Employment Law in the 21st Century: Getting the Balance Right

Employment law has become a controversial subject in recent times, following the passage of Labour’s Employment Rights Act of 2025 and its impact on businesses, particularly small and medium sized enterprises (SMEs). It has been criticised for including provisions that amount to a stealth tax on workers. I have three suggestions that might tackle this problem. 

The Employment Rights Act 2025 at a glance

The Employment Rights Act 2025 is the initial phase of the Labour Government’s Plan to ‘Make Work Pay’. The bill was introduced in the House of Commons on 10 October 2024 and received Royal Assent on 18 December 2025. It covers England, Scotland, and Wales (employment law is devolved in Northern Ireland). The Act involves a number of changes to labour laws. I will focus on three:

• Reducing the eligibility period at which employees can claim unfair dismissal (from two years to 6 months)
• Giving trades unions the right to demand physical or digital access to workplaces
• Increasing statutory sick pay by removing the lower earnings limit;

The Act’s implementation is being phased in over two years. Many of its provisions were presaged in Labour’s 2024 manifesto and others are longstanding demands of the trade union movement.

The Act remains controversial. Supporters cite it as ‘pro-growth, pro-business and pro-worker’, whilst detractors express concern for its possible impact on small businesses. Contributing to this conflict is the lack of preparatory work on the impact of trade union access on small businesses.

A recent report conducted by the think-tank the Institute of Economic Affairs stated that the legislation acts as a stealth tax. In addition, the analysis warns that employment mandates, sold as helping workers, really function like hidden taxes that reduce their wages over time. Professor J.R. Shackleton, the report’s author, argues that politicians exploit public misunderstanding about who really pays for employment rights. They often only help certain groups, but the costs are passed back to all employees through lower wage increases than they would otherwise receive.

I believe that three reforms could remedy the some of the problems associated with the act.

Introducing no-fault dismissal with guaranteed compensation

Although the reform made by Labour to the rules surrounding dismissal, by replacing the previous complex tribunal system (which had delays of at least two years before reaching tribunal stage) with the current six-month lapse time, I believe there is a better reform which would impact the 25,000 unfair dismissal claims a year – no fault dismissal. This simpler approach would provide employees with predetermined compensation without lengthy legal processes – giving both sides greater certainty.

Arguments in favour of a no-fault dismissal include:

1. Reduced Legal Costs: both sides avoid lengthy, unpredictable ACAS dismissal guidelines and Employment Tribunal proceedings.
2. Business Certainty: employers can manage workforce restructuring with predictable termination costs.
3. Faster Payouts: employees receive guaranteed, immediate compensation without the burden of proving constructive or unfair dismissal.

The Effects of the New Union Access Regime on SMEs

The Employment Rights Act 2025 provides trade unions with the authority to request both physical and digital access to workplaces. Although the Government anticipates that the Act will impose an annual cost of £1 billion on businesses, this estimate does not account for the direct effects of union access. Under the new framework, independent trade unions will have the right to request access to workplaces from employers for various purposes, including meetings, support, representation, recruitment, organising workers, and to facilitate collective bargaining, but excluding industrial action.

In the event that negotiations do not succeed, the Central Arbitration Committee (CAC) has the power to enforce access. The Committee will operate under guidelines that mandate generous access unless it would cause unreasonable disruption to the business. The specific regulations governing this framework have yet to be established by ministers, leaving the overall impact uncertain. The Government is contemplating either eliminating size-based exemptions for SMEs or implementing an exemption that applies solely to firms with fewer than 21 employees.

Additionally, they are considering a model agreement that permits weekly access. A report recently published by the Adam Smith Institute estimates that the provisions for trade union access could impose costs of up to £680 million on small-to-medium enterprises (SMEs). Even if firms with fewer than 21 employees are exempt, 112,000 SMEs could still encounter a financial burden of £600 million. Central London, Manchester, and the South East are expected to be the regions most significantly impacted.

These costs will include expenses related to understanding the new regime, negotiating access with trade unions, disruptions caused by access, and potential costs associated with eventual unionisation. Such financial burdens will disproportionately affect small businesses, which often lack dedicated HR or legal support, have limited negotiation experience, and are less equipped to handle operational disruptions. These expenses are in addition to the recent increases in employer national insurance contributions, business rates (for certain firms), and the minimum wage, all of which have already placed a considerable strain on SMEs.

To mitigate these costs, I propose exempting all SMEs (those with fewer than 250 employees) from mandatory access. The Government should also reduce the maximum frequency of union visits from weekly to monthly and limit union activities to lunch and rest breaks. Finally, they should only permit access to workplaces with at least two existing union members within the organisation.*

Allow employees to claim statuary sick pay only after passing their probation period

Since April 6^th this year, the lower earnings limit and the mandatory 3-day waiting period have been removed, making SSP a right from day one for all eligible employees. However, due to increased pressure from the trades union movement, Labour have failed to understand the implications of such a policy and haven’t taken into account the impact it will have on businesses, particularly SMEs.

There are three main consequences:

1. Higher business costs. Employers face higher wage bills – especially in retail, hospitality, and care sectors with many part-time or minimum-wage staff.
2. Increased risk of absenteeism. Many businesses worry that removing waiting days will increase short-term sick leave and encourage staff to “pull a sickie”.
3. Additional administrative burden. Payroll teams and business owners must manage complex calculations for variable-income staff.

To mitigate for the above I would propose that new employees should be required to complete their probationary period before SSP can be claimed. This should remedy a problem that could have been avoided.   

These proposals will address some of the downsides of the Act and provide reassurance to businesses (particularly SMEs) during a time of heightened uncertainty. In recent years, employment law has not been appropriately drafted and has placed unnecessary burdens on businesses, particularly smaller ones. It is time to redress the balance.

* I would also repeal both the Trade Unions Act 2016 and the Strikes (Minimum Service Levels) Act 2023 and replace them with a new act which would implement the following:

1. Union recognition by an employer would only be required when a minimum of 50% of eligible workers at that employer are members of one union.
2. Ballots and ballot motions must completely and accurately reflect the nature of any “agreed dispute”. Wording should be neutral in tone.
3. Ballots must achieve a minimum of 50% of entire workwise in order for strike action to take place.
4. If you are a member of a striking union, you will be considered on strike, even if you would rather not be.
5. During a strike, unions and strikers are not permitted to prevent non-union workers from working. Any intimidation or prejudicial treatment between members of different unions, or union members and non-members should be treated as automatic gross misconduct in every employment contract.
6. If multiple unions in one sector vote to strike, the strikes will be required to take place simultaneously.
7. Employers will be banned from substituting agency workers for strikers during a properly conducted strike.
8. Secondary picketing, including virtual picketing to be banned.

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Kayed Al-Haddad is spokesperson for The Liberal Party for Economics, Fiscal Policy and Monetary Policy.