresses some of the more notable EPL-related reforms discussed in our original articles, in particular, those in relation to unfair dismissal law reform, flexible working request and redundancy and reorganisation matters. 

However, there remains a great deal of uncertainty in some areas, with more detail to evolve in the coming consultations and parliamentary debates.

Whilst still at an early stage and the exact timescales are still unclear, it continues to appear that the next few years will indeed be a busy time for all those involved in EPL risk. All of the reforms proposed have the capacity to see a notable increase in EPL litigation. 

In due course, employers will need to review their policies, procedures and contracts to ensure compliance with relevant changes, and to more broadly review their future staffing needs and strategy, including consideration of whether it would be advantageous to implement organisational change sooner rather than later in light of proposed changes to redundancy and reorganisation related dismissals.

Likewise, as the detail becomes more certain, insurers will wish to review their EPL policy language to consider in particular whether new descriptions of employment wrongful acts are needed, and whether exclusion wordings and excesses remain appropriate. Premiums might also be reviewed.