Labour Reforms and the Retail Sector

The Labour government plans a significant shake-up of UK employment rights and protections. We look at what this means for retail sector employers.

When it was announced on 10 October 2024, Labour’s Employment Rights Bill was highly publicised with swathes of commentary about what the proposed reforms would mean for the British workforce. Politics aside, there could be little doubt that the measures contained within the Bill would, once implemented, significantly shake-up UK employment law and would present fresh challenges for those working in employee relations and HR. 

The premise of the Bill was that it would “Make Work Pay”. It contains 28 reforms in total and whilst they will apply universally, some will have a more profound impact on certain industries than others. Preparing for the implementation of the reforms, most of which are expected to take place sometime in 2026, will therefore vary from business to business depending on factors such as their size, workforce demographics and employee turnover to name but a few.

This article focuses primarily on those reforms which will be of significance to businesses within the retail sector. It is no secret that many retail businesses have faced continued financial, technological and ethical challenges over the past few years, and they must now turn their minds to employment law reforms which primarily serve to strengthen workers’ rights and introduce new legal obligations and penalties for employers. 

Unfair Dismissal

One of, if not the key, proposal under the Bill relates to unfair dismissal law and the removal of the two-year qualifying period for employees to bring an unfair dismissal claim in the Employment Tribunal. Instead, the right to claim unfair dismissal will become a “day one right” with employers having the option to impose an “initial period” of employment, akin to a probationary period, during which a simplified dismissal procedure may apply other than in cases involving redundancy.

This proposal vastly increases the pool of employees who will be eligible to pursue unfair dismissal claims, with approximately 9 million employees in the UK having under two years’ service at any given time. As it stands, such an employee may only bring an unfair dismissal claim if they have been dismissed for an automatically unfair reason, such as because they blew the whistle or carried out trade union activities. The Bill in its current form opens up the right to claim for a short-serving employee who is dismissed for any reason.  This is likely to have a significant impact on retail businesses, many of whom rely on seasonal workers and workers on short term contracts to manage peaks in customer demands.

Further, the “day-one” right would apply both to those who have been dismissed by their employer and those who have resigned in response to a purported fundamental breach by their employer, and who thereby consider themselves to have been constructively dismissed. Any employee who resigns in circumstances where they have been dissatisfied during employment may pursue a constructive dismissal claim as a result. Even those claims which are hopeless can take up vast amounts of employer time and resource, not to mention increasing the backlog of cases within the Tribunal system which is already considerable. 

This, coupled with the fact that the period for bringing unfair dismissal claims will increase from three to six months post-dismissal, will almost certainly result in a litigation spike within the sector. Retail employers should be thinking now about their contracts, their use of probationary periods and their performance management and dismissal procedures to ensure they are prepared for this significant change in the law. They may also need to think more carefully about how they manage peaks in consumer demand, with the potential risk that even seasonal workers employed for a few weeks could have greater scope to claim unfair dismissal.

Contracts

Much of the early commentary around the Employment Rights Bill centred on the proposed ban of “exploitative” zero-hours contracts. What does “exploitative” mean in that context, you may ask? We do not know as the Bill did not contain the anticipated statutory definition and it does not ban zero-hours contracts in any form, exploitative or otherwise.

It does, however, provide for a new right to be offered guaranteed hours for zero and low hours workers after a reference period. “Low” hours, again, is yet to be defined. The Bill contains rules which require employers to make an offer of guaranteed minimum hours after the end of every reference period (anticipated to be 12 weeks) if the worker’s hours exceed the minimum number set out in their contract.

This reform is designed to ensure that contracts are reflective of what happens in practice, and it could serve to ensure that both parties to the contract have greater certainty and stability over working arrangements. Conversely, the administrative burden for those responsible for monitoring working patterns and tabling offers of guaranteed hours could be substantial, especially so in the retail sector where zero and low hours contracts are relied upon heavily to maximise flexibility and to remain responsive to the ebb and flow of customer demand.

There are obvious gaps in the Bill which need to be addressed in accompanying Regulations, for example in relation to students in higher education who work full-time over their summer break: is the employer obliged to offer a student employed on an 8-hour contract a 35-hour contract come September? What about employers who have ramped up their staff working hours to cope with seasonal demand around Christmas? If the employees agree to a substantially larger number of minimum contractual hours which exceeds the employer’s business requirements, are they suddenly facing a potential redundancy situation? These are issues which will need to be ironed out as the Bill progresses.

Redundancy

When Woolworths closed its doors in the UK in the late 2000s, its employees probably did not anticipate that the redundancy consultation process undertaken would come before the European Court of Justice (ECJ). The question for the ECJ was whether each Woolworths store was a separate “establishment” for the purposes of collective redundancy consultation. 

The ECJ sided with Woolworths and determined that “at one establishment” meant the individual business unit to which each employee was assigned to carry out their duties. In short this was good news for retailers, each store would be a single “establishment” for the purposes of collective consultation.

The original proposal in the Employment Rights Bill was to remove the words “at one establishment” from section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992. The impact of this would have been profound: a retail employer proposing 10 redundancies in its Cardiff store within the same 90-day period as 10 redundancies are proposed in its Inverness store would be obliged to collectively consult with appropriate representatives of all 20 staff for not less than a minimum period of 30 days. Amendments to the Bill earlier this year propose that the establishment test will now remain but there will be an additional threshold test where a multi site employer conducts redundancies across a number of its sites. No details as to what that threshold will look like have yet been provided, but we are now in a situation where retail employers will have to collectively consult where they propose 20 or more redundancies at one site AND where they propose a larger number of redundancies across the country.

Added to this, it is also proposed that the maximum protective award may be increased from 90 to 180 days’ gross pay. Retail employers facing a downturn in sales or which are contemplating store or warehouse closures or relocations must have regard to the possibility that collective consultation may be required, or they will face potentially severe financial consequences. 

Having a carefully managed central record of ongoing and forecasted redundancies will be imperative for retail employers to avoid falling foul of this reform.

Harassment

Finally, there has been substantial commentary on the new statutory duty to prevent sexual harassment which came into force on 26 October 2024. The duty extends to third-party harassment, meaning retail employers must take reasonable steps to prevent sexual harassment not only by staff but by suppliers, contractors and customers or else they face substantial uplifts on relevant Tribunal awards.

Under the Employment Rights Bill, employers may become liable for third-party harassment in circumstances where they failed to take reasonable steps to prevent it from happening. This applies to sexual harassment as well as harassment related to any other protected characteristic like age, race and disability. 

A retail employer’s ability to police and prevent harassment by members of the public instinctively feels limited. What reasonable steps might a retail employer take to protect staff in the multitude of ways they might come into contact with the public (whether that be in store, in head office, on telephone or video calls and on social media)? Retail employers will need to consider a variety of measures, including displaying signage outlining their zero-tolerance policy of harassment against staff, requiring suppliers and other commercial partners to comply with policies and procedures which are appropriately enforced, having clear processes for reporting and dealing with concerns, training managers to deal with concerns sensitively and taking action against those found to have harassed staff. 

Retail employers should start thinking about their strategy for dealing with third-party harassment: taking preventative action cannot be an afterthought and should start now. A good starting point for any retailer, aside from looking at their policies and procedures, would be to look at any recent complaints and make sure appropriate lessons are learned and actions implemented.

Dealing with third-party harassment is not the only reform which retail businesses should have on their radar when it comes to preventing harassment in the workplace. More generally, employers must be proactive rather than reactive by taking steps such as conducting a risk assessment, providing up to date and relevant staff training, and implementing an effective action plan to name but a few measures designed to combat harassment issues at work.

No employer is exempt from the new statutory duty, meaning small and large retail businesses alike are affected. That said, what is reasonable will vary from business to business and we can support with guidance, templates and training for those in need of assistance.

As a failure to comply with the statutory duty can result in up to a 25% uplift on relevant Tribunal awards, this should be at the forefront of employers’ minds in order to protect their businesses as well as their staff moving forward.

Conclusion

These are but a few examples of the extensive reforms we will see as the provisions of the Employment Rights Bill come into force over the next 18 months or so. 

Ultimately the changes are designed to improve workers’ rights which, when implemented correctly, should have a positive impact on employee relations, loyalty and morale. Employers who are seen to get this right and lead the charge on improving employment conditions will reap the benefits, not least from a reputational perspective. 

It is, however, apparent that many employers in the retail sector will view the Employment Rights Bill as cost-prohibitive and, in a challenging and cost sensitive market, strengthened employment rights may mean that cuts have to be made elsewhere. 

Employers in the retail sector should have these issues on the agenda now to ensure they are prepared ahead of time in order to budget accordingly and to avoid any new legal pitfalls of which there are set to be many.