[Updated] The Labour government's employment law changes: A guide for GCs and in-house legal teams

The Labour government will end what it describes as “exploitative” zero-hours contracts. The Employment Rights Bill will do this by giving certain qualifying workers the right to be offered guaranteed hours after a certain reference period – which remains subject to consultation but is likely to be 12 weeks in order to align with other employment law reference periods.

The change will apply to workers whose working hours/patterns have met certain conditions surrounding the number of hours worked and the regularity of those hours, with regularity being the subject of consultation.

There will also be consultation on whether to extend the regime to agency workers, who are currently exempt.

In any event, it’s a change that is set to give employers an obligation, subject to certain exceptions, to make an offer of guaranteed hours following the end of every relevant reference period reflecting the hours that applicable workers have worked during that time. There will be anti-avoidance provisions.

Therefore, employers will need to come up with systems for tracking hours and regularity of hours undertaken by workers. The workers will ultimately have the option to continue working flexibly on a zero hours basis, but there will be an obligation to offer them a more “stable” contract at certain trigger points and to keep this under review.

As a GC or in-house legal professional, it’s important to ascertain the extent to which this change could affect different areas of your organisation and to ensure a compliant plan is put into place for managing the practical implications.

Challenges:

• Businesses that rely on zero-hours contracts for fluctuating demand, which can be a prevalent occurrence in certain sectors, may find it challenging to maintain the same level of flexibility once the changes are brought in.
• With the need for more permanence in contracts for workers and the need to provide guaranteed hours and working patterns, even throughout quieter trading periods, organisations may see an increase in labour costs.
• Any potential areas of complexity, both in terms of qualifying conditions and exceptions, may lead to mistakes that create further issues.

Solutions:

• Alternative staffing models, such as part-time contracts or fixed-term arrangements, remain an option to maintain some degree of operational flexibility whilst simultaneously providing more security to workers.
• Engaging in workforce planning allows organisations to better predict and manage staffing needs without heavy reliance on zero-hours contracts.
• Organisations can utilise temporary staffing agencies to manage short-term fluctuations in demand - but note that there will be anti-avoidance provisions in the detail of the secondary legislation in due course, and a consultation on extending the regime to agency workers to ensure that they also have an opportunity of direct employment and more definitive working hours.

Changes to the flexible working regime are also set to come into force in 2026 which build on existing recent changes.

In April 2024, employees gained a right to request flexible working from their first day of employment (whereas they previously had to work 26 weeks before gaining eligibility). Employees also became entitled to submit 2 requests per year (instead of one).

However, there has been criticism that campaign groups that the changes lacked teeth and did nothing to meaningfully support working families. Not least because the onus remains on the employee to demonstrate how flexible working could operate successfully.

Therefore, the Employment Rights Bill proposes to make flexible working the “genuine default” from day one of employment. It will shift the onus on to the employer to show why the flexible working request cannot be accommodated.

As general counsel or part of an in-house legal team, you may need to support managers and the people team in managing requests and ensuring that refusals are properly substantiated within the permitted statutory grounds (ideally evidenced by some data or records). You may also need to ensure that written outcomes are robust.

Challenges:

• Employers can expect not only an increase in the number of requests being submitted but also greater difficulty in declining requests – although it does look as though the 8 existing statutory grounds for declining a request will remain unchanged. Employers will be required to explain why their reasoning for refusal applies. This could result in a surge that places strain on operational capabilities.
• The needs of the business must be carefully balanced with the need to treat all employees fairly. It will be particularly difficult if multiple employees in a team all submit requests. If this isn’t managed correctly, there could be an increase in disputes.
• The change could result in a risk of requests for four-day working weeks with compressed hours, giving rise to further considerations in how this can be reasonably addressed.

Solutions:

• It’s vital for organisations to develop a clear, fair, and transparent flexible working policy that outlines the process for making requests and the criteria for approving or rejecting them, as well as understanding if these criteria can be considered reasonable and how they will be explained to employees.
• Businesses should begin training managers to handle flexible working requests and managing teams with varied working patterns effectively.
• Monitor the impact of flexible working on productivity and employee engagement to make informed adjustments to policies and procedures.
• Ensure that comprehensive and well-considered feedback is provided in respect of any unsuccessful flexible working requests to minimise the risk of potential claims.
• Ensure that evidence is available and collated to substantiate decisions around flexible working requests to best address any challenges.

Changes to the qualifying period for unfair dismissal claims have been a significant talking point since initially proposed. Previously a 2-year qualifying period applied, but the Employment Rights Bill is now set to remove this. The impact will mean that all dismissals will have to be for a legally recognised “fair” reason, and after a “fair and reasonable” process.

However, the change only applies to employees, and not “workers”. It also does not apply to situations where an individual has been dismissed before they have started work (such as following an accepted offer of employment with subsequent withdrawal before commencement), unless the reason for dismissal falls within a number of specified reasons.

Recognising the potential burden on businesses, the government plans to introduce a statutory probationary period (query how this will be any different in reality to the qualifying period). The duration of the probationary period will be the subject of consultation, but the clear indication from the government in its Next Steps paper is that it will be 9 months.

The government have stated that they are currently proposing a “lighter-touch process” that applies to dismissals during the probationary period, but there are currently few details surrounding this in the Bill. It is expected to be at least a meeting to discuss the issues and dismissal, and a letter confirming the reasons for dismissal. This would be similar to what many organisations are already doing in practice now.

The government has said that the change will not take effect before the Autumn of 2026, and we are likely to see some transitional provisions in due course.

Challenges:

• There will be an increased litigation risk with the potential for a rise in unfair dismissal claims – a surge could occur due to the lower barrier to bringing employment tribunal claims to employers.
• Organisations will need to assess their hiring processes and consider how robust those processes are. A greater investment in recruitment will help to ensure only the right candidates are offered employment. However, whilst the intention of the change is to give more people access to jobs and to provide greater security, an unfortunate consequence might be a reduction in social mobility and inclusion if employers are less open minded at the recruitment stage.
• Lapses in fairness, transparency, and documentation of recruitment processes means businesses may prove to be unequipped to defend against potential claims.
• The Tribunal system is already struggling to cope with the volume of claims and it can take up to 2 years to get to a Final Hearing in most cases. Often witnesses have forgotten the events or even moved on to jobs elsewhere. This problem will only increase if there is a greater volume of claims which the system cannot deal with quickly.

Solutions:

• It’s imperative that organisations begin to implement comprehensive training for managers surrounding fair hiring practices. Reasons for not offering jobs to candidates will need to be thoroughly articulated and substantiated by evidence to mitigate against the risk of claims, and inadvertent bias.
• Establish clear, documented policies on conduct and performance management from the outset of employment, to provide greater protection and defensibility against potential claims.
• Review and tighten any existing probationary processes to help identify potential issues with new hires early on. It’s also important to ensure that comprehensive feedback (supported by evidence) is provided on any failed probationary periods to ward off potential disputes.
• Given the inevitable delays in the Employment Tribunal system and to deal with the issues of memories fading, employers should also consider asking managers and decision makers to write statements of their evidence/involvement in dismissals from the outset.

Redundancy protections are a key point in the Employment Rights Bill, with the removal of the reference to “one establishment” regarding the need for collective consultation. Currently, an employer will need to collectively consult and notify the Secretary of State when proposing to dismiss as redundant at least 20 or more employees at one establishment.

However, that threshold will apply across the entirety of the business with the removal of the “one establishment” requirement under the Bill. This means that the duty to collectively consult with workforce representatives or trade unions is triggered much more easily and frequently.

The Bill and Next Steps paper issued by the government also indicate a general movement towards collective bargaining to supplement the above change. It will become easier for collective bargaining units and trade unions to gain recognition, and there will be an obligation to inform employees (in their contract of employment) that they have a right to join a trade union.

There are also proposals to increase the protective award (currently 90 days gross pay per employee) which the Tribunal can make when an employer fails to collectively consult. The stakes are therefore likely to be much greater for getting it wrong.

As general counsel or part of an in-house legal team, you may need to support managers and the people team with industrial relations and consultations, ensuring systems are in place to track redundancy numbers and potential dismissals for changing terms and conditions of employment (which can also trigger collective consultation requirements).

Challenges:

• The process when proposing a volume of redundancies, or when changing terms and conditions of employment, is already one with significant complexity. With the change, the complex, time-consuming nature of the process could dramatically increase with more frequent triggers and a need for constant monitoring.
• This change signals a higher potential for the need for consultation – with extended consultations, necessary business restructures and changes to terms and conditions could be delayed, leading to a potential impact on the turnaround of cost savings and other outcomes.

Solutions:

• GCs and in-house legal teams need to ensure that HR and legal teams are fully briefed on the new requirements and that they have robust processes in place to monitor and manage collective consultations.
• It’s essential to engage with trade unions and employee representatives early in the process to foster a collaborative approach and minimise conflict.
• Organisations must plan redundancies and changes to terms projects carefully to ensure compliance with the new laws whilst minimising disruption to the business.
• With the changes due in 2026, there is time to put solutions in place and plan for the changes, as well as considering how best to prioritise any projects which may involve collective bargaining.

As touched on above, the government will strengthen trade union rights, including access to workplaces and industrial action ballots. Overall, the Employment Rights Bill mas made a wealth of extensive changes to trade union rights and industrial action overall, such as the requirement for employers to provide workers with written statements of their right to join trade unions, the aforementioned “access agreements” between listed trade unions and employers, a provision for trade union representatives to have sufficient access to facilities (as well as time off rights for union equality representatives), and various other reforms.

The government want to utilise the changes set out in the Bill to simplify the process of statutory trade union recognition too, whilst a significant section in the Bill discusses a multitude of reforms surrounding industrial action, such as the law reverting to require a simple majority of those voting for a ballot conducted by a trade union for industrial action to be successful.

Challenges:

• The empowering of trade unions may lead to an increase in overall union activity. This could spark a rise in unionisation efforts within businesses, particularly in sectors where wages are lower and turnover is higher.
• The potential for industrial action is likely to be more frequent. The new strength of unions as a result of changes in the Employment Rights Bill means that strikes and other forms of action could pose and even larger risk of disruption to business operations.

Solutions:

• It’s more important than ever to foster positive relationships with trade unions by engaging with them proactively and addressing worker concerns before they escalate.
• Organisations should develop contingency plans to mitigate the impact of potential industrial action on business operations.
• Ensure compliance with all legal requirements related to trade union recognition and collective bargaining.

These are just some of the key changes covered in Labour’s Employment Rights Bill. The Bill also discusses changes surrounding an employer’s obligation to take “all reasonable steps” to prevent sexual harassment of their employees, statutory sick pay will have the previous qualifying period of the first three days of any period of entitlement removed, current qualifying periods of employment for paternity and unpaid parental leave will also be removed to make them available from the start of employment, equality and diversity pay gap reporting, menopause action plans and much, much more.

Whilst the Bill may present several challenges for organisations, people teams, and general counsel or in-house legal teams, they also offer businesses an opportunity. One where they can improve their employment practices, leading to greater satisfaction and higher engagement and performance from their workforce – both of which offer unparalleled advantages to any organisation.

For general counsel and in-house legal teams not directly responsible for employment law, these changes will require a close partnership with your people and culture teams. This collaborative approach will enable you to ensure that the new legal requirements are understood and implemented effectively. Combined with a proactive approach, your organisation can navigate these changes smoothly, reducing legal risks and maintaining a positive workplace culture.

Regardless of whether employment law falls within your immediate purview or not, the changes could have a significant impact on many aspects of your role. It’s important to ensure that you have an understanding of the key changes and engage with your internal teams early to understand the potential impact for your organisation. You should consider seeking external advice if necessary to best prepare your organisation for the future and the extensive changes ahead.

If you have any questions about the points raised in this blog, please get in touch with our Employment and Business Immigration team.