The Employment Rights Act 2026

Before Labour won the election, they assured the nation that they would introduce new employment legislation to Parliament within their first 100 days. With 10 October 2024 marking Labour’s 98th day in power, they have upheld their promise with the introduction of the Employment Rights Bill, which will become the Employment Rights Act 2026 (or perhaps 2025).

This article highlights some of the key changes that the Bill proposes to make, and what we think the impact of these changes will be.

It will be kept updated as the Bill progresses through Parliament.

Unfair dismissal – making it easier to bring claims 

A fair dismissal will still have to be for one of the 4½ potentially fair reasons; either conduct, capability, redundancy, a statutory restriction and (this is the ½) the catch-all of ‘some other substantial reason’. As it is with the current Act, the dismissal will have to be a fair response to that reason in order to be fair. So no change there.

According to the headlines, one of the most significant changes that the Bill proposes is to make unfair dismissal a day-one right for employees.

Currently, section 108 of the Employment Rights Act 1996 says that an employee must have at least two years of continuous service to bring a claim of unfair dismissal. Lawyers call this the ‘qualifying period’. The Employment Rights Bill seeks to change this by entirely removing section 108 in the Employment Rights Act 2026.

So on the face of it, that means that unfair dismissal becomes a day-one right. But no, that probably won’t be the case, because of the all-new statutory probation period (we paraphrase).

The Bill gives ministers the power to decide from time to time how long is an “initial period of employment” (probatio period) and to prevent employees from bringing unfair dismissal claims in that period. Under the Bill, the Government will be able to decide to disapply or water down unfair dismissal rights during an ‘initial period of employment’; Update (Nov 2024) – this will be between three and nine months. We think it’s likely that Labour governments will tend to choose shorter periods and Conservative governments will choose longer ones.

For employees, this change will be significant. The Bill guarantees greater job security and reassures employees that their job cannot be ended without a good reason.

For the Employment Tribunal however, the impact of the Employment Rights Act 2026 will be less than ideal. Unfair dismissal claims already make up a significant proportion of the claims brought before the Employment Tribunal; in 2023, the number of unfair dismissal claims which attracted compensation increased by 24% in comparison to the previous year. The inevitable increase in claims that will arise from the Employment Rights Act 2026 will make Tribunal waiting times longer without another mass-hiring of judges.

Update (Nov 2024) – the Bill will seek to increase the time-limit to bring claims from three months to six months

One-sided flexibility

Other changes brought by the Employment Rights Act 2026 will include the following for employees (not agency workers, though that’s under consultation):

• a right to reasonable notice of shifts.
• payment for shift cancellation and curtailment at short notice for those on zero and low hours contracts.
• a right to a guaranteed hours contract reflecting the hours that workers regularly work.

In their ‘Plan to Make Work Pay’, Labour made it clear that they wished to abolish exploitative zero-hour contracts and one-sided flexibility. Despite this, some have pointed out that the lack of commitment that comes with zero and low hour contracts can be highly beneficial for some. For example, they are a popular choice for students, as it enables them to fit their jobs around their studies.

Collective consultation

Collective consultation will become more common in larger businesses. Currently, there needs to be an election, information and consultation exercise if there are 20 or more redundancies or a restructure on a site-wide basis. In future there will be a threshold that will operate across the business as a whole. That’s likely to be on the basis of either workforce numbers or a percentage or both. So the magic figure of 20 will be reached more easily from 2026.

Family-friendly rights

The Bill introduces many family-friendly rights into law.

The Employment Rights Act 2026 will give mothers additional protection from redundancy during pregnancy, when on maternity leave and for a period afterwards.

Ministers will be able to ban the dismissals of women who are pregnant, on maternity leave and during a six-month return-to-work period. (Currently, redundancy dismissals are allowed subject to a ‘first dibs’ on available alternative roles).

Fathers will also benefit, with paternity leave now becoming a day-one right. Also, parents will now be able to take paternity leave and pay after their shared parental leave and pay; this amends the current requirement to take paternity leave and pay first.

Finally, the Bill modifies bereavement leave. It seeks to change rights to time off to grieve the loss of children under the Parental Bereavement Leave Regulations 2020 by introducing a new right to bereavement leave, which allows employees to take leave from work to grieve the loss of a wider set of relatives (details to follow).

 

Flexible working

Whilst an employee currently has the right to make a request for flexible working from their first day of employment, their employer is still able to reject this request if they can prove one of the justifications outlined under section 80G of the Employment Rights Act 1996 applies.

The Bill appears to make it more difficult for employers however, by increasing the burden of justification so that they must accept a request except where it is not reasonably feasible. But in our opinion, this is unlikely to turn out to be a big change in practice, as employers will simply add more detailed reasoning to their refusals.

 

Fire and rehire

Fire and rehire is a practice which enables an employer to vary the terms of an employee’s contract of employment without their permission. This includes reducing pay, holidays, sick pay, bonus entitlements and other perks. So, what if an employer wants to reduce costs by, say, exchanging company cars for mileage allowances or car allowance?

The Bill restricts an employers’ ability to use the fire/rehire tactic – by amending the law on unfair dismissal to make fire and re-hire automatically unfair.

It gives employers a defence where they can show evidence of such financial difficulties that changes in contractual terms were needed (i.e. “the employer could not reasonably have avoided the need to make the variation“). But that could be interpreted as a high bar – i.e. the brink of imminent financial collapse in the words of one commentator.

Employers may try

• Relying on flexibility clauses in the employment contract to vary contract terms without dismissal (after consultation and notice). This effectively amounts to getting the employee’s agreement in advance. But in practice, tribunals rarely allow this for substantial unilateral variation. In theory, employers can rely on clauses which clearly and unambiguously identify a right to vary terms if they the mechanism for amendment, the circumstances in which it might be invoked and so on.Employers are unlikely to be able to vary contracts now for existing employees as a fire and rehire while they can still do it would likely be unfair.And as for new employees, how will your recruitment go if you send new hires a contract containing a clause saying something like “we have the right to vary your contract by slashing your salary by up to 50%, restricting your holiday and sickness perks to the bare legal minimum, taking away your company car and cancelling your gym membership on one months’ notice, after a meeting with you to discuss it, which by the way will not change our minds.And even if employers do introduce an unambiguous clause like that, an employment tribunal will still bend over backwards to avoid applying it by trying to find a loophole. 
• Use redundancy – replace dismissed employees with agency workers.This is undesirable for employers because agency fees will cut into savings. Also, employers will be exchanging known quantities for unknown quantities, with all the downsides of agency workers. Plus if TUPE is applied because enough of a business unit transfers to one agency staff may retain their original terms anyway, under TUPE.
• Natural wastage. Nothing stops an employer from hiring new staff on different terms. But this is a long process, which will mean that even in a decade, longer-serving staff will be on ‘grandfathered’ terms. Although there is no implied right to pay increases, so employers could simply place ‘grandfathered’ staff on a pay increase freeze until parity with new employees is reached. This creates a two-tier workforce, which could lead to disharmony.
• Buy out rights. In practice, what we think will happen is that employers will try to buy out the rights of staff. EG if an employer wants to exchange a company car perk for car allowance, it will want to consider offering a one-off payment for employees to sign new contracts. Again, this will cut into savings. And in a large enough workforce there will still be refuseniks.

Equality

The Bill aims to promote equality within the workplace by making many changes.

First the Worker Protection (Amendment to the Equality Act 2010) Act 2023 came into force on 26 October 2024. This introduced a legal duty upon employers to take reasonable steps to prevent sexual harassment of their employees.

The Bill is already set to amend the legislation. It goes a step further and imposes a duty on employers to take ‘all’ reasonable steps to prevent sexual harassment of their employees.

This is similar to a provision that was previously introduced, then repealed (employers could be liable if the employee had been harassed by the third party on two previous occasions).

From 2026 employers who provide services to passengers, patients and other individual customers where conflict situations are common will need to be especially on guard.

The Bill places an obligation on employers not to permit harassment of their employees by third parties. It does this by introducing an obligation to take all reasonable steps to prevent it, a high threshold. That includes having a harassment policy, providing regular training (for employees, contractors and agency staff). Employers will want to consider amending commercial contracts to include provisions making it a breach of contract to harass their staff. They will want to consider zero-tolerance signage, security measures, reporting structures. In case of employment disputes they’ll need to be able to gather information about harassment grievances and how they were dealt with.

Pub landlords will have to warn, then ban regulars who are lewd towards bar-staff. If an employer hires a comedian, who then tells non-PC jokes to staff, a manager should be prepared to go onto the stage and warn the comedian not to do it again or their mic will be switched off. Employees need to know in advance what steps to take if they experience third-party harassment. Employers should start by doing a risk assessment before the new Act comes into force.

 

Sick pay

The final thing of note is changes to sick pay.

Under the current Act, an individual must earn at least the Lower Earnings Limit (which is currently £123 per week) to be eligible for statutory sick pay (SSP).

The Bill removes the requirement to earn at least this in order to be eligible for SSP. Also, the Bill removes the three-day waiting period for SSP and it will also allow employees to claim SSP when off work for a single day (the current requirement is for there to be four consecutive days of incapacity).

 

The impact on employers

Whilst many amendments likely to follow before the Bill receives Royal Assent, employers should stay wary and watch this space. This Bill currently proposes several changes which may make the life of employers a little more challenging.

With unfair dismissal soon becoming a day-one (-ish) right, employers may want to introduce a more rigorous hiring process to ensure that only the most suitable people are entering their workforce.

Another issue for employers may stem from the requirement to guarantee contractual hours. If the law imposes less favourable contractual terms on employers, industries that typically rely upon zero and low hour contracts may struggle to find employees.

It is still early days; the Bill is unlikely to come into force sooner than 2026, and we can expect a number of changes to be made before Royal Assent.

Update (Nov 2024): Larger employers may have a duty to produce an equality action plan on menstrual issues.

Employment Rights Act 2026: Conclusion 

Whilst this Bill is only at the second reading stage in the House of Commons, we look forward to seeing how these changes will translate into practice by the time it becomes the Employment Rights Act 2026.