Private sector lobby group Downtown in Business (DIB) has warned that the government’s Employment Rights Bill, which is expected to receive Royal Assent this autumn, will place unnecessary burdens on small and medium-sized enterprises (SMEs) and risk undermining the UK’s business-friendly reputation.
DIB group chair and Chief Executive Frank McKenna said that while reforms to tackle issues such as zero-hour contract abuses, hire-and-rehire, parental leave, and statutory sick pay were “long overdue,” the government’s broader approach will “throw the baby out with the bathwater.”
Among the most damaging changes due to be phased in from 2026 are:
· Day one rights for unfair dismissal claims, leaving firms exposed to spurious cases.
· Extension of the claim window for unfair dismissal to six months, doubling the period of uncertainty for employers.
· A near-total ban on zero-hour contracts, removing flexibility valued by both employers and employees.
· Rigid restrictions on fire-and-rehire, which could force struggling firms into closure.
· Significant new consultation obligations, adding bureaucracy for SMEs with no HR capacity.
· Unclear sexual harassment legislation, requiring employers to prove they have taken “all reasonable steps”—a standard that is subjective, open to dispute, and practically impossible for smaller firms to evidence.
Mr McKenna commented:
“These reforms are about to become law, and unless ministers stop to reflect, they will create real problems for SMEs across the country. We support fair, modern workplace rights, but what Labour is pushing through risks creating an adversarial, bureaucratic labour market. Instead of encouraging enterprise and growth, these changes could stifle investment, flexibility, and job creation.
“These changes are well meaning, But like the increase to National Insurance last year, the government is failing to recognise the unintended consequences of some of these measures.”
Frank McKenna was one of the business leaders who signed a public letter backing Labour’s business credentials in the run-up to the General Election. He insists the party must now deliver on its promise to be pro-enterprise as well as pro-worker.
DIB has also set out alternative steps the government could take to genuinely improve workplace relationships without damaging businesses, including:
· Beefing up ACAS to resolve disputes early and filter out vexatious claims.
· Promoting mediation and conciliation to maintain positive workplace relations.
· Providing clearer guidance and support for SMEs rather than adding red tape.
· Targeting rogue employers, rather than burdening the whole economy with blanket measures.
Mr McKenna added:
“Employment reform should protect workers from exploitation, but it must also enable employers to thrive. Only by striking that balance will Labour deliver on its promise of being a genuinely pro-business government.”
