UK Business Leaders Urge Rethink on Workers’ Rights Bill Over Economic Fears

In a rare show of unity, the UK’s five most influential business groups have issued a joint letter urging the government to rethink key elements of its flagship Employment Rights Bill. While voicing support for fairer workplaces and improved protections for workers, the signatories—comprising the British Chambers of Commerce (BCC), Confederation of British Industry (CBI), Institute of Directors (IoD), Federation of Small Businesses (FSB), and Make UK—warn that the Bill in its current form could undermine economic growth, reduce employment flexibility, and discourage hiring.

The proposed law, which the government has branded as “the biggest upgrade to workers’ rights in a generation,” is currently making its way through the House of Lords. But business leaders fear the measures could backfire—raising costs, introducing legal risk, and stifling recovery in an already fragile economic climate.

What’s in the Employment Rights Bill?

The Employment Rights Bill is designed to overhaul the UK's workplace regulations. Among its most notable provisions are:

• Day-one rights for workers, including:
   
  • Statutory sick pay
     
  • Parental leave
     
  • Protection from unfair dismissal
     
  • The right to request flexible working
     
• Crackdown on zero-hour contracts, by offering workers guaranteed minimum hours.
   
• Restrictions on “fire-and-rehire” practices, which allow employers to dismiss staff and rehire them on less favourable terms.
   

The government claims these reforms will enhance job security, close wage gaps, and promote productivity by giving workers a greater stake in their employment from day one.

Business Groups: “Support in Principle, Concern in Practice”

While supporting the overall goal of stronger employment protections, the joint letter from the five business organisations highlights serious concerns about the practical implications of the Bill. They argue that:

• Small and mid-sized enterprises (SMEs) will be disproportionately affected by the administrative burden and legal exposure the Bill may create.
   
• Mandatory guaranteed hours could reduce hiring flexibility and lead to fewer opportunities for those at the edge of the labour market, such as students, part-timers, and gig workers.
   
• New restrictions around dismissals and rehiring may increase the risk of costly employment tribunals.
   

The letter warns the Bill, “risks damaging growth and employment, undermining the government’s own goals,” and calls for “targeted amendments to ensure that businesses can continue to thrive, hire, and grow.”

A Fragile Economic Backdrop

The business community’s concerns are heightened by the UK’s economic context. Inflation, though stabilised compared to previous years, remains persistent. Consumer confidence is shaky. Interest rates are holding firm amid global uncertainties, and supply chain disruptions continue to affect productivity across multiple sectors.

Last month, the Office for Budget Responsibility (OBR) said it could not factor the Bill’s impact into its fiscal forecasts due to a lack of detailed policy data. However, it noted that any regulations “which affect the flexibility of businesses and labour markets” are likely to have a material—and probably net negative—impact on employment, prices, and productivity.

The Political Fallout

The Conservative Party, now in opposition after Labour’s general election win, seized on the business backlash as an opportunity to challenge the government’s economic direction.

Shadow Business Secretary Andrew Griffith said:

“The UK’s top business groups calling for a rethink sends a powerful message. As currently drafted, the Bill will have deeply damaging implications for the government’s priority growth mission. The world has changed—Labour must shelve this disaster of a bill now.”

However, government ministers maintain that the Bill strikes the right balance between social justice and economic pragmatism.

A spokesperson from the Department for Business and Trade responded:

“The Employment Rights Bill represents the most significant step forward in workers’ protections in a generation. We’ve consulted extensively with business stakeholders and are committed to engaging further to ensure implementation works for all.”

Workers’ Rights: Too Much, Too Fast?

At the heart of the debate is a classic policy dilemma: how to protect vulnerable workers without discouraging job creation or throttling small businesses. The Bill’s provision for day-one employment rights is especially contentious.

Under existing UK law, employees typically qualify for protection from unfair dismissal after two years of continuous service. Introducing such rights from the first day could make employers more cautious when taking on new staff, say critics, especially in industries with high turnover or seasonal fluctuations.

Similarly, the move to guarantee fixed working hours—rather than variable or zero-hour contracts—raises the issue of workplace flexibility. Business groups argue that for many sectors, including retail, hospitality, and logistics, flexible staffing models are essential to surviving market volatility.

They fear that eliminating zero-hour contracts without offering a workable alternative could drive up overheads, limit job opportunities, and potentially push employers to automate roles or offload them entirely.

The “Fire-and-Rehire” Debate

Perhaps the most politically charged element of the Bill is the restriction on “fire-and-rehire” practices—a tactic employers sometimes use to restructure businesses or adjust pay and conditions.

While unions and many workers view this as exploitative, business leaders say it can be a last-resort strategy to avoid redundancies during economic downturns. The Bill doesn’t completely ban fire-and-rehire but imposes stricter conditions and transparency requirements.

According to Make UK, the manufacturers’ organisation, “Removing or heavily constraining this option could have unintended consequences, including job losses where companies might otherwise have adapted terms to stay afloat.”

Flexibility vs. Security: Can the Bill Do Both?

This debate exposes the long-standing tension between worker security and employer flexibility. The Labour government has promised a “new deal for working people,” a key pledge from its election manifesto. But now it faces pressure to square that promise with business realities.

The UK’s flexible labour market has long been touted as one of its economic advantages—enabling rapid hiring, scaling, and adaptation in fast-changing industries. Critics argue the Bill may jeopardise this by making hiring more bureaucratic and risk-laden.

On the other hand, supporters of the Bill say that the pandemic exposed just how vulnerable many workers are—and how urgently reform is needed.

Frances O’Grady, former TUC General Secretary, tweeted:

“Nobody should be dismissed at will, denied sick pay, or strung along with no hours or protections. This Bill is about dignity and fairness—long overdue.”

A Path Forward: What Could Be Amended?

The Bill’s journey through the House of Lords may offer an opportunity for compromise. Potential amendments that could address business concerns without gutting the Bill’s core objectives might include:

• Exemptions or phased requirements for SMEs, particularly micro-businesses with fewer than 10 employees.
   
• Flexible implementation timelines, allowing employers time to adapt to new requirements.
   
• Clearer definitions and thresholds for tribunal eligibility to avoid misuse of unfair dismissal claims.
   
• Alternative models to zero-hour contracts, such as “minimum guaranteed hours” or “banded hours” schemes used in Ireland.
   

By narrowing the scope of certain provisions and adjusting how they’re rolled out, the government may still deliver meaningful reform without strangling business innovation or job creation.

Conclusion: Crossroads for Labour Market Reform

The Employment Rights Bill represents a bold attempt to reset the terms of employment in the UK—tilting the balance toward workers after years of precarity and imbalance. But even the best-intentioned reforms can have unintended consequences if rushed or poorly structured.

As the House of Lords prepares to scrutinise the legislation, it will face a delicate task: preserve the spirit of the Bill while protecting the dynamism of the UK economy.

For workers, the Bill is a symbol of progress and dignity. For businesses, it’s a potential bureaucratic hurdle at a critical economic juncture. Whether those two realities can be reconciled will shape not just the success of this legislation—but the future of work in Britain.

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