In this Sidley Update, we cover:
1. progress of the Employment Rights Bill
2. the definition of a “woman” under UK equality law following the UK Supreme Court’s decision in For Women Scotland Ltd
3. employer of record providers — issues to consider
4. changes to UK employment law — horizon scanning
1. Update on the Employment Rights Bill
In October 2024, the UK government published the Employment Rights Bill (the ERB), setting out a number of proposed changes to many aspects of UK employment law. The proposals have faced significant scrutiny from businesses, legal professionals, and industry bodies, and a number of amendments have been tabled as the ERB has made its way through Parliament. See our previous Sidley Update for an overview of previous changes.
The ERB passed through the House of Commons earlier in the year before commencing its Committee stage in the House of Lords in May 2025. Once the Committee stage has concluded, the ERB will return to the House of Commons for the amendments proposed at the Lords stage to be considered. Once the final form of the ERB is agreed, it will be sent for Royal Assent, which will make it an Act of Parliament.
Below we set out some of the recent amendments of which employers should be aware.
- Extension of Employment Tribunal limitation periods — A proposed amendment to the ERB would extend the limitation period for workers to bring a claim against their employer from the current three months (in most cases) to six months. This would increase the length of time employers are exposed to valid claims and may increase legal costs and caseloads for employers in the UK.
- The Fair Work Agency — Amendments to the ERB have confirmed some of the proposed powers of the Fair Work Agency (the FWA), the proposed new public authority that would have the power to enforce certain employment rights (a significant move from the more individual-focused current system). Some of the proposed powers of the FWA are:
- bringing Employment Tribunal proceedings on behalf of individuals;
- providing legal assistance (including advice and representation) for any party to civil proceedings relating to employment law; and
- enforcing certain statutory payments for workers (e.g., holiday pay).
- Unfair dismissal — The ERB introduced a day-one right for employees not to be unfairly dismissed, with the ability for employers to follow a “light touch” procedure for dismissals during an “initial period.” The ERB was amended to introduce a compensation regime (details TBC) for employees who are found to have been unfairly dismissed during the “initial period.” The government will consult on the length of the “initial period,” the process for the “light touch” procedure, and the compensation regime.
- Fire and rehire — The government rejected calls to amend its proposed restriction on fire and rehire to make the provisions more reasonable and workable for employers. The proposals under the ERB, therefore, remain unchanged and the only circumstance where a dismissal for refusing to accept proposed new contractual terms will not be automatically unfair under the ERB is where an employer can show that it faced financial difficulties affecting its ability to carry on business “as a going concern.”
The government has faced criticism from certain groups, including the Institute of Directors and the Confederation of British Industry, for not listening to the concerns of businesses about the “potential unintended consequences” of the ERB, such as a possible slowdown of hiring in the UK and increased costs for employers.
Alongside the passage of the ERB through Parliament, the government responded to the Business and Trade Committee’s report on the impact of the ERB (the Report), which was put together with the purpose of informing Members of Parliament and the public about the ERB, its provisions, and its consequences. One of the key recommendations in the Report was that more detail on the provisions should be included in the ERB itself, as the proposals currently leave many issues to be addressed via secondary legislation that will not be subject to the same level of scrutiny. In its response to the Report, the government reiterated that clarity will be provided by secondary legislation, which it will consult on where necessary.
The government has not committed to an implementation timetable, but most changes are not expected to come into effect until 2026. As the ERB continues to make its way through Parliament, the provisions still remain subject to change. Employers should be aware that the final version of the ERB is likely to be decided within the next couple of months.
2. The Supreme Court’s decision in the For Women Scotland Ltd case
In April 2025, the UK Supreme Court (the Court) handed down its judgment in the case of For Women Scotland Ltd v The Scottish Ministers1. In its judgment, the Court unanimously allowed the appeal, which concerned the interpretation of the UK Equality Act 2010 (the Equality Act) in regard to sex and gender reassignment.
While this case was not an employment case — it concerned guidance issued by the Scottish Ministers stating that transgender women with a full gender recognition certificate (GRC) should be treated as women for the purpose of achieving the target percentage of women on public boards (the Guidance) — it is nevertheless relevant for employment purposes.
For Women Scotland Ltd (the Appellant) challenged the position set out in the Guidance, arguing that the terms “sex,” “man,” and “woman” in the Equality Act refer exclusively to biological sex (i.e., the sex a person is assigned at birth).
The key issue in this case was, therefore, whether a person, with a full GRC that recognises their gender, is female for the purposes of the Equality Act. The Court considered the interplay between the Equality Act and the Gender Recognition Act 2004, which states that a person’s gender becomes their acquired gender for “all purposes” once they have obtained a GRC.
The Court allowed the Appellant’s appeal. In determining that the definitions of “sex,” “man,” and “woman” in the Equality Act refer to biological sex, the Court found that conflating “sex” with “certified sex” would cause the protected characteristic of sex to be interpreted in an incoherent way. An example cited was that of provisions relating to pregnancy and maternity — the Court held that these provisions are unworkable unless the words “man” and “woman” are given their biological meaning.
Further consideration was given to the possibility that a certified sex interpretation would create two subgroups for people with the protected characteristic of gender reassignment. The Court considered that including certified sex in the definition of sex when interpreting the Equality Act would give transgender people who possess a GRC greater rights than those who do not.When handing down its judgment, the Court emphasised the importance of clarity and consistency when identifying who shares a protected characteristic under the Equality Act, stating that it was important, therefore, that the protected characteristic of sex could be “interpreted in a way that is predictable, workable, and capable of being consistently understood and applied in practice.” It explained that the meaning of the terms had to be consistent throughout the Equality Act and, therefore, rejected the suggestion that terms could refer to biological sex in some parts and certified sex in others.
The Court reiterated that the Equality Act continues to protect transgender people through the protected characteristic of gender reassignment and provisions relating to “perceived” characteristics.
The Equality and Human Rights Commission (the EHRC) published interim guidance on the practical implications of the judgment in April but is consulting with relevant stakeholders and is expected to publish further statutory guidance in June 2025. The interim guidance does not provide any clarity on balancing the rights of people with different protected characteristics where those rights are seen to compete or conflict. For example, the interim guidance states that transgender women should not be permitted to use women’s facilities and transgender men should not be permitted to use men’s facilities. As such, this remains a difficult area for employers to navigate.
While employers will need to ensure that any policies, procedures, and staff training to which this decision may be relevant are reviewed, they should remember that protection for transgender people has not been undermined by the findings of the Court, and employers remain under a duty to protect workers with protected characteristics from harassment and discrimination.
One option employers could consider to assist in balancing the rights of employees with potentially conflicting protected characteristics is the provision of gender-neutral toilets in workplaces. This may help ensure that workers are not forced into potentially degrading and humiliating positions when using toilet facilities at work. A recent high-profile example involved the music festival Download Festival, which faced public backlash after the festival’s organisers (in an internal email that was subsequently made public) stated that they would follow the EHRC’s interim guidance in relation to its toilet facilities. Reaction to this decision included concerns about the protection of transgender people, with one transgender act due to perform at the festival stating that such a policy would make the festival unsafe for transgender people. As such, the festival released a statement explaining that the majority of its toilet facilities would be gender-neutral.
3. Employers of Record — the benefits and the pitfalls
Use of employer of record companies (EORs) has rapidly increased on a global scale in the past five years, with EORs becoming the seemingly quick and easy “go-to” solution for many businesses expanding into new jurisdictions.
The use of EORs involves the establishment of (i) a services agreement between the EOR and its client (the relevant employing organisation), and (ii) an employment agreement made directly between the EOR and the employee. The EOR is then legally established as the employing entity and is responsible for ensuring compliance with local employment laws, including administration of the employee’s payroll, benefits, and HR support. It is similar to the use of professional employer organisations (PEOs) in the United States, though the key difference with EORs is that there is no joint employment with the client and the EOR — the individuals are, on paper, exclusively the employees of the EORs.
EOR engagements are permitted under UK employment law, and they are versatile and efficient. EORs provide the ability to meet resourcing needs and outsource administrative tasks and compliance, particularly when expanding into jurisdictions with no existing employing entity. For overseas companies looking to use an EOR in the UK, the EOR can provide a “one-stop shop” for a new employee, with the EOR providing the employment contract and handling all local employment law and tax compliance.
EOR arrangements can, however, give rise to a number of legal risks and, in practice, may trigger complex employment and tax issues that can evolve over time. There are complications with confidentiality and intellectual property assignment obligations (who does the individual owe duties to?) and around the enforcement of post-termination restrictive covenants (does the EOR have a legitimate business to protect?). The position will not be the same in each scenario, so advice should be taken where these areas are important. A court or tribunal could also theoretically look through an EOR’s contractual label to identify a “true” employer exercising day-to-day control over an individual’s work (e.g., setting objectives, approving holidays, and directing performance) and find that the individual is in reality an employee or worker of the client.
Whilst lawful in the UK, this is not the case in every jurisdiction. Engaging individuals via an EOR can often be considered unlawful leasing (e.g., in France, Belgium, Spain, Germany, and Italy, though it is permitted in the Netherlands), and this may not necessarily be advertised by some of the EOR providers. Employers should therefore proceed with caution and take local advice before engaging staff in foreign countries.
Some EORs also provide a visa sponsorship service, meaning that employers can, in theory, engage non-UK nationals via the EOR without the need to obtain their own sponsorship licence. UK Visas and Immigration (UKVI) has, however, increased its level of scrutiny and tightened its procedures, as part of the UK government’s efforts to reduce overall immigration levels. Visa sponsorship requires the sponsor to evidence control and supervision of the individual, which is typically not the case for the EOR where a third-party client utilises the services of the individual. This tension between the EOR model and the visa requirements has seen UKVI reject visa applications from EORs, so this should no longer be viewed as an easy route to employment in the UK for non-nationals.
With the ERB proposing widespread changes to the UK employment law landscape, other material changes are fairly limited. The other upcoming developments in late 2025 and early 2026 are:
- Equality (Race and Disability) Bill — The Office for Equality and Opportunity published a call for evidence on 7 April 2025 on various proposed changes to equality law, including mandatory ethnicity and disability pay-gap reporting and equal-pay rights for race and disability. This consultation closes on 30 June 2025. Draft legislation is expected in late 2025, with reporting duties, similar to those that currently apply for gender pay gap, likely to apply from 2026 for employers with at least 250 employees. As with the introduction of gender pay gap reporting, affected employers may want to start modelling now to make an initial assessment of the position for their organisation.
- Remote working — The House of Lords Committee on Home-based Working will report by 30 November 2025 on its inquiry into the status of remote and hybrid working in the UK, including the ongoing effects of such arrangements and potential future developments. The Committee was appointed in January 2025 with the aim of addressing challenges and opportunities regarding remote and hybrid working, including assessing the effect these arrangements have had on productivity, and any of their wider socioeconomic consequences in the UK. While the report may not directly result in new employment legislation, the findings could be relevant for employers looking to justify an increase in office attendance or respond to home-working flexible working requests, as such decisions are often based on theoretical, rather than empirical, factors.
- Minimum wage — The Low Pay Commission (LPC) launched its annual consultation on National Minimum Wage and National Living Wage rates on 2 May 2025, including the consideration of recent increases and the feasibility of suggested future increases. This consultation closes on 30 June 2025. The LPC has been instructed to take into account the cost of living and narrow the gap between different bands of youth rates, making further rate changes likely.
- Failure to prevent fraud — The offence of failure to prevent fraud under the Economic Crime and Corporate Transparency Act 2023 (the ECCTA) will apply to large employers that meet certain criteria from 1 September 2025. Employers would therefore benefit from reviewing their policies and practices, as under the ECCTA they could face criminal liability for any fraud committed by employees, agents, or other “associated persons” that is intended to benefit the organisation. See our previous Sidley Update for further details on this offence.
We note that implementation dates remain subject to change based on parliamentary timetables.
1 For Women Scotland Ltd (Appellant) v The Scottish Ministers (Respondent) [2025] UKSC 16
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