Why the Employment Rights Bill belongs on the board’s agenda  in Financial Services

The Employment Rights Bill (ERB) forms a key part of the Government’s ‘Make Work Pay’ plan and represents the most significant overhaul of UK employment law in decades. For boards in the financial services (FS) sector, who are already navigating a complex regulatory landscape, AI innovation in client service delivery as well as evolving geopolitical issues, complying with the ERB is not just an HR issue, it is a governance and regulatory imperative.

FCA Handbook requirements mandate that firms have appropriate systems and controls in place to “manage risk from expected change”. This includes change to the legislative landscape. Firms with strong cultures, who are ready to respond and manage the risks of change, will be the best placed to effectively navigate the ERB. Lack of preparation and poor risk management could result in high staff turnover and people-related issues.

The Government’s ERB roadmap sets out the anticipated timeline for expected legislation and, although many of the proposals remain subject to further consultation, Boards should be taking steps now to address the changes that are coming. This will be a key risk area for firms over next 24 months and will have profound business impact.

Here are three key areas that we think should be on your Board’s ESG agenda:

Duty to prevent sexual harassment

UK employers are already legally required to take reasonable steps to prevent sexual harassment in the workplace. This duty is proactive and it is intended to tackle many of the findings from the Treasury’s Sexism in the City Report. FS Boards must anticipate and mitigate the risks of sexual harassment before incidents occur, rather than respond after the fact. This includes the risk of third-party harassment. This means that legal obligations extend beyond the workforce. Failure to take action on known issues will amount to a failure to comply with duty and this may result in increased compensation awards of up to 25% in tribunal claims. Boards should oversee the implementation of risk assessments that identify areas of vulnerability from sexual harassment and ensure that measures to mitigate incidents through for example, polices and training are followed.

The ERB intends to extend the equality legislation to require employers to take “all reasonable steps”, not just “reasonable steps”, to prevent sexual harassment in the workplace. This subtle but important change, expected in 2026, raises the bar for board compliance even further.

Fire and Rehire

For FS Boards considering mergers or acquisitions, cost-cutting or restructuring initiatives, the ERB will significantly constrain how employers manage change programmes. The ERB intends to restrict an employer’s ability to use ‘fire and rehire’ to change employee terms and conditions to very limited cases unless changes are permitted by the employees’ employment contracts. Employers shall only be able to defend such dismissals if they are in significant financial distress, which would impact their ability to continue as a going concern. Boards considering potential changes to terms may wish to get ahead of such programmes whilst the current fire and rehire process is still lawful. Changes to the law on fire and rehire are expected in 2026.

Day-one unfair dismissal rights

The ERB will abolish the 2-year period of qualifying service and make unfair dismissal a “day one” right. It will apply to employees who have not yet started work, as well as employees within the “initial period of employment” (“IPE” a type of probationary period which we expect will be around 9 months). During the IPE employers will need to follow a shortened statutory process to dismiss employees fairly. This proposal is subject to government consultation and expected in 2027, but there is plenty to do to prepare. FS Boards should be commissioning their HR teams to review and update their recruitment and on-boarding procedures. Performance monitoring from day one will also be crucial. This means that managers will need to be trained on how to manage capability processes as well as the IPE.

Conclusion

For FS boards looking to keep on top of their governance obligations, ensure ERB developments are a standing agenda item and key discussion areas on your risk registers going forward.

For more information, get in touch with our dedicated Employment team