FSB Article – Employment Law Changes 2025

If you are a small business employer, you’ll no doubt be aware that new employment legislation is on the way. It’s important that you’re up to speed on the changes and how they can affect your business. 

The Employment Rights Bill 2024 introduces significant changes to UK employment law, including day-one rights for unfair dismissal, ending fire and rehire in most cases and extending collective consultation obligations. There are 28 separate changes in the new Bill. These reforms aim to enhance worker protections and promote fair employment practices, but are likely to have unintended consequences for employers and employees alike.

Employers should review and update employment contracts, policies and procedures to ensure compliance with the new legislation once it is in force. It is anticipated that many rights will not come into force for about two years, which gives some time for employers to adapt. There are further proposals, such as the right to ‘switch off’ after working hours, set out in a ‘Next Steps’ policy paper, indicating even more changes on the horizon.

Key changes:

Day-one rights for unfair dismissal

One of the most significant changes is the introduction of day-one rights for unfair dismissal. Currently, employees need to have worked for a company for at least two years to qualify for unfair dismissal protection. This proposed change would mean that employees will be protected from unfair dismissal from their first day of employment. Employers will not be able to circumvent a fair reason or fair process to dismiss staff with short service once this provision is in force.

However, the Bill does allow for regulations to be made relaxing the requirements for a fair dismissal during an initial period of employment to allow employers to carry out a proper assessment of an employee’s suitability to a role. It’s important to remember though that how long such a probation period for new employees will be, and to what degree the process will be allowed, is likely to be the subject of further consultation.

Employers should look to introduce probationary periods into contracts of employment for new starters, or where these are already in place, review and amend existing clauses to ensure they provide maximum flexibility under the new laws.

A consequence of the removal of the two-year qualifying period could mean that employers are more reluctant to take on new employees, and adopting more rigorous recruitment processes to ensure selection of the right candidate could cause the labour market to stagnate rather than boost it. It could also lead to employers being tempted to recruit only from pools it regards as lower risk, such as people already known by existing management from past employment, or with whom there are personal connections. This could have a negative impact on diversity initiatives.

Fire and rehire rules

The current government has promised to replace the recently updated statutory code of practice on dismissal and re-engagement, which took effect on 18 July 2024, with a strengthened code of practice and to provide effective remedies for employees subjected to such measures. The Bill provides that a dismissal as a result of an employer seeking to vary the terms of a contract will be unfair unless the variations are due to financial difficulties or where the variation cannot reasonably be avoided. Any business planning reorganisations and/or contractual variation projects will need to pay close attention to reforms in this area.

Flexible working

The recent change by the previous government to make flexible working the default from day one will be retained but the permitted reasons for employers to refuse requests may be changed by further regulations made under the Bill. Again, this will need careful analysis when further information emerges.

Zero-hours contracts

The government committed to banning exploitative zero-hours contracts. These contracts, which do not guarantee any hours of work, have been criticised for creating job insecurity and financial instability for workers. The Bill will ensure that all workers have a guaranteed minimum number of hours, have a right to a contract that reflects the number of hours regularly worked and provides workers with reasonable notice of change in shifts, with proportionate compensation available for cancelled or shortened shifts, providing them with more predictable income and better working conditions. 

These provisions replace the Workers (Predictable Terms and Conditions) Act 2023, which the government has chosen not to bring into force.

For those employers used to using zero-hour contracts, such as the hospitality sector, a review and update of these contracts will be essential, as will giving consideration to a new employment model for the business. A change in approach could impact service delivery and cost for such organisations and leave workers without the flexibility they desire.

Collective redundancy

In an important provision, the Bill will remove ‘one establishment’ from the trigger for collective consultation, meaning that proposed dismissals across an employer’s workforce must be aggregated to see whether the 20-plus figure is reached, rather than looking at proposals within a specific workplace. This is likely to significantly increase the number of redundancy situations that fall within the scope of collective consultation obligations and may lead to employers revisiting their group structure.

Sick pay and parental leave

The government promises to scrap the lower earnings threshold for statutory sick pay and make employees eligible to claim sick pay from day one of falling ill. This will bring many more employees in the scope of statutory sick pay, opening up access to an estimated 1.5 million people.

In addition, the right to parental leave and paternity leave will become a day-one right and the ability to take paternity leave following a period of shared parental leave will be introduced, along with a statutory right to a week’s bereavement leave.

Maternity dismissal and harassment

The Bill also allows for regulations to make it unlawful to dismiss a woman during or after a protected period (likely to be six months) of pregnancy, maternity, adoption or shared parental leave, other than for reasons of redundancy.

The Bill also seeks to strengthen the duty on employers to prevent sexual harassment by requiring employers to take ‘all reasonable steps’, rather than just ‘reasonable steps’, with regulations expected setting out what those steps should be. In addition, the Bill will introduce liability on employers for third party harassment of their staff – for example, from contractors or customers. It is important to take relevant advice to ensure your business is compliant with the changes. The Federation of Small Businesses (FSB) offers its members access to 24/7 legal advice as well as a hub containing some 1500 legally drafted documents, which can be downloaded and used within a business. More information can be found on the FSB’s website.