Bitesize ERA: Delivering change under the ERA reforms

Amy (00:03)
Welcome to Bitesize ERA, I'm Amy Stokes.

Charlie (00:06)
And I'm Charlie Rae.

Amy (00:09)
We are employment partners here at TLT. So today we're going to be exploring restructuring, and specifically how the ERA is going to reshape the way that employers approach organisational change. That includes significant reforms to fire and rehire, collective redundancy consultation and employer flexibility more generally. And these aren't just technical legal changes. They potentially affect variation to contractual terms, harmonisation projects, restructures and large scale redundancy planning.

So I'm going to kick us off with the changes to fire and rehire.

So from January 2027, dismissing employees because they refuse to agree certain contractual changes will become automatically unfair dismissal in many situations. The legislation introduces the concept of what's called a restricted variation where this applies.

So those restricted variations include things like reductions to pay, reduced holiday entitlement, pension changes, changes to working hours, and even introducing clauses that allow employers to vary terms unilaterally in the future.

Now there are some notable gaps; changes to workplace location or duties are not currently classified as restricted variations. But importantly, dismissing someone for refusing those kinds of changes could still result in an ordinary unfair dismissal claim. There's also a proposed exception to this where these restricted variation changes can be made. And that exception is where the employer is facing serious financial difficulties. And those serious financial difficulties affect its ability to continue operating as a going concern.

But the consensus from commentators is that this is likely to be quite, well, a very high threshold, probably something close to insolvency in practice. So it's unlikely to help employers who are simply trying to make efficiencies or reduce costs during difficult trading conditions.

Another interesting aspect of these reforms relates to outsourcing. So if an employer was to replace employees with contractors, or with agency workers to perform substantially the same role, but at a lower rate, that could potentially trigger automatic unfair dismissal protection as well. And all of this is very clearly influenced by some of the high profile fire and rehire cases we've seen in recent years, particularly those situations where employees were replaced on cheaper terms with agency workers, like with the P & O situation.

So in practical terms, these reforms are likely to make contractual change projects much more difficult. Large scale harmonisation exercises, so for example after a TUPE transfer or an acquisition that are quite common, are going to require much more careful planning and negotiation because employees are going to have significantly more leverage in those circumstances.

We may see more negotiation around contractual changes, so where employees or trade unions seek pay rises or benefits in exchange for agreement to these contractual terms. And then overall, just I think a general greater reluctance from employees to agree to these changes at all. So it's worth planning properly for that.

But ironically, one of the unintended consequences may actually be an increase in redundancies and redundancy consultations. So if employers lose flexibility to change terms and conditions, some may actually conclude that redundancy exercises might carry less risk than attempting contractual change programmes.

But ultimately, these changes and reforms are going to place a greater importance on employee engagement and industrial relations. So employers with stronger communication and trust with their workforce are likely to be in a much better position when seeking agreement to future change.

So that's fire and rehire. Charlie's now going to take us through the collective redundancy reforms.

Charlie (04:35)
Yeah, you mentioned, Amy, that some employers might think redundancies are a less risky route, but it's not all one-way traffic, is it?

We've seen that in April this year, the government have increased the potential protective award from a maximum of 90 days' gross pay, doubling it to 180 days' gross pay. So potentially half a year's payroll per employee for employers that get it wrong. And that's a massive change in terms of the risk profile for employers, and one that will increase the scale of risk for them getting that wrong.

In addition to that though, and at the time of recording this podcast in mid-May, there's a current consultation on the go about the change to the collective consultation rules. So many of you will know that the current collective consultation rules require that where there's 20 or more redundancies at one establishment within a 90-day period, then an employer's obliged to collectively consult about that.

When you get above 99 proposed redundancies, the period of time moves from 30 days' consultation to 45. The government had initially been indicating that it was going to remove one establishment altogether, so that it would just be where those redundancies happened at an employer. But they've decided after consulting about that that they're going to keep the “at one establishment” test but are going to supplement it with a test that will sit alongside it. Which is that where an employer triggers a certain number of redundancies across its entire employee workforce, that will trigger collective redundancy consultation rules as well. So, this is something we're expecting to see come in in 2027 to sit alongside the current “at one establishment” test.

And the main thing is about what the thresholds will be. The government's preference is to have a fixed threshold range. So it would be, if across an employer you trigger this certain number of employee redundancies proposed, wherever they are, whatever establishment they are, then you'll also be obliged to collectively consult. Many commentators have been surprised that the thresholds are actually higher than, I think, many envisaged.

The government gives some options in the consultation as to what those thresholds might be. And the starting option's 250, and it goes up to potentially 1,000. So, I think that it's felt that it would obviously only affect the largest of employers, and that the actual impact of this change might be more limited than was first thought.

The government are also looking at alternative options such as tiered thresholds depending on the size of the employer, or potentially whether it should be based on the percentage of the workforce and whether you're proposing as redundant a triggering number of the percentage of the workforce.

The government is saying those other options are not really what they prefer though, because if nothing else, they're going to be complicated and they're going to lead to disputes about whether the obligations have been triggered. It will require employers to make snapshot dates of their workforce size to see which rules they fall within. And the government, I think, are preferring just a simpler approach.

It'll be interesting to see where that lands. What it is going to mean though, regardless, is that employers are going to need to start tracking their redundancies across their entire organisations, which is not something that they've historically been required to do to legally comply with these rules.

Many do, of course, but what it's going to mean is that unrelated redundancy exercises across multi-establishment employers would need to be potentially combined and consulted on because they would trigger the thresholds.

So, you take a retailer as an example who has a store closure in Manchester, who decides to reduce some headcount at its head office in London, who makes some redundancies at its Birmingham warehouse. They could all be potentially unconnected and for different reasons, but they'd be obliged to collectively consult about them because they've triggered the threshold, even though the current rules might mean that they would not.

So changes afoot. The government’s going to issue a code of practice on collective consultation compliance, which we're expecting there to be a separate consultation about. And that hopefully will be of assistance to employers.

But practically speaking, we think these changes will mean employers are going to need to start looking at how they're going to be able to track redundancies, and remembering that it's triggered when you propose redundancies, not when they're made.

So, employers are going to think, how do we manage making sure that across our national workforce we've got details of when redundancies are being proposed? Audits, I think, are going to be something that some employers are going to do, as in who are the employing entities across our group, are they the correct employing entities, because it's per employer that the redundancy obligations apply. Who works in which location? Those are questions that might be worth looking at in a bit more detail because the changes will be relevant to those questions.

Some employers are saying if we've got workforce planning that we know is coming down the track that might involve some redundancies or restructures, should we maybe look to initiate them before the rules change, or at least consider whether they'd be affected by the rule changes.

And some employers are thinking, and we've heard this said by commentators, that particularly larger employers might find that they're more regularly having to do collective consultation as a result of the rule changes. And will it help them if they don't have a trade union who is the standing consultation body but rely on employee reps, to have a standing body of reps who are mandated to be able to consult about redundancies rather than needing to re-elect time after time where that's the current case.

So, lots of things for employers to consider practically speaking. A note that the government are considering in the future potentially increasing the minimum consultation period from the current 45 days, which is when we're looking at 100 or more, up to 90 days, which interestingly takes us back to what that period was some years ago.

So, lots of changes for employers to consider. Amy, we're going to go on and look at what trends this leads us towards.

Amy (11:17)
Yeah, thanks, Charlie. And when you look at all these reforms together, there's a real clear direction of travel overall. We're seeing greater employee protection, more consultation obligations, definitely higher financial penalties for getting it wrong, but also, crucially, stronger employee and trade union involvement in workplace change.

And I think it's important to say that these reforms don't sit in isolation. They link very closely with the wider ERA changes, things around increased union access rights, simplified recognition for trade unions, and a stronger employee voice generally.

So taken together, they are likely to give trade unions in particular a much greater role in organisational change processes going forward. So, employers might find that restructures, redundancies and contractual change programmes become much more industrial relations focused than they have done historically.

And for those employers who are not unionised currently, there's likely to be more emphasis on proactive employee engagement and preparation for potential unionisation of parts of the workforce going forward as well.

So, Charlie, just to finish us off, what kind of practical steps do you think that employers can take now?

Charlie (12:41)
Yeah, I think getting to grips with what the changes are likely to be and involving themselves in consultations that are live if they want to input their thoughts for the government to consider.

But in terms of looking ahead, I think it's going to involve training managers, training HR teams to identify when the rules are going to apply. For example, the points about cross-employer redundancy projects will need to be fed into a sort of national overview so that the employer knows when they're triggering the rules.

I think that will feed into their redundancy processes potentially, their documentation. If there are redundancy policies, they might need to weave in some of the changes that we're going to see.

I think many employers are looking at improving their employee engagement exercises so that it will make it easier for them to comply with these rules and to be more in tune with their employees when changes might need to be made.

Some employers are looking at saying, let's have a look now at what we might need to be changing because if we need to make changes to terms and conditions, or harmonising terms and conditions, or potentially altering our variation clauses to make it easier for us to make changes in the future, let's do that now before it's harder to do it.

Some employers are doing that, and I don't think that's a bad idea. I think any employers though that are seen to be rushing through or accelerating change programmes just because it's going to be harder for them to do it in the future might find that doesn't go down very well and might not give them the best PR. So, employers would need to be mindful of that, I think.

So yeah, I think keeping an eye on these changes that we're going to see next year, and knowing the impact on your business, will be crucial.

So, everybody, thanks for listening. Hope you found that a useful podcast to look at restructuring changes from the ERA and keep an eye out for our next podcast where we'll be looking at other impacts of the ERA. Thanks all.

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