The reforms outlined in the Employment Rights Act represent a major shift in employment law – one that will increase cost and legal risk for employers at a time when many HR leaders are already under pressure to balance growth, flexibility and compliance.
In January, ministers claimed that concessions have reduced the estimated cost of the Act for businesses from £5 billion to £1 billion a year. However, business groups argue that even this lower figure is likely a significant underestimate once the true administrative and operational burden is accounted for.
Measures such as a six-month unfair dismissal qualifying period, expanded sick pay and paternity leave, and stronger protections for zero-hours workers have been presented as essential worker protections. Yet while these reforms are intended to strengthen rights and make working life easier for employees, there is a risk that if the rules are overly punitive or inflexible for employers, they could have the opposite effect.
Excessively strict regulation could undermine the very objectives the legislation is meant to achieve – potentially reducing hiring flexibility, discouraging workforce growth, and ultimately impacting both employers and employees.
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Why the cost and hiring concerns are well-founded
The reforms outlined in the Employment Rights Act will make employers more cautious, and caution is expensive.
A shorter qualifying period for unfair dismissal – from two years to six months – means that more employees can bring claims. Expanded rights for sick pay, paternity leave, and zero-hours workers also create more avenues for disputes. When employers face a greater risk of Tribunal claims, they tend to slow down hiring, tighten recruitment processes, and impose more robust checks.
If an unwise hire risks an unfair dismissal claim after just six months, employers are likely to over-engineer their recruitment process. The result is slower onboarding, longer vacancy cycles, and a bigger reliance on temporary or agency labour. The Tribunal system is already stretched and if employment relationships breakdown, disputes will not be quickly resolved. Management time will need to be expended on responding to claims and attending hearings which are likely to be delayed based on current Tribunal listing times.
This is not just a problem for large businesses. For SMEs, particularly those that rely on seasonal staff, the reforms could be a significant operational headache, particularly with regard to the changes around zero-hour contracts. Supermarkets during seasonal rushes, hospitality businesses through summer peaks, and event-based industries will all feel the squeeze.
The broader impact is also worth considering: foreign investment. Labour’s manifesto suggested a pro-growth approach, yet the reforms signal a move in the opposite direction. If businesses perceive the UK as a higher-risk, higher-cost jurisdiction, some may choose to relocate roles to countries with more flexible, cheaper labour markets.
Expanded sick pay, paternity leave and zero-hours reforms
Expanded statutory sick pay is likely to increase costs for employers who currently do not offer enhanced sick pay. For those who already have generous sick pay policies beyond the statutory minimums, the change may be less significant – but the reforms will still create an administrative burden. HR teams will need to update policies, train managers, and ensure systems can accurately record sickness from day one.
Even where employers are willing to absorb the cost, the operational impact should not be underestimated. The new rules will require more accurate record-keeping, more detailed reporting and more scrutiny of absence management. For businesses that already struggle with absence processes, this will add further strain.
Paternity leave changes are likely to have a smaller practical impact. Many employers already allow employees to take unpaid leave or make accommodations for new parents, even if they don’t meet the qualifying period. But the change does create a clearer legal entitlement, and HR teams should be prepared for a higher volume of requests.
Zero-hours reforms will increase the administrative burden on employers that rely on casual labour. Employers will need to ensure they are offering hours when requested and managing those requests in a fair and compliant way. For sectors that rely on flexible staffing – such as hospitality, events, delivery and seasonal work – this will be a major operational challenge. They may need to recruit more permanent staff, which increases fixed costs. Alternatively, they may try to fill roles at the last minute, increasing agency costs and disrupting service delivery.
“Fire and Rehire” – where someone is dismissed and then offered new employment on different terms – will become an automatically unfair dismissal in most cases. Employers will need to plan for this in existing contracts to ensure flexibility provisions are in place, or risk claims if they do later need to change terms outside of the permitted exemptions.
What employers should do now to prepare
One of the most concerning aspects of the reforms is the legal uncertainty that comes with the upcoming secondary legislation. Until the details are finalised, HR teams are left in a state of limbo. The government’s reforms may be well-intentioned, but they tip the scales too far in favour of protection, without enough regard for the operational realities of employers. The result is a risk-averse business environment, slower hiring, higher costs, and greater legal exposure.
Therefore, for HR leaders, it’s crucial to stay ahead. Employers should review employment contracts to ensure that they include appropriate flexibility around dismissal, performance management, and changes to terms and conditions. Employers should also review policies for misconduct, performance, absence, and redundancy – ensure they are both robust and clearly applied. Systems must also be able to track sickness from day one, manage leave requests, and produce evidence quickly.
Managers must understand the new legal landscape, the importance of documentation, and the need for fair process. It’s essential that employers record notes from day one and maintain clear documentation of performance conversations, sickness, and disciplinary actions. If there is no clear explanation for why a decision was made, credibility may be lost in a Tribunal. With Tribunal deadlines also being extended to six months, it is important to review internal document retention policies.
Ultimately, these reforms are not just another policy change. They will reshape how businesses recruit, manage, and retain staff. And if employers are not preparing now, they will be reacting later – in Tribunals, in operational disruption, and in rising costs.
Jessica deals with a wide range of contentious and non-contentious UK employment law matters, including drafting and advising on template procedural letters and policies, contracts and service agreements, and negotiating and drafting restrictive covenants. Jessica also litigates Tribunal claims for both employees and employers, including unfair dismissal, discrimination, breach of contract and restrictive covenant enforcement.
