UK Employment Law Coffee Break: Employment Rights Bill, 'umbrella' company reform and our HR Pensions Spotlight for October

Employment Rights Bill continues to be debated

On 28 October, the Employment Rights Bill entered the "ping pong" stage of the parliamentary process as it returned to the House of Lords to consider rejections made by the House of Commons of several of its proposed amendments.

However, the House of Lords pushed back again on a number of its proposals and the bill will now return to the House of Commons for further consideration. Primary concerns are centered around the guaranteed hours for zero- and low-hours workers and the proposed day one right to unfair dismissal.

Unfair dismissal reforms

The House of Lords expressed concern around "day one" unfair dismissal rights given the potential impact on employers and, from their perspective, the need to provide stronger safeguards. In particular, the House of Lords raised concerns on:

• Hiring impact. Peers warned that removing the qualifying period would shift hiring risk onto employers, discouraging recruitment of candidates perceived as “riskier” (such as younger workers, returners, ex offenders). Small and medium-sized enterprises, with fewer HR resources and tighter budgets, were seen as particularly exposed.
• Tribunal pressure and litigation risk. The removal of a qualifying period is likely to increase the volume of unfair dismissal, exacerbating the existing Employment Tribunal backlogs and potentially leading to more settlement of claims, including those without merit.
• The impact of the proposed "statutory probation period". The proposed "lighter touch" regime for an initial period was criticised as unclear given that much of the detail remains to be ironed out through further consultation, creating uncertainty. The exclusion of redundancy from this proposed lighter touch regime would also create dispute as to the real reason for a dismissal and potentially give rise to further litigation.
• International practice: The House of Lords noted that the proposed move to a "day one" unfair dismissal right would fall out of line with the systems with other international labour practices which use a short probationary period (often around three months) before full protection is granted.

The House of Lords has put forward a six-month qualifying period, which, in its view, would provide a simpler, more proportionate compromise – offering earlier protection than the current two-year rule while preserving a short window to assess suitability without turning early dismissals into full unfair-dismissal contests.

Guaranteed hours for zero- and low-hours workers

In respect of guaranteed hours for zero- and low-hours workers, the House of Lords voted in favour of an amendment providing for employer to send a worker a written notice explaining their right to receive a guaranteed hours contract and giving them the opportunity to decline at the end of each reference period. Where the worker confirms they wish to receive an offer or does not respond, the employer must then make one. Workers will also be able to request their employer stops sending them further notices or offers of guaranteed hours contracts if they wish, but with an ability to opt back in.

This approach should reduce the administrative burdens on employers, while preserving flexibility for workers who prefer variable hours. 

What next for employers?

We must now wait and see what happens but it seems likely that at present the House of Commons' position will prevail. In the meantime, employers should still work on the basis that Royal Assent will be granted in November; the Bill returns to the House of Commons for consideration of the Lords position on 5 November.

As previously reported, most reforms will not come into force immediately; the government published a roadmap in July that provides for a staggered implementation but which we may now see some deviation from.

While we await Royal Assent and with a number of consultations in progress or anticipated, together with implementing regulations, employers must continue to monitor the legislative process closely.  

In the meantime, employers are already seeing AI increasing the volume and complexity of employment-tribunal claims they are receiving; generative tools are making it easier for employers to generate claims, increasing time, cost and disruption for employers. If a "day one" right to unfair dismissal is introduced this would enable those in the early stages of employment to bring an unfair dismissal claim during a period which is often used to assess someone for the suitability of their role with lower risk. Employers will need to pay close attention to their recruitment and vetting processes to mitigate against this impact.  

'Umbrella' company tax reforms: join us at our next webinar

With "umbrella" company tax reforms expected within months, we invite you to join Osborne Clarke for a focused breakfast briefing designed to help you prepare and protect your business on Tuesday 11 November.

We’ll unpack the new joint and several liability provisions and what they mean for the use of umbrella companies, employers of record and other intermediaries in your contingent worker supply chains. We’ll also share what we're seeing from HMRC's intensified enforcement across existing regimes, including agency-worker tax rules, IR35 and the Criminal Finances Act 2017 (failure to prevent the facilitation of tax evasion) so you know what to expect and the practical steps you can take now to reduce risk and strengthen governance across your labour supply chain. This session is aimed at all involved in the procurement, supply and payment of contingent workers.

In the meantime, if you have any questions around these reforms, please do not hesitate to contact Kevin Barrow and Frances Lewis in our workforce solutions team or your usual Osborne Clarke contact.

HR Pensions Spotlight for October: have you reviewed your workplace pension recently?

For workplace pensions, the direction of travel is moving beyond mere compliance (for example, with employer obligations relating to automatic enrolment) and towards value for money and better retirement outcomes. While many of the new regulatory requirements now being discussed relate to pension providers rather than employers, employers must choose the provider for their workplace pension and the quality of that pension and of the contribution terms they offer to staff comprise a valuable element of the remuneration package. Coupled with regular press reporting on the retirement income inadequacy crisis unfolding for employees without meaningful final salary (or other defined benefit) pension provision, pensions have never been higher on staff's agenda.

To find out more about the potential differences in retirement outcomes for employees depending on their pension provision, this report by actuaries at Hymans Robertson is an excellent short read. The report may be of particular interest to employers whose pension arrangements have evolved over the years from defined benefit to defined contribution (DC) (from example, from final salary scheme to group personal pension scheme or DC master trust) and whose staff, therefore, have a range of pension benefits depending on when their employment began. It helps to put into context the shift in regulation to get more from the typical workplace pension for members. Recent proposals include the following new requirements directed at providers of group personal pensions and DC master trusts:

• To introduce a "guided retirement duty", a legal requirement to offer one or more default retirement income solutions to reflect the needs of the pension membership.
• To assess a range of metrics, including investment performance, costs and service quality, against industry standards or comparator schemes to determine whether a pension arrangement is delivering "value for money", with publicly available results reporting and required actions or transfers where improvement is needed.
• To consolidate default funds to create "main scale defaults" that have at least £25 billion of assets (on the assumption that larger funds offer greater investment opportunities or efficiencies) and which could be required to comply with new investment allocation thresholds for UK assets.
• For Financial Conduct Authority-regulated providers to offer "targeted support" for members to help close the advice gap between full independent financial advice on pension or investments (taken by just a small proportion of savers) and generic factual information from providers and Pensions Wise guidance (available to all but not designed to give support with individual choices);

For employers, the challenge is to make sure their workplace pension is consistently delivering for their staff in terms of value and that the provider has feasible plans to meet the new regulatory requirements and standards. Employers can only do this by regularly reviewing their arrangement, seeking advice where needed, and yet recent research by Towergate Employee Benefits found that only 48% of employers had reviewed their pension in the last 12 months and only 52% had a formal structure (such as a governance committee) set up to do so.

If you are interested in setting up a governance committee for your workplace pension, we can help, for example by providing draft terms of reference.  If this is of interest to you, please contact Claire Rankin or your usual Osborne Clarke contact.