Proposed changes in the Employment Rights Bill and how employers can prepare

The Employment Rights Bill was one of the first things on Labour’s agenda when they came into government. Labour promised an overhaul in workers’ rights and this Bill aims to improve job security, increase the UK’s productivity, and raise living standards.

The Bill has been making its way through Parliament and will become law when it receives the Royal Assent. It was first introduced to the House of Commons on 10 October 2024, after a period of consultation with businesses and trade unions.

On 4 March 2025, the government tabled amendments to the Bill, which then proceeded to its report stage and third reading on 11 and 12 March. These stages allowed for further changes to be made to the Bill, if necessary.

What changes to employment law does the Bill propose?

Currently, most employees’ rights are enshrined in the Employment Rights Act 1996, which is almost 30 years old. While the legislation can be updated and amended, the Labour government considered it time for a more extensive overhaul to bring the law in line with modern working practices. In fact, they’ve described it as “the biggest upgrade to rights at work for a generation.”

The Bill proposes 28 reforms to current employment law. Perhaps the most significant changes related to:

• Unfair dismissal
• Zero-hours contracts
• Flexible working
• Sick pay
• Unpaid parental and bereavement leave
• Fire and rehire practices

We’ll have a look at each of those areas briefly in this article and explain how employers can prepare for the upcoming changes, which (if accepted) are likely to come into force in 2026.

Unfair dismissal

At the moment, workers can only make a claim for unfair dismissal if they have been employed by the business for two years or more. From August 2026, people will have that right from day one of their employment.

The reason behind the change is to give workers more stability in their employment. The two-year rule gave employers the opportunity to hire people for a short-term period and dismiss them before the two-year mark, without good reason. Even if this opportunity was rarely used by businesses, it still introduced a sense of instability.

The new law means that it will be more challenging for employers to let go of people who don’t quite fit the business. Of course, employers will still be able to dismiss people fairly, if they are not meeting performance targets, or there was an incident of gross misconduct (for example). But all the correct procedures will need to be followed.

We are expecting to see a new nine-month probation period for employees, during which the employer can dismiss someone more easily without the full process. This should make it slightly less onerous if it’s clear from the outset that the new hire isn’t the right person for the job.

Zero-hours contracts

The Bill proposes to ban exploitative zero-hours contracts. Instead, workers will be given rights to guaranteed hours, reasonable notice of shifts, and compensation for short-notice cancellation of shifts. Again, the reason for this change is to give workers a greater level of job security and regular income.

Agency workers are also included in the new protections and will have to be offered a minimum number of working hours per week.

However, it’s not clear at this stage what the minimum number of hours will be. Of course, a contract that provides for a minimum of one hour of work a week is technically not a zero-hours contract, but it’s not in line with the spirit of the new legislation.

In some cases, zero-hours contracts work well for both the employee and the employer. Take, for example, a student who works at a restaurant a few nights a week to supplement their income. The employer pays them for the hours they work. The student may be sent home on days where the restaurant is quiet. The student may choose to work fewer hours during exam period.

In this scenario, the flexibility of a zero-hours contract suits both sides. But if there is an outright ‘ban’, how do workers create this kind of mutually beneficial arrangement?

It appears that there will be a collective agreement to contract out from the rights to guaranteed hours and reasonable notice of shifts. That may get around this problem of depriving workers and employers of these arrangements if they benefit both parties.

Careful consideration will need to be given to the drafting of employment contracts when these changes come into force to make sure that the arrangements achieve the fine line between flexibility and job security.

Flexible working

Gone are the days where flexible working requests were met with surprise. Now flexible working will become the default for all workers. Employers will have to agree to requests from staff from their first day in the job, unless the employer can prove that it is unreasonable.

There are eight business reasons that employers can give for refusing a request. They include reasons such as the burden of additional costs, or the inability to recruit additional staff.

Sick pay

The current laws on sick pay require employees to be ill for at least three days in a row and earn an average of at least £123 a week.

These protections will be expanded under the new legislation. Employees who earn under £123 will now be entitled to statutory sick pay, and it’s available for anyone from the first day of sickness.

Unpaid parental and bereavement leave

The Bill introduces new ‘day one’ rights for parental leave and bereavement leave.

Employees will have the right to one week of bereavement leave from their first day of work. And employees need no longer be employed for at least a year to be eligible for parental leave.

Fire and rehire

The practice of ‘fire and rehire’ comes about when a business needs to save money and reduce the hours of some of their employees. If the employee objects to a change in their working hours, the employer could dismiss them and rehire them on new terms of conditions.

The Bill intends to put an end to this practice, which is generally deemed exploitative. Now this practice will be automatically unfair, except where the business is in extreme financial distress. Employees would have the right to make an unfair dismissal claim (in most cases) under the new law.

What the changes mean for employers

Employment law is always a balance between the employees’ rights to fair working conditions, and the employers’ ability to run a solvent operation.

Many employers have welcomed the changes, emphasising that these changes reflect the best practice that they have been striving for. The new laws should bring more stability for workers, who in turn feel happier in their roles, and happier workers are generally more productive. In many ways, it’s a win-win for employees and employers.

On the other hand, the changes will bring about a higher risk of a greater financial burden on employers. More employees will be eligible for sick pay, leave to have children, and for bereavements. While lots of employers can shoulder these costs, it might be a struggle for smaller businesses.

We may see some exemptions come into force for smaller businesses in due course, but at the moment it is unclear which employers may be exempted.

How employers can prepare

Proactive compliance prevents reactive fixes

The first thing employers need to start doing is reviewing their policies and employment contracts. Check where the current policies and terms & conditions are misaligned with the new legislation and think about the changes the business can make to bring them into compliance.

Assess Your Cash Flow and Finances to Stay Ahead

It may also be a good time to review finances and your future projections. How many new employees can you afford to take on in the next few years? Will the changes reduce this figure? Should you consider freelancers and consultants for certain roles?

No Room for Error: Stringent Hiring Is a Must

With the changes to unfair dismissal in mind, do you need to think about more stringent recruitment processes? Is there a better way of recruiting the people with the right skills and experience?

How we can help

At Branch Austin McCormick, we have specialists in employment law, who are abreast of all the proposed changes coming into force. While we’ve highlighted a few of the key changes here, there are a raft of additional proposed changes that may affect your business.

We can review your policies and contracts and highlight any areas of non-compliance, before the new laws come into force. That gives you sufficient time to discuss the changes you would like to make, and we can draft policies that reflect your decisions, and remain on the right side of the new employment laws.

If you’d like us to have a look at your company’s documentation, please do get in touch.