Your Settlement Agreement Solicitor

Your Settlement Agreement Solicitor

Episode 17: Special Edition: The Employment Rights Bill and How it Will Impact the Use of Settlement Agreements

Welcome to this special edition of Your Settlement Agreement Solicitor. Today we're breaking down The Employment Rights Bill, what it means for employees and employers and its potential impact on the use of settlement agreements. There is a lot of ground to cover, so without further ado, let's dive into how this new legislation came about and what we can expect in terms of timelines.

As you may recall, the Labour government made a commitment to introduce legislation within its first 100 days to reform employment law. True to that promise, the Employment Rights Bill was introduced on the last available day to meet this deadline. But before we get ahead of ourselves, it's important to remember that much of the Bill consists of enabling provisions. This means the finer details will be worked out in secondary legislation, which the Secretary of State for Business and Trade will introduce at a later stage.

Realistically, the Bill itself isn’t expected to become law until mid-2025. And even then, many of the key provisions won’t come into force until further regulations are issued, which, at the earliest, would be in 2026. For instance, reforms to unfair dismissal are said to be coming into effect no sooner than autumn 2026.

Now, we can view this Bill as just the opening move in the government’s broader plan to reform employment law. There’s been a lot of talk about further consultations and reviews, as noted in the government's press release, which also includes input from various stakeholders. So, we can expect additional tweaks and refinements as the Bill progresses through Parliament, with much of the detail emerging during the secondary legislation phase. Many other employment law reforms that were promised in the Labour manifesto are also being deferred to future legislation.

So, while today we’re focusing on the key elements of the Bill as it stands, we’ll also keep an eye on the direction of travel as the legislation evolves.

Let’s take a closer look at some of the proposed changes in the Bill and what they mean for the increased use of settlement agreements.

Unfair Dismissal

Let’s move on to one of the more significant and, quite frankly, eye-catching proposals in the Employment Rights Bill: the reforms around unfair dismissal. This is where things get particularly interesting, as the Bill proposes a major shift towards what many employment lawyers have been calling for—a “day one right” to claim unfair dismissal.

Currently, under section 108 of the Employment Rights Act 1996, employees must have two years of continuous service to bring a claim for 'ordinary' unfair dismissal. The Employment Rights Bill would change that by repealing section 108, essentially giving employees the right to claim unfair dismissal from the moment they start work.

This would be a significant development, but as with much of the Bill, the finer details are still to be worked out.

For example, Schedule 2 of the Bill introduces the idea of an ‘initial period of employment’, during which dismissals may not need to meet the full procedural and substantive fairness requirements set out in section 98(4) of the ERA. However, this only applies to certain types of dismissals, such as those related to capability, conduct, or other substantial reasons.

The exact length of this ‘initial period’ is still up for debate, with reports suggesting it could be anywhere from six to nine months. This would give employers a bit of leeway early on but also raises questions about what protections employees will actually enjoy from day one.

One area where the Bill does provide some clarity is around automatically unfair dismissal. Employees who haven’t started work yet won’t generally be able to claim unfair dismissal, but there are exceptions—particularly where the dismissal relates to the employee’s political opinions or affiliation. This could open up a whole new area of discussion about the scope and meaning of “political opinions” in the workplace.

Now, shifting gears slightly, the Bill also aims to address the controversial practice of fire and rehire. This tactic, where employers dismiss employees who refuse to accept changes to their terms and conditions and then rehire them on the new terms, has been heavily criticised in recent years.

Under the proposed changes, dismissals related to fire and rehire would be deemed automatically unfair if the employer’s reason for dismissal was the employee's refusal to accept a contract variation. Furthermore, if the employer replaces the dismissed employee with someone else willing to accept the new terms, this would also be considered unfair dismissal.

There are some narrow exceptions for employers facing financial difficulties, but the Bill sets a high bar. Employers would need to demonstrate that the contract variation was necessary to prevent, eliminate, or significantly reduce financial troubles that threaten the business as a going concern. Even then, they would have to prove that no reasonable alternatives were available. This sets an incredibly high threshold, similar to situations where liquidation or insolvency is looming.

Overall, the Bill would make it much harder for employers to impose unilateral changes to employees’ contracts, creating far greater protections for workers in such situations. Ironically, it may be easier for employers to dismiss staff outright on grounds of redundancy or reorganisation than to enforce contract changes under this new framework.

Finally, we’ve also got some changes to collective redundancies. At the moment, collective redundancy obligations—like consulting employee representatives and notifying the Secretary of State—are triggered by the number of redundancies at a single establishment. The Bill proposes removing this reference to a single establishment, meaning redundancies across multiple locations could now be considered collectively. This could have major implications for businesses with multiple sites, increasing their obligations during redundancy processes.

What does all this mean for the use of settlement agreements? Well, with increased protections for employees and tighter restrictions on how dismissals are handled, we’re likely to see a surge in settlement agreements being used to resolve disputes. Employers may find it easier—and less risky—to negotiate a clean exit with a settlement agreement than to navigate the new legal landscape of unfair dismissal claims, fire and rehire restrictions, and collective redundancy obligations.

Stay with us as we explore more implications of the Employment Rights Bill and how it might reshape employment law as we know it. If you’re considering a settlement agreement in light of these changes, now is the time to seek expert legal advice.

Equality

Now, let’s turn our attention to how the Employment Rights Bill tackles equality in the workplace, with a particular focus on harassment and the steps employers will need to take moving forward.

One of the standout changes in the Bill is the expansion of the duty on employers to prevent sexual harassment. Right now, employers are expected to take reasonable steps to prevent sexual harassment, but the Bill raises the bar, requiring them to take all reasonable steps. This may sound like a small change in wording, but in practice, it’s a significant shift. Employers will have to be more proactive in preventing harassment, and they’ll need to do more to demonstrate that they’ve fulfilled their obligations.

To help clarify what these all reasonable steps might look like, the Bill anticipates the introduction of new regulations. These could include specific requirements, like carrying out risk assessments, publishing anti-harassment policies, and implementing procedures for handling complaints. While this may seem like additional red tape for employers, many will actually welcome the clarity these regulations could provide. It gives them a concrete checklist of actions to follow, making it easier to ensure they’re compliant with the law.

The Bill also introduces a new category of protected disclosure specifically related to sexual harassment, tying this into the existing whistleblowing framework. Now, some of you might be thinking—wait, doesn’t a disclosure of sexual harassment already fall under the existing whistleblowing laws or even the Equality Act? And you’d be right. A disclosure of sexual harassment is already covered by whistleblowing legislation if it reveals a breach of legal obligations. Similarly, it could qualify as a protected act under section 27 of the Equality Act 2010, which is often easier to prove since it doesn’t require the belief that the disclosure is in the public interest.

But the Bill goes a step further by creating a specific category for these types of disclosures, which may encourage more employees to come forward with complaints, knowing that the law explicitly recognises this as a protected disclosure.

Where things get really interesting is the Bill’s reversal of the law on third-party harassment. Under the Equality Act 2010, employers weren’t explicitly required to prevent harassment by third parties, such as customers or clients. The Employment Rights Bill changes this. Now, employers will be prohibited from permitting third-party harassment during the course of employment. And, crucially, an employer will be seen as having permitted the harassment if they fail to take all reasonable steps to prevent it.

This raises the question—what counts as a reasonable step when dealing with third parties, over whom employers have less control compared to their own staff? The answer to that remains to be seen and will likely be fleshed out through future case law or regulations. But it’s clear that employers will need to be much more vigilant when it comes to protecting employees from third-party harassment, whether it’s from clients, customers, or suppliers.

Another important aspect of the Bill concerns equality audits. Although the Bill doesn’t require them just yet, it envisions the possibility of regulations that would oblige larger employers to develop and publish equality action plans. These plans would focus on gender equality and address issues such as the gender pay gap and support for employees going through menopause.

While these regulations haven’t been fleshed out yet, the idea is that they would apply only to employers with 250 or more employees, excluding public authorities. And to avoid overwhelming businesses, employers would not be required to publish these reports more than once a year.

For employers, these audits would provide a structured way to demonstrate their commitment to equality, while for employees, it signals a move towards more transparency and accountability in tackling inequality in the workplace.

What does all this mean for settlement agreements? Well, with stronger protections around harassment—both from internal employees and third parties—and a greater emphasis on equality, employers will likely turn to settlement agreements as a way to resolve disputes quickly and avoid the risk of litigation. Whether it’s sexual harassment claims or third-party harassment, we may see an uptick in settlement agreements as a tool to manage these issues.

As always, if you find yourself involved in a situation that could lead to a settlement agreement, either as an employer or employee, it’s crucial to seek expert legal advice to ensure your rights are protected.

Guaranteed Hours and Other Terms and Conditions of Work

Now, let’s discuss one of the most headline-grabbing parts of the Employment Rights Bill—the government’s mission to tackle what it calls "exploitative zero-hours contracts." These reforms are designed to transform how zero-hours and low-hours contracts are used in the workplace, creating guaranteed hours and new rights for workers. But as always, the devil is in the details.

The Bill proposes a mechanism that would require employers who engage workers on zero-hours—or even low-hours contracts—to offer those workers a contract that guarantees a minimum number of hours. This minimum is based on the average hours worked during a reference period, which has been floated as 12 weeks, although the exact length will be determined by future regulations.

So, here’s how it works: at the end of each reference period, the employer would be required to offer a contract that reflects the number of hours worked during that period. The worker can accept or reject the offer, and if they reject it, the employer must continue to make new offers at the end of every reference period. In some cases, the employer may also have to guarantee the same days, times, or working patterns as in the reference period.

This provision has the potential to significantly alter the landscape for zero-hours contracts. Workers can effectively lock in the greatest number of hours they worked in any given reference period and convert it into a guaranteed entitlement. It’s a powerful incentive for workers who want more stability, but it also raises the stakes for employers who may suddenly find themselves offering more guaranteed hours than they anticipated.

However, there are some key exceptions. The right to guaranteed hours is only triggered if the hours worked during the reference period meet certain conditions regarding their number and regularity, which will also be set out in secondary legislation. And, in some cases, employers can limit the offer of guaranteed hours if they can demonstrate that it’s reasonable to do so. For example, if the worker was only needed for a specific task or event, or if the need for the worker was temporary.

If an employer fails to comply with these provisions, workers will have the right to bring claims in the Employment Tribunal. However, the remedies are limited to compensation or a declaration. Interestingly, the Tribunal cannot force an employer to offer guaranteed hours, so while there is some recourse, the power to compel guaranteed contracts doesn’t exist.

So, what does this mean for settlement agreements? As employers face the challenge of adjusting to these new obligations, we may see an increase in the use of settlement agreements to navigate disputes over guaranteed hours. Rather than risking Tribunal claims, businesses might opt to negotiate exits with settlement agreements that give workers compensation or other benefits in exchange for agreeing to part ways.

The Bill also introduces new rights around shift patterns. Employers will be required to provide reasonable notice of shifts and any changes or cancellations. If shifts are cancelled or changed at short notice, workers will be entitled to compensation, again with the details left to future regulations. This will further increase the administrative burden on employers and may lead to more settlement agreements to avoid disputes over last-minute shift changes.

Now, let’s talk about flexible working. The last government already made flexible working a day-one right, but this Bill takes it a step further. Employers must not only refuse a flexible working request on specified grounds, but they must also demonstrate that the refusal was reasonable. Additionally, they’ll have to explain why they are rejecting the request in writing and give specific reasons at the time of the refusal. This creates a new level of accountability for employers, who will likely need to involve HR professionals or lawyers much earlier in the process to ensure that their explanations are legally sound.

This trend of requiring employers to provide contemporaneous justifications doesn’t just apply to flexible working but is a common thread throughout the Bill. Whether it’s guaranteed hours, shifts, or other terms of employment, employers will need to be much more transparent and engaged with the process, which again may lead to more reliance on settlement agreements to manage these obligations.

The Bill also expands bereavement leave, making it a general entitlement rather than one limited to parental bereavement. Employees will be entitled to one week of leave following the death of a close relative, with more specific relations to be set out in secondary legislation.

In addition, parental leave and paternity leave will now become day-one rights. This makes it easier for new parents to take time off from work without waiting for eligibility to build up, but otherwise, the provisions remain largely the same.

Finally, let’s touch on statutory sick pay. The Bill proposes some important changes here as well. Statutory sick pay (SSP) will now be available from day one of sickness absence, instead of the current rule where it only kicks in after the fourth day.

Additionally, the minimum earnings threshold will be scrapped, meaning more workers will qualify for SSP. The rate of SSP will be set at the lower of the full amount (currently £116.75) or a percentage of the worker’s weekly earnings, which will be determined by future regulations.

This combination of increased protections for workers and new obligations on employers is likely to lead to more negotiation and settlement agreements as businesses adjust to the new rules. Employers will need to carefully consider how they manage zero-hours contracts, flexible working, shift changes, and sick pay, and workers will need to understand their new rights under the law.

Industrial Relations and the Labour Market

Let’s now focus on industrial relations and the labour market—another crucial area where the Employment Rights Bill is set to bring big changes, particularly around trade union reform and labour market enforcement.

The Bill significantly strengthens the power of trade unions, giving them greater access to workplaces and more influence over bargaining and industrial action. Let’s unpack what this means.

Under the new Bill, workers will now have the right to a statement of their trade union rights at the same time they receive their section 1 statement, which outlines their terms of employment. This means workers will be better informed about their rights from the outset, which could lead to more engagement with unions and collective bargaining.

One of the biggest changes is that unions will have the right to access workplaces to meet with, recruit, and organise workers or facilitate collective bargaining. While they won’t be allowed to use this access to organise industrial action, it still represents a significant shift in power. Employers will be required to take reasonable steps to facilitate this access, and only in rare circumstances will they be able to refuse. Disputes over access will be decided by the Central Arbitration Committee.

The Bill also expands rights around union activities. Employers will now have a duty to provide reasonable accommodation or facilities for union activities, including for Equality Representatives within recognised unions. On top of that, the thresholds for union recognition and voting have been lowered, making it easier for unions to secure recognition and to take industrial action.

Some of these key changes include:

• The Secretary of State now has the power to lower the threshold for compulsory trade union recognition from 10% of the workforce to as little as 2%.
• The requirement for a 40% turnout in recognition ballots has been scrapped, so unions no longer need to meet this hurdle.
• For industrial action ballots, the requirement is now a simple majority of those who vote, making it easier for industrial action to go ahead.

The Bill also repeals the controversial Minimum Service Levels legislation, which placed limits on industrial action in essential services. Unions will no longer be required to supervise pickets to avoid liability, and workers will have statutory protection from being dismissed or subjected to detriment for participating in industrial action. The Bill even strengthens the ban on blacklisting union members, expanding protections under the Employment Relations Act 1999.

On the flip side, while employers are being subjected to more administrative duties and audit trails, trade unions are seeing a relaxation of some of their obligations. For example, political fund contributions will switch to an opt-out scheme rather than an opt-in, and restrictions on union subscription deductions from wages in the public sector will be revoked. The information that unions need to include in their annual returns has been reduced, and the Certification Officer’s inspection powers have been rolled back.

These changes are a clear signal of the government’s intention to shift the balance of power towards unions, which will likely result in increased union activity and collective bargaining. For employers, this could lead to more negotiations and potentially more settlement agreements to avoid the risk of industrial action.

Now, let's talk about sectoral pay bargaining. The Bill restores sectoral bargaining with the re-establishment of the School Support Staff Negotiating Body and the creation of an Adult Social Care Negotiating Body. These bodies will have the power to negotiate the terms, conditions, and pay of workers in their sectors, with the outcomes of those negotiations potentially being incorporated into workers’ contracts—prevailing even over any contrary terms that might exist.

This move will likely create a more structured approach to negotiating pay and conditions in these sectors, but it also means employers in these industries may need to be prepared for sector-wide agreements that affect their workforce. In situations where employers find these agreements difficult to manage, we could see an increase in the use of settlement agreements as a way to restructure or negotiate exits with certain employees.

The Bill also introduces some major changes in the way labour market enforcement will be handled. It abolishes the Gangmasters and Labour Abuse Authority and the Director of Labour Market Enforcement. Instead, the Secretary of State will be responsible for enforcing a wide range of labour market legislation, from minimum wage laws to modern slavery protections.

This new enforcement framework will include powers to enter premises, inspect documents, and even compel answers to questions. If non-compliance is found, employers could face voluntary undertakings or, in more serious cases, court orders aimed at preventing future violations. Failure to comply with these court orders could lead to criminal charges and up to two years’ imprisonment.

The government plans to create a new body called the Fair Work Agency, which they hope will become a one-stop shop for enforcing labour market legislation. This centralisation of enforcement may mean that businesses are under more scrutiny than ever before, which could lead to an increase in compliance costs and, potentially, more disputes that might be resolved through settlement agreements.

In Summary

This landmark legislation is shaping up to bring some of the most significant changes to employment law in decades, and it will undoubtedly impact both employees and employers across Great Britain. Here are the key takeaways and what they mean for you.

1. Strengthening Employee Rights

The Bill introduces new protections for employees, including:

• Day-One Right to Claim Unfair Dismissal: Employees will no longer need two years of continuous service to claim unfair dismissal, giving them immediate protection. However, an ‘initial period’ of employment may allow dismissals under certain circumstances without full procedural fairness.
• Zero-Hours Contracts: Employers will be required to offer guaranteed hours based on a reference period, making it harder to exploit workers on zero-hours contracts. This provision could lead to more secure working conditions but may also push employers to use fewer zero-hours contracts.
• Stronger Protection from Harassment: Employers will need to take "all reasonable steps" to prevent both employee and third-party harassment, with the potential for tighter rules on workplace culture and employer responsibilities.
• Expanded Bereavement and Parental Leave: Parental and paternity leave will become day-one rights, while bereavement leave is extended to all close relatives.

2. Union Empowerment and Sectoral Bargaining

The Bill strengthens the role of trade unions, granting them greater access to workplaces and lowering the thresholds for union recognition and industrial action. This may increase collective bargaining activity, and with the reintroduction of sectoral pay bargaining in areas like school support and adult social care, employers may need to be more prepared for union involvement in workplace disputes.

3. Labour Market Enforcement

A new enforcement regime, including the creation of a Fair Work Agency, will streamline the policing of employment standards, from minimum wage laws to modern slavery regulations. This signals a future where employers will face more scrutiny and regulation over their employment practices.

4. Impact on Settlement Agreements

With the introduction of these new rights, protections, and stricter obligations on employers, we anticipate an increase in the use of settlement agreements. Employers may look to settle disputes swiftly, especially given the current backlog in Employment Tribunals. The time it currently takes to resolve cases—often up to two years—means businesses might prefer to negotiate a settlement to avoid costly and drawn-out litigation.

5. What’s Missing? Tribunal Capacity

Despite these extensive reforms, the Bill is silent on how the government intends to address the chronic backlog in Employment Tribunals. Without a solution, the value of many of these new rights may be diminished, as employees and employers face lengthy delays in resolving disputes. This uncertainty is another factor that may drive businesses to opt for settlement agreements as a quicker, more affordable resolution.

6. Conclusion

While it may take some time before this Bill becomes law, it marks the start of a fundamental shift in employment law. Both employees and employers will need to adapt to these changes, and settlement agreements are likely to become an even more critical tool in navigating the evolving legal landscape.

Thank you for tuning in to this special edition of Your Settlement Agreement Solicitor, where we’ve unpacked the newly introduced Employment Rights Bill. Stay informed and be proactive—if you’re an employer or employee facing a potential dispute, now is the time to seek expert legal advice. As always, Your Settlement Agreement Solicitor is here to guide you through every step of the process.

I am Geoffrey Caesar, your settlement agreement solicitor.