April 17, 2025

UK Government Amends Employment Rights Bill and Issues Ethnicity and Disability Pay Gap Reporting Consultation

Phoebe Fardell, Matthew Howse, William Mallin, Louise Skinner

Morgan Lewis

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Morgan Lewis

The UK government tabled large volume of amendments to the Employment Rights Bill throughout March 2025. Given the Bill’s significance, this LawFlash highlights some of the key changes under the Bill as it stands as of mid-March 2025. The Bill has since had its second reading in the House of Lords and is expected to receive royal assent by the end of 2025, with many of the provisions likely taking effect at some point in 2026. This LawFlash also comments on the launch of the government’s consultation regarding mandatory reporting of ethnicity and disability pay gap data in the United Kingdom.

KEY FEATURES OF THE PROPOSED AMENDMENTS

Topic	Details
Fair Work Agency	The Bill proposes a “Fair Work Agency,” a new state enforcement agency for employment rights. The amendments provide some further detail regarding the agency’s powers, including to: Enforce any failure to keep adequate business records of holiday pay for up to six years. Failure to comply may amount to a criminal offence with potentially unlimited fines. Issue employers with notices of underpayment in relation to failures to pay certain statutory pay provisions (e.g., holiday pay or statutory sick pay). Employers would then have 28 days to make the payment or risk being subject to a fine amounting to 200% of the sum due (capped at £20,000 per employee, with a minimum of £100 per employee). Where a worker has the right under any enactment to bring employment tribunal proceedings, but it appears that the worker is not going to bring proceedings about that matter, then the agency may bring proceedings about the matter in an employment tribunal in place of the worker (including in any appeal). The agency may also provide workers with legal assistance, including legal advice and legal representation, but not in relation to the settlement of a dispute. The agency will be able to recover costs of any legal assistance provided. Recover its costs incurred when taking enforcement action against employers who do not comply with any relevant labour market legislation. Further regulations will dictate the precise scope of the agency’s powers in this respect. These powers demonstrate that the remit of the agency will be considerable and indicate a shift toward more state involvement in enforcing compliance with employment rights.
Collective Redundancy	Trigger for Collective Consultation The Bill proposed that the “establishment” concept would be removed from redundancy legislation, which could have potentially required companies to collectively consult where there were 20 or more dismissals proposed across the whole UK business rather than just at one establishment. This could have been impactful, particularly for multi-site organisations. In fact, what is now proposed is that the trigger for collective consultation will either be the current threshold that already applies in the UK or when a certain percentage or number of the total workforce is affected across the business. This new threshold will be set out in further regulations in due course but could, for example, be (1) a specified number of employees, (2) a number determined by reference to a specified percentage of employees, or (3) a number that is the highest or lowest of two or more numbers (whether a specified number or a number determined by reference to a specified percentage of employees). The regulations may not provide that the threshold number of employees will be lower than 20. Collective Consultation The amendments further provide that during collective consultation, employers would not need to consult all employee representatives together or with a view to reaching the same agreement with all appropriate representatives, indicating that consultation can be focused by reference to individual populations. This alleviates concerns from large employers that employee representatives would be consulted frequently over largely unconnected redundancies, with a need to seek agreement across the whole group. Protective Awards While the above changes are positive from an employer’s perspective, the maximum period of any protective award for an employer’s failure to comply with the collective consultation requirements has been increased from 90 to 180 days’ full pay. Accordingly, higher financial penalties will apply going forward where an employer fails to meet its collective consultation obligations. The impact of this change is more significant, considering the existing tribunal power to uplift compensation by up to 25% for the failure to comply with the Code of Practice on Dismissal and Reengagement. This could now represent an additional 45 days’ pay.
Zero-Hour Contracts	Certain amendments have been made that would extend the rights provided for under the Bill in relation to offering contracts containing guaranteed hours to agency workers. These amendments have been made to address concerns that employers could use agency workers as a loophole to avoid the obligations provided for in the original Bill. In summary, the amendments provide that agency workers will also generally be entitled to guaranteed hours, reasonable notice of shifts, and compensation when shifts are cancelled, curtailed, or moved at short notice. The amendments allow for rights in relation to guaranteed hours and reasonable notice of shifts to be contracted out by collective agreement.
Trade Unions and Industrial Action	A number of changes are included in the amendments to the initial proposals to reform trade union law, including increasing the proposed seven-day notice period for industrial action to 10 days and the inclusion of digital or virtual access as a “right of access” for trade unions to the workplace. Additionally, the amendments include the introduction of penalties where rights of access to the workplace by trade union officials are breached by the employer.
Dismissals – Pregnancy	The Bill strengthened existing provisions, providing for regulations which would protect individuals from dismissal during or after pregnancy. The amendments specify that additional regulations will set out that notices will be provided to individuals, along with other “procedures” that will be necessary to follow in order to dismiss individuals during or after pregnancy. The forthcoming regulations will set out the details of this enhanced protection.
Time Limits	Most tribunal claims currently need to be brought within three months of the act complained of (e.g., the dismissal or the alleged discriminatory act). The amendments to the Bill extend this time limit to six months for essentially all employment claims. The amendments have not currently addressed the time limit for breach of contract claims, although this may be addressed in due course.

IMPACT OF CHANGES

The volume of amendments to the original Bill is substantial. The scope of the changes reflects the rushed nature of the initial draft, given the government’s self-imposed 100-day deadline to introduce the promised legislation. The impact of the amendments is significant, particularly in relation to the Fair Work Agency, collective consultation, agency workers, and trade unions and industrial action. Amendments continue to be made to the Bill as it progresses through the UK Parliament. Accordingly, it is particularly important in the context of the Bill for employers to remain abreast of the changes to the legislation as it progresses through Parliament.

There have not been amendments to the proposed “day 1” rights included in the Bill, including unfair dismissal, and there is no further indication as to the length of any “initial period of employment,” which is likely to operate as a statutory probationary period in practice beyond the government’s previously stated preference of nine months.

There is a long way to go until the Bill is finalised, including further consultations and debates in Parliament. The Bill will not come into force until at least 2026, but once passed, many of the changes will require additional regulations to bring them into effect. That said, employers should start considering their policies and practices now to understand how their businesses will be affected once the Bill becomes law.

ETHNICITY AND DISABILITY PAY GAP REPORTING

On 18 March 2025, the government launched a consultation on mandatory ethnicity and disability pay gap reporting. Using the current gender pay gap reporting framework as a basis, the proposal is that employers with 250 or more employees will be required to report the mean and median hourly pay and bonus information in each of the six reporting measures as follows:

Mean differences in average hourly pay
Median differences in average hourly pay
Pay quartiles—the percentage of employees in four equally sized groups, ranked from highest to lowest hourly pay
Mean differences in bonus pay
Median differences in bonus pay
The percentage of employees receiving bonus pay for the relevant protected characteristic

It is also proposed that employers will be required to report on the overall breakdown of their workforce by ethnicity and disability, as well as the percentage of employees who did not disclose data relating to their ethnicity and disability status.

In terms of ethnicity data collection and calculations, the government proposes that employers should ideally report on a comparison between white British employees and all other ethnic minority groups combined. For disability reporting, the government has suggested that employers will have to measure the difference in pay between disabled employees and non-disabled employees, with disability being defined as per the Equality Act 2010 (i.e., a physical or a mental condition that has a substantial and long-term impact on the person’s ability to do normal day-to-day activities).

The consultation also seeks views on whether employers should have to produce action plans for their ethnicity and disability pay gap reporting, which would identify why they have any pay gaps and how they intend to close them.

The consultation will run for 12 weeks, closing on 10 June 2025, and the results of the consultation will be included in the anticipated Equality (Race and Disability) Bill, which is not expected to come into force until 2026. There may be a transition period before the Bill comes into effect, but employers with 250 or more employees should consider acting now to stand ready for any reform.

The impact of further pay reporting obligations for those organizations in scope will likely be significant from an administrative perspective, particularly for those employers already grappling with their upcoming obligations in the European Union with respect to the EU Pay Transparency Directive.

Trainee solicitor Melani Baines contributed to this LawFlash.

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