Government amendments to the Employment Rights Bill – key takeaways for employers

The government’s original approach to ending the practice of fire and rehire as set out in the first version of the Employment Rights Bill has been one of the areas that has caused employers most concern.

Under the Bill, as originally drafted, the dismissal of an employee would be automatically unfair where the reason for the dismissal was either:

1. that the employee did not agree to a variation of their contract of employment; or
2. to enable the employer to re-engage the employee (‘fire and rehire’) or employ someone else (‘fire and replace’) under a varied contract of employment to carry out substantially the same duties.

These provisions were only disapplied if the employer’s ability to carry on the business as a going concern would be in question (a very high hurdle) were the variation not introduced. As drafted, these reforms would have significantly restricted the employer’s ability to change terms and conditions of employment, unless the employee agreed to the change. Several commentators have noted that this would effectively have given employees a power of veto against all changes to their contracts of employment.

Perhaps in response to these concerns, the government has proposed some significant amendments to these original provisions. These amendments include the following:

1. Limiting the automatic unfair dismissal provision to dismissals where the variation to the contract of employment amounts to a ‘restricted variation’. Notably, changes to the employee’s place of work and duties are not included in the list of restricted variations – we touch on this further below. A ’restricted variation’ is a variation which relates to a list of specified contractual terms, as set out in the Bill, and includes:
   • a reduction, or removal of an entitlement to, ‘any sum payable’ to the employee, although importantly there is provision for further regulations to specify expenses, payments or benefits in kind which may be excluded from constituting a ‘restricted variation’
   • a variation to sums payable to the employee by reference to the amount of work done by the employee or results achieved by the employee – for example, commission
   • a variation to any term or condition relating to pensions or pension schemes
   • a variation to the number of hours which an employee is required to work
   • a variation to the timing and duration of shifts which meets conditions to be set out in subsequent regulations
   • a reduction in the amount of time off to which an employee is entitled
   • any other variation specified in subsequent regulations
   • the inclusion in the contract of a variation clause to allow the employer to vary any of the restricted terms without the employee’s agreement, although it would appear that variation clauses in the contracts of new hires and existing variation clauses already incorporated into contracts of employment will still be permitted.
2. Widening the financial exemption which disapplies the automatic unfair dismissal provisions to ensure that there is an equivalent exemption for public sector employers – the exemption would also apply where a public sector employer can show that there is the required effect on the financial sustainability of carrying out its statutory functions. Further provisions to cover local authorities are also included in the amendments to enable such authorities to rely on the exemption in appropriate circumstances.
3. Introducing a new provision which would apply to dismissals where the employee did not agree to a non-restricted variation of their contract of employment or where the dismissal was to enable the employer to fire and rehire, or fire and replace, the employee under a varied contract of employment but one which did not contain any restricted variations. In those circumstances, the dismissal would not be automatically unfair. However, the new provisions set out a list of factors (including the reason for the variation, the consultation carried out by the employer and any incentives offered to the employee in return for agreeing to the variation) that a tribunal would have to assess when considering whether the dismissal was unfair (in an ordinary unfair dismissal claim). This amendment would, in effect, introduce a bolstered version of ordinary unfair dismissal for dismissals that relate to a non-restricted variation in terms and conditions.
4. Anti-avoidance provisions would be added to the Bill to prevent an employer seeking to avoid the liabilities outlined above by replacing employees with individuals who are not on employment contracts, such as agency workers or self-employed contractors. This new right could have significant implications for those employers who might want to change their business model from one of direct employment to wider use of agency workers or self-employed contractors.

For employers looking to make restricted variations, the Bill would (if these amendments are accepted) continue to provide very significant levels of protection for employees and the concerns raised about the employee’s potential power of veto remain. However, restricting the automatic unfair dismissal provisions to apply only to variations to a defined list of contractual terms (which are, up to a point, limited to those terms which employers look to change least often), does offer employers some flexibility to make changes to unrestricted terms, absent employee agreement. Indeed it will be welcome news to employers that place of work and duties are not on the list of restricted variations given these are two of the most common scenarios where an employer may want to make changes, without being in major financial distress. What is not entirely clear at this stage is how different the tribunal’s assessment of the bolstered ordinary unfair dismissal provisions would be from the existing unfair dismissal assessment that tribunals currently carry out when faced with a dismissal and re-engagement case regarding changes to terms and conditions.

The ethics of NDAs and confidentiality clauses have been the topic of debate for many years now, particularly in the wake of the #MeToo movement which highlighted some high-profile examples of NDAs being used to silence victims of sexual harassment and misconduct. Since then, regulators and legislators alike have implemented various changes to combat these concerns. These changes include upcoming reforms (which are separate to the Employment Rights Bill) that will, once implemented this October, make NDAs and confidentiality clauses void where they prevent victims from reporting criminal conduct or making certain other types of disclosures regarding such conduct. We provide more details about those upcoming reforms here.

Since 2018, solicitors have also been subject to important regulatory rules (issued by the Solicitors Regulation Authority) which govern how solicitors should advise their clients on confidentiality and NDA provisions and set out certain types of disclosure that must not be prohibited by a confidentiality or non-disclosure clause. These permitted disclosures include reporting of offences and misconduct to the police and regulators, whistleblowing disclosures and any disclosure required by law.

This week’s amendments to the Employment Rights Bill propose to go much further by effectively introducing a ban on non-disclosure and confidentiality clauses between employers and workers that purport to prevent the worker from making disclosures relating to harassment or discrimination or the employer’s response to such harassment or discrimination. This ban would cover harassment and discrimination carried out by, or importantly, alleged to have been carried out by, the employer or any worker of the employer and would extend to allegations raised by the worker about harassment or discrimination they experience themselves or their colleagues have experienced (and so protecting witnesses of harassing or discriminatory conduct). Most types of discrimination are covered by this proposed ban, other than a failure to make reasonable adjustments and victimisation – there does not appear to be an obvious reason for these exclusions, and this may be corrected as the Bill further progresses through Parliament.

If this amendment were to be implemented, any clause which sought to prevent a worker from making a permitted harassment or discrimination disclosure would be void in so far as it would prevent them from making that disclosure.

Whilst contracts of employment would likely be affected, the two types of agreement that would be most affected by this reform are settlement agreements and COT3 agreements which both commonly include confidentiality clauses that would cover disclosures relating to harassment and/or discrimination. The amendment includes the potential for the Secretary of State to issue regulations specifying certain ‘excepted agreements’ which would not be subject to the NDA ban – at this stage, there is no indication of the types of agreement that might be excepted, but it seems unlikely that it would include settlement agreements as they are specifically mentioned in the government’s press release announcing the reform.

The announcement of this reform has been met with a range of different views. Many have lauded the reform as a step forward in preventing the silencing of victims and witnesses of harassment and discrimination in the workplace. Others have, however, pointed to the potential chilling effect that this ban could have as employers may be less willing to settle disputes that involve allegations of harassment or discrimination (potentially leading to more disputes ending up in employment tribunal) and employees themselves may want agreements to include two-way confidentiality provisions to help provide them with a ‘clean break’ settlement.

We are currently unclear when any such ban would come into effect – given it is an entirely new provision, there was no reference made to it in the government’s implementation roadmap issued last week.

The original Employment Rights Bill published last October contained provisions setting out a new ‘day one’ right to bereavement leave. Key details about that new type of leave (including the length of leave and the qualifying requirements) will be set out in regulations before the right is brought into force (expected in 2027). Although many details of the leave remain unknown until consultation on this new right is launched this autumn, we do know that the Bill, as originally drafted, did not provide for bereavement leave to be taken after a pregnancy loss experienced prior to twenty-four weeks of pregnancy. Parental bereavement leave is already available for parents whose child is stillborn after twenty-four weeks of pregnancy so the gap in protection is for those who experience loss prior to twenty-four weeks.

During the House of Commons debate, the government had already indicated that it would provide for bereavement leave in the event of miscarriage / pregnancy loss – this week’s proposed amendment implements that promise by broadening the definition of a ‘bereaved person’ to include any employee who has suffered a pregnancy loss and to certain specified relatives of the mother or child (likely to include spouses and partners of the mother, and the child’s parents). Pregnancy loss will include pregnancy loss after less than twenty-four weeks of pregnancy and a failed embryo transfer for parents going through IVF.

We do not yet know exactly how much bereavement leave parents will be entitled to take following pregnancy loss, but the Bill provides for it to be a minimum of one week. At the moment, there are no provisions in the Bill that would provide for this leave to be paid – the rights to parental bereavement pay which are currently in force cover parents of a child stillborn after twenty-four weeks of pregnancy but do not cover pregnancy loss prior to this point. Further legislation would be needed to introduce a right to statutory pay for bereavement leave following pregnancy loss, albeit it is worth noting that many employers would likely provide for such leave to be paid in any event.

This extension of bereavement leave will benefit a significant number of employees – the government estimates that each year in the UK around 250,000 pregnancies are lost due to miscarriage and 12,000 lost due to ectopic pregnancies – and will enable them to take time off work to grieve for their loss. It is likely that this amendment will be uncontroversial and will be accepted by the House of Lords.