HRD Summary Notes: Labour’s Employment Reforms on People Strategies

On 28^th January 2025, CRF and Bird & Bird hosted an HR Director roundtable discussion on the impact of Labour’s employment reforms on people strategies: Planning for Change: What will Labour’s employment reforms mean for your People Strategy? During the session, Bird & Bird’s Alison Dixon, Furat Ashraf and Olivia Baxendale provided an overview of key changes on the government’s agenda and how they will impact UK businesses and their people strategies. This summary shares key insights from the session, including lessons learned shared by attendees.

The Current Employment Law Landscape
In the US, there has been a significant shift toward more employer-friendly policies, including the rollback of Diversity, Equity & Inclusion (DE&I) initiatives. In contrast, the UK and EU are moving in the opposite direction, emphasising greater employment regulation, stronger promotion of diversity and equality and a more employee-friendly approach. This divergence from the US is unusual and presents complex challenges for multinational organisations.

The Employment Rights Bill – expected to become law in spring/summer 2025 – is arguably the most wide-ranging employment legislation since the 1970s. It was introduced quickly, with limited consultation on its practical implementation. As a result, the bill remains a work in progress, with over 100 amendments already made and more expected before it is finalised.

The reforms will be implemented in phases rather than all at once. Although the volume of reforms may seem overwhelming (including expanded access rights for trade unions and Statutory Sick Pay from day one), most changes will not take effect before 2026. However, some provisions could be implemented sooner, requiring immediate employer attention.

The three areas of focus in the session are outlined below.

Unfair Dismissal Reforms
The removal of the two-year qualifying period for unfair dismissal is one of the most significant changes in the bill. In broad terms, this means that from the moment an employee starts work, they will have the right not to be unfairly dismissed. However, many details on how this will work in practice are yet to be finalised. Details that we know so far include:

• Organisations will have time to prepare – the government has confirmed this change will not take effect before Autumn 2026.
• Only employees who have actually started work will be covered. Someone who has signed a contract but has not yet started will not be protected.
• A statutory probation period will be introduced, allowing employers to follow a ‘lighter touch and less onerous’ process to dismiss employees for specific reasons. However, it is not currently clear how long the ‘light touch’ period will last (although it is expected to be between 6 to 9 months) and what will be required in practice to dismiss someone during that period.

While it is too early to make contractual changes, organisations could start preparing in the following areas:

• Ensure better hiring decisions from the outset and conduct audits of current roles and assess future hiring needs.
• Improve management capability (e.g. train managers to handle probation periods and performance issues more effectively).
• Adjust budgets and resources to accommodate potential cost implications.
• Introduce better tracking systems to measure hiring effectiveness, including monitoring attrition rates and performance over time.
• Ensure capacity to comply with other new rights, such as Statutory Sick Pay (SSP) from day one.
• Clear dismissal procedures will be crucial – unclear processes could lead to an increase in employment tribunal claims. However, the reforms do not address tribunal system capacity, meaning these changes could significantly increase the backlog of cases.

Redundancy and Restructuring
The Employment Rights Bill introduces two new grounds for automatic unfair dismissal, aimed at protecting employees from detrimental changes to their terms and conditions.

Under the proposed new law, if an employer terminates an employee’s contract (a) for refusing to accept changes to their terms and conditions, such as to pay, work location, job scope, or working hours, or (b) to rehire someone else or re-engage the dismissed employee under a varied contract for substantially the same role, this can be classified as an automatically unfair dismissal. There will be a narrow exception in the bill in which the dismissal will not be automatically unfair if the reason for the change is to prevent or significantly reduce financial difficulties. The circumstances to rely on this exception are likely to be limited and even then, the dismissal will still need to be fair in all the circumstances.

In addition, the bill removes the ‘at one establishment’ concept in relation to collective consultation obligations, requiring multi-site employers to assess redundancy thresholds across all locations, not just at a single site. The 90-day consultation period is a rolling period during which employers must look back as well as forward when counting proposed redundancies, meaning redundancies must be assessed cumulatively, rather than as isolated events. This increases the risk of continuous collective consultation requirements, even if redundancies are unrelated.

While these changes in the law could take effect in late 2025, it is more likely they will be implemented in 2026.

Key Changes & Implications

• Employers will face greater legal and operational challenges in modifying contracts unilaterally.
• This shift will make it harder to introduce significant contractual changes (e.g. changes to allowances, direct reports or job roles). Employers may hesitate to offer pay rises or bonuses, knowing they will have fewer negotiation levers when implementing future contractual changes.
• Employers may rely more on policies for certain aspects such as overtime rates, job descriptions, and role expectations to retain flexibility. However, this could lead to disputes over whether changes are reasonable or breach trust and confidence.
• Employers may want to accelerate workforce changes now such as changing certain benefits or reviewing collective consultation processes.
• Employers should start reviewing their restructuring and redundancy strategies now to ensure compliance and mitigate risk before these changes take effect.

The Flexible Working Debate
While no major legal changes have been introduced by the bill and no penalties or tribunal processes have been altered, the concept of ‘reasonableness’ will be formally introduced into flexible working requests.

The current legal framework remains largely unchanged – there is no automatic presumption of a day-one right to flexible working. It therefore remains a right to request flexible working. However, employers will need to ensure that (i) their refusal of a flexible working request is reasonable; and (ii) explain in writing which of eight grounds for refusal is being relied on and why the refusal on that ground(s) is considered reasonable.  

Key Considerations for Employers:

• Flexible working requests are rising significantly, with many employers struggling to enforce in-office attendance.
• ACAS has reported an increase in employee inquiries, including claims of constructive dismissal and discrimination related to return-to-office policies and childcare responsibilities.
• Indirect discrimination claims are rising, even from employees who do not share the same protected characteristic, as long as they can demonstrate they suffer the same disadvantage (e.g. men with childcare responsibilities).
• If Occupational Health (OH) evidence states an employee cannot attend the office daily, enforcing attendance could create litigation risks.

Strategies for managing flexible working requests:

• A rigid, blanket policy is unlikely to succeed – failing to make reasonable exceptions and consider requests on a case by case basis can lead to claims of indirect discrimination.
• Employers must document justifications clearly when requiring in-office attendance.
• Justifications should be role- or function-based, ensuring a level of granularity that can be defended at a tribunal.
• Some organisations may choose to ‘ride out’ talent losses, believing the short-term impact is justified to achieve their desired working culture. To do this you have to consider how widespread the impact of the changes will be on the existing employee population.
• Look ahead to your organisation’s future state – identify what you want your business to look like going forward, rather than simply reverting to the approach taken during the COVID-19 pandemic.
• Create an objective justification for flexible working (e.g. rather than stating, “our global policy is to promote innovation”) based on tangible data and evidence wherever possible.
• Be explicit about flexible working arrangements when hiring. Clearly define role expectations and on-site requirements, although again be willing to make exceptions where needed to protect against discrimination claims.
• Consider the working environment. Poor office conditions (e.g., no heating, inadequate facilities) undermine return-to-office mandates; the ‘carrot’ can sometimes be more important than the ‘stick’.