ML Covered - The Employment Rights Bill is here - what could this mean for employers?

The first draft of the Employment Rights Bill ('the Bill') was published earlier this month and represents a landmark overhaul of employment law rights.

We will provide a more detailed update in next month's edition of ML Covered, but at a glance, employers and their insurers should be aware of the following key potential changes:

Unfair Dismissal Rights

The Bill plans to scrap the two-year qualifying period for unfair dismissal. However, the government is consulting on a new statutory probation period (rumoured to be six or nine months) during which it may be easier to dismiss employees. The right not to be unfairly dismissed will not apply where the employee has not yet started work.

Flexible working

The Bill provides that employers can only refuse a flexible working request on one of the existing statutory grounds and where it is reasonable to do so. Any refusal by the employer must state the ground or grounds for refusal and explain why it is considered reasonable to refuse the application on that ground or grounds.

Changes to contracts

Employers will face further restrictions when terminating contracts and imposing less favourable terms through ‘fire and re-hire’ practices. Dismissal due to failure to agree contact variation will only be fair if the reason for the variation was to eliminate, prevent or significantly reduce, or significantly mitigate the effect of, any financial difficulties which would affect the employer's ability to carry on the business, and the employer could not reasonably have avoided the need to make this variation.

Further, employers will have a duty to offer guaranteed hours contracts which reflect the hours regularly worked by a zero-hour worker over a 12-week reference period. This will also apply to low hours contracts where the worker regularly works more than those hours.

Access to sick pay

The three-day waiting period for statutory sick pay (SSP) will be removed, and employees will be able to claim sick pay from day one of an illness. The Bill also removes the lower earnings limit, which currently means that those earning under £123 per week are not entitled to SSP. The Government will consult on a rate of SSP for those earning below the current weekly rate of SSP which is £116.75.

Women in the workplace

Organisations with 250 or more employees will be required to publish an annual equity action plan. The plan will need to demonstrate the steps that employers are taking in relation to their employees regarding prescribed matters related to gender quality. The matters will include addressing the gender pay gap and supporting employees going through menopause.

Employment status

Much anticipated changes to employment status have not made it onto the new Bill. Instead, the government has published a Next Steps document outlining the reforms that it will seek to implement in the future, including the move towards a single 'worker' status (abolishing the distinction between workers and employees). These reforms are subject to consultation and may not take effect until Autumn 2026.

Parliament will debate 28 legislative reforms introduced by the new Bill, many of which will prompt lengthy consultations with employers. It could be a matter of years until the Act itself comes into force. Watch this space for further updates on the Bill's progress.

Potential impact on coverage for EPL Claims

We expect that Insurers will keep a close eye on the plans to reduce the qualifying period to bring an unfair dismissal claim as it will likely have an impact the number of EPL notifications. The ability for employees to potentially bring an unfair dismissal claim from day 1 of their employment may impact underwriters' approach to writing EPL risks for those companies that have a high turnover of staff who may often leave before they reach the current 2-year qualifying period.

We may also see Insurers make further enquiries at the placing/renewal stage to try to forecast the potential risk of future employment claims. For example, the proposed changes to the zero-hour contracts may prompt greater scrutiny of those policyholders who adopt these working practices.

The proposed changes to employees' entitlement to statutory sick pay may also bring into focus the wording of Insurers' contractual benefit type exclusions in ML policies.

Some of the proposed changes may also increase the opportunity for disgruntled employees to bring (or at least threaten to bring) whistleblowing claims if their employer is not meeting their increased statutory obligations. With these types of claims potentially resulting in uncapped redress payments being awarded against employers, it will be for the insured and insurers' mutual benefit to mitigate against such risks.

We also expect that Insurers will pay close attention to the outcome of the consultation to review workers' status and the potential coverage impact this may have.