UK Quarterly Employment Update (March 2025)

In this Sidley Update we cover:

1. update on the progress of the Employment Rights Bill
2. failure to prevent fraud—what employers need to know
3. AI and the future of work
4. modern slavery—where we are and where we’re going

1. The Employment Rights Bill

The Employment Rights Bill (ERB), which sets out the employment law changes that formed a key manifesto pledge of the Labour Party government elected in 2024, was introduced to Parliament in October 2024. The proposals under the ERB, when enacted, will mark the biggest shift in employment law in decades, and some have been met with criticism from employers and certain industry bodies due to the potential to increase the risks and costs associated with being an employer in Great Britain.

As of March 2025, the ERB is in the report stage in the House of Commons. Earlier this month, the House of Commons Business and Trade Committee released its third report on the ERB, “Make Work Pay: Employment Rights Bill.” The government also published further impact assessments and economic analyses and responded to consultations on various topics such as collective redundancy, “fire and rehire,” and statutory sick pay (SSP).

These have resulted in various amendments to the draft ERB, as summarised below:

Unfair dismissal

The planned changes under the draft ERB will remove the existing two-year qualifying period for unfair dismissal claims under the ERA 1996, making the right not to be dismissed a day-one right for employees.

The original draft of the bill confirmed that a light-touch procedure would be possible for dismissals during an “initial period.” Although nothing has been confirmed in the amendments, and the period will be consulted on before being set, the government has expressed a preference for a nine-month “initial period.”

Zero-hours contracts

One of the main focuses of the ERB relates to zero-hours contracts, which employee representative bodies have criticized for their lack of job security and shift certainty. As such, the government has emphasized the importance of ensuring that workers (i) benefit from reasonable notice or compensation for changed or cancelled shifts, and (ii) have a contract that reflects the number of hours they regularly work.

The key change to the ERB that employers should be aware of is the proposal to extend equivalent rights to agency workers.

SSP

Under the draft ERB, employers’ liability to pay SSP will increase, both in terms of the number of workers eligible and the amount payable. SSP will become payable from the first day of absence, removing the current three-day waiting period.

The key change to the ERB in respect of SSP is that it will extend to employees earning below the lower earnings limit, who will be entitled to sick pay at either the prescribed weekly rate or 80% of their normal weekly earnings, whichever is lower. The government will consult further on the concepts of “low earners” and “weekly earnings.”

Trade unions

One of the aims of the ERB is to enhance trade union recognition and membership. Some of the key changes the government has put forward to the ERB include: (1) a new digital right of access to workplaces for trade unions; (2) reforms to make it easier for unions to bring complaints of unfair practices during recognition processes; (3) reducing the notice period from trade unions on industrial action from 14 days to 10; and (4) an extension of the expiration of a mandate for industrial action from six to 12 months.

The proposed changes are likely to affect many employers, regardless of whether they are currently unionized. Nonunionized employers in particular might want to consider putting in place or reviewing existing employee engagement programs to mitigate the perceived need for trade union representation.

Fair Work Agency

The draft ERB permits the government to delegate enforcement of a range of employment rights to a new public authority, the Fair Work Agency (FWA). The aim of the FWA is to consolidate functions currently exercised by authorities such as HM Revenue & Customs and the Employment Agency Standards Inspectorate.

There have been a number of changes proposed to ERB regarding the FWA, meaning it will be able to: (1) enforce failure to keep adequate records of holiday pay; (2) enforce failure to pay certain statutory payments to workers (including holiday and sick pay); and (3) in perhaps the biggest suggested change to employment law under ERB, bring Employment Tribunal proceedings on behalf of a worker.

The proposed enforcement powers of the FWA are extremely wide but would require significant funding to fulfil.

“Fire and rehire”

The draft ERB aims to reduce the practice of employers terminating an employee’s contract in order to reengage them on terms less favorable to the employee. As such, the draft ERB will make dismissing an employee for refusing to agree to a change in contractual terms an automatically unfair reason for dismissal (except in cases of extreme financial distress).

The key change under the government’s amendments has been scrapping plans to make interim relief available as a remedy to employees affected by fire-and-rehire processes, one of the few employer-friendly changes to the proposals.

Collective redundancies

As a result of proposals under the ERB, employers will be subject to obligations more frequently when making collective redundancies. The proposal was initially to require employers to consult collectively and make a notification when proposing to dismiss 20 or more employees within a 90-day period across their entire workforce, rather than the current law, which requires employers proposing 20 or more redundancies “at one establishment” within a 90-day period to go through collective consolation.

In a significant change to the initial proposals, collective consultation will now be required if there are 20 or more redundancies “at one establishment” or a different threshold is met (details of that threshold have not yet been confirmed). This change marks one of the only concessions the government has made in favor of employers in its amendments to the ERB.

A significantly less employer-friendly amendment is a doubling of the maximum protective award for failure to collectively consult on redundancies. The current maximum award is 90 days’ pay per employee, which will rise to 180 days. This change materially increases the financial risk to employers if they do not handle the collective redundancy process correctly.

Miscarriage bereavement leave

A new provision has been put forward by a Labour MP but looks to be backed by the government that would give mothers and their partners the right to two weeks of bereavement leave if they have suffered a pregnancy loss before 24 weeks. The current law applies only where a child dies or there is a stillbirth after 24 weeks.

Implications for employers

As the ERB continues to develop, a key issue is that, in seeking to keep its promise under the election manifesto, the government is failing to address concerns about the combined effects of the proposed changes. Taken individually, many of the changes still amount to significantly more employee-friendly rights than the UK has been used to, but taken as a whole the proposals will likely mark a significant increase in both the cost and the risk of being an employer in the UK.

2. Failure to Prevent Fraud—What Employers Need to Know

The new “failure to prevent fraud” is a corporate criminal offense, introduced under the Economic Crime and Corporate Transparency Act 2023 ( Act), which will be effective from September 1, 2025. Under the Act, organizations (including corporations and partnerships) will be liable if their employees and other “associated persons” commit certain fraud offenses with the intention of benefiting the organization, its customers, or its clients (whether directly or indirectly and regardless of whether the benefit is in fact realized).

Sidley has already provided a more general overview of the offense here, but what do employers need to be aware of when preparing for the offense to come into effect?

Scope of the offense

The offense will be applicable to large organizations (i.e. those that meet two of the three following criteria in the year prior to the fraud offense):

• more than 250 employees
• more than £36 million turnover
• more than £18 million in total assets

The above criteria apply to organizations as a whole, including any subsidiaries. The organization does not need to be incorporated in the UK for the offence to apply: jurisdiction will be established if any act or omission occurs in the UK or the intended loss or gain was due to take place in the UK.

As one of the criteria relates to number of employees, organizations that are just under that threshold should take particular care to consider whether they are likely to exceed it in the near future and plan accordingly.

The definition of “associated persons” is broad and will include employees of the organization (and possibly employees of its subsidiaries), subsidiaries themselves (e.g. the acts of directors on behalf of the subsidiaries), and persons who otherwise perform services for or on behalf of the organization, such as independent contractors, agency workers, and employees engaged via an employer-of-record provider. Employers should be aware that this will include employees at all levels of an organization, and that “associated persons” do not themselves need to be based in the UK.

Fund structures

Under the Act, circumstances might arise in which a non-UK parent company could be liable for the offense of a UK-based portfolio company, even if the portfolio company by itself would be beneath the size threshold. For example, a non-UK parent of a group that, taken as a whole, is in scope of the Act, might be liable if directors or sufficiently senior managers of a portfolio company commit fraud with the intention of benefitting the parent. Those with UK-based portfolio companies will therefore need to consider who might be considered an “associated person” and assess whether procedures need to be put in place to prevent associated persons from committing fraud.

Defence

Failure to prevent fraud is a strict liability offence, meaning that unless an organisation can show a legitimate defence it will be liable under the Act. It will be a defence if an organisation can show that at the time the fraud was committed it had in place reasonable procedures to prevent employees or associated persons from committing fraud. There is a further potential defence if an organisation can show that it was not reasonable to have in place such procedures, but it is unclear when that would be the case in practice.

The Home Office Guidance to organizations on the offence of failure to prevent fraud sets out a set of six key principles for informing the prevention of fraud:

• top level commitment
• risk assessment
• proportionate risk-based prevention procedures
• due diligence
• communication (including training)
• monitoring and review

Employers should be aware that, while overall responsibility for the prevention of fraud will rest with senior leadership (e.g., the board of directors, partners, or senior managers), culture will be key and organizations should seek engagement with the prevention of fraud procedures from all levels within the organization.

Next Steps for Employers

Employers with a UK nexus should:

• consider whether they are in-scope of the Act
• take steps to understand the law, giving consideration to the Home Office Guidance on what will constitute “reasonable fraud prevention procedures” as well as taking professional legal advice where necessary
• evaluate and adapt existing fraud prevention approaches to ensure they are fit for purpose.
• communicate the organization’s approach to fraud prevention through regular employee training, ensuring it can be demonstrated if needed
• involve not only senior management in training, but staff at all levels, to foster a culture of transparency and confidence in reporting fraud
• identify high-risk areas within the business and conduct appropriate due diligence to ensure robust prevention policies
• consider who in the organization is or may become an “associated person”
• ensure contracts with “associated persons” include adequate wording to prevent fraud and acknowledge the employer’s relevant policy

Conclusion

Employers should take proactive measures to prepare for the new offense, ensuring that their employees and other “associated persons” understand the risks and their role in preventing liability from arising.

3. The future of work? AI and employment law issues

The UK government has emphasized that it will prioritise development of artificial intelligence (AI) to become a global leader, with its AI market forecast aiming to surpass US$1 trillion by 2035. The UK approach to AI regulation so far has been light-touch when contrasted with other international approaches, for example the U.S. Securities and Exchange Commission which has pursued more stringent AI enforcement. From an employment perspective, AI creates myriad opportunities for employers such as enhanced efficiency, increased productivity and improved decision making, but it also gives rise to a number of challenges including issues relating to discrimination and bias. AI will also likely affect the job market, with many existing UK jobs being automatable. There will likely be efficiencies for employers to realize as a result of AI saving workforce time, but this development threatens certain jobs with a 2023 UK government report estimating that up to 30% of jobs are automatable.

AI in the workplace—key issues

One of the most prevalent uses of AI in the workplace involves the increasing adoption by employers of AI-powered tools as part of the job application process. While AI can quickly and efficiently process data, which can be particularly helpful for higher-volume recruitment, unexpected discrimination issues can arise if certain biases (unconscious or otherwise) have been built into original data sets of the AI system’s creators. A recent example is that of an (eventually settled) race discrimination claim (Manjang v Uber Eats UK Ltd) in which the claimant alleged that inaccurate facial recognition checks caused his deactivation from the app through which he was employed, causing his suspension. This illustrated the difficulties of proving discrimination and dismissal issues in the context of AI, especially when employer processes are unclear or inconsistent or claimants do not have access to all relevant information or evidence.

Another area where AI is being used with greater frequency is performance management tools to measure employee productivity, including the use of AI to create development plans, measure goal attainment, generate performance reviews, and the like. Where these AI tools flag issues relating to an employee’s performance, an employer may seek to use this as the starting point for a disciplinary or dismissal process. Where such an AI decision engages one of the “protected characteristics” under the Equality Act 2010, however, this creates the risk of a discrimination claim, in particular if there is a disconnect between the HR function using the system and AI system’s creators, resulting in the employer potentially not being able to justify how the AI decision leading to a dismissal was reached.

UK legal framework

To address the legal risks created by greater use of AI, in the July 2024 King’s Speech, the UK government suggested it would seek to establish appropriate AI legislation. However, there have been no significant developments in this regard meaning that there remains no specific legislation governing the use of AI in the workplace. This is in sharp contrast to the EU, which enacted Regulation (EU) 2024/1689 (AI Act) in August 2024. The AI Act takes a comprehensive approach to regulating the providers and deployers of AI systems, and requires guaranteed human oversight and monitoring of AI system activity, with fines for breaches.

Government guidance

In the absence of AI-specific legislation, the UK government published non-mandatory guidance in March 2024 entitled “Responsible AI in Recruitment” (Guidance), which emphasizes the importance of employers’ conducting impact assessments, bias audits, performance testing, and user feedback to ensure that AI systems are safe, fair, transparent, and accountable.

Practical Steps by Employers

To mitigate against potential AI related claims being brought under existing UK employment legislation (in particular the Equality Act 2010 and Employment Rights Act 1996), employers should be aware of, and consider implementing, the principles set out in the Guidance, as while its primary focus is on AI in recruitment, many of its recommendations are relevant and applicable throughout an organization’s whole employment lifecycle. Employers should also ensure that their AI use is transparent, accurate, and fair, and that their mechanisms to address worker complaints are effective.

4. Modern Slavery

It has been a decade since the Modern Slavery Act 2015 (2015 Act) was introduced in the UK. At the time, it was considered a landmark piece of legislation and set the global standard for combatting modern slavery and human trafficking. The 2015 Act has faced criticism, however, for lacking any meaningful enforcement options, and other jurisdictions have now expanded and enhanced anti-slavery and human trafficking protections, begging the question as to whether the UK legal framework remains fit for purpose.

Where are we now?

Section 54 of the 2015 Act requires companies with a global total turnover of £36 million or more and that carry on business or part of a business in the United Kingdom to prepare a slavery and human trafficking statement every year. The statement must be approved by the board of directors, signed by a director, and published on the company’s website in a prominent place on the homepage.

The intention was for the statement to provide transparency as to steps the organization has (or has not) taken to combat slavery and human trafficking in its business and supply chains. However, the only sanction for failure to comply is an injunction from the Secretary of State requiring compliance and, to date, this power has not been used.

Difficulties for Private Equity Firms and Fund Manager

One particularly tricky issue with the 2015 Act is the position of private equity firms and Fund Managers regarding when they are required to publish a statement. The difficulty arises when considering whether the revenue of portfolio companies or funds should be taken into account when determining whether a statement should be published.
The 2015 Home Office Guidance (Transparency in Supply Chains etc. A practical guide) states that a “common sense approach” must be applied to determine which organizations are in scope of Section 54 of the 2015 Act. It goes on to explain that any organization meeting the statutory criteria will be in scope, irrespective of the organization’s profit-making purpose, which suggests that private equity firms and fund managers would be in scope.

The 2015 Guidance further states that any determination of whether an organization is in scope for Section 54 of the 2015 Act must assess parent-subsidiary relationships and group structures. Therefore, if portfolio companies are subsidiaries of private equity firms, their revenue should be included in the firm’s turnover calculation.

For investment funds, further Home Office guidance published in 2019 (Publish an annual modern slavery statement) states that investment trusts can be in scope of Section 54 of the 2015 Act if they meet the statutory criteria. The 2019 Guidance confirms that turnover derived from fund management services (e.g., management and performance fees) is included, but investment income from dividends and shares is not included. Although the guidance covers only investment trusts, we consider it likely that revenue from management services for any investment fund would contribute towards the turnover calculation for fund managers.

Where are we headed?

On October 16, 2024, the House of Lords Select Committee (Committee) on the Act 2015 published a report titled “The Modern Slavery Act 2015: becoming world-leading again” (Report), and on December 16, 2024, the UK government responded indicating that it would implement many of the Report’s recommendations, although it remained light-touch on the details.

Some of the Committee’s recommendations and the government’s responses:

• Mandatory reporting requirements whereas currently organizations can choose whether to voluntarily publish their statements on the governments modern slavery registry, the Committee has suggested making publication mandatory. The government has confirmed that it intends to improve the registry with the aim to increase the number of statements being uploaded but has not suggested that it will make it mandatory.
• Guidance for reporting requirements the Committee called for standardized guidance for reporting requirements under the 2015 Act. The government has confirmed that it is working with stakeholders to update existing guidance, but has not provided an indication of timing.
• Enforcement the Committee recommended the introduction of sanctions for organizations that fail to comply with their obligations under the 2015 Act. The government is reviewing ways to strengthen the enforcement framework but has not provided details or indications of timing.

While much remains undetermined in terms of when and how the UK’s anti-slavery and human trafficking regime will be changed, it seems likely that there will be a push toward stricter requirements and easier enforcement. In January 2025 the UK Parliamentary Joint Committee on Human Rights launched an inquiry into forced labor in UK supply chains to examine the UK’s current framework, the findings of which will likely feed into the government’s considerations.

Conclusions

What does seem clear is that this is a developing area, and that if the UK wishes to once again be at the forefront of international best practice when it comes to tackling modern slavery, then changes will need to be made.

Employers should ensure they understand their obligations under the Act, consider any sector-specific risks that might occur in their business, and ensure that adequate training and policies are in place to help employees understand their role in preventing, identifying, and/or reporting modern slavery and human trafficking in businesses and their supply chains.