In this Sidley Update we cover:
- Update on the Employment Rights Bill
- Victims and Prisoners Act 2024
- Review of the SMCR
- FCA rules on nonfinancial misconduct
- Recent EAT decision on jurisdiction
- Recent EAT decision on harassment
- EU Pay Transparency Directive
1. Update on the Employment Rights Bill (ERB)
ERB roadmap
In July 2025, the government published a roadmap of expected timeframes on which various provisions of the ERB are proposed to come into force, which is split into four main phases: (i) At Royal Assent or soon afterwards, (ii) April 2026, (iii) October 2026, and (iv) 2027.
Key measures from the ERB that fall into each phase:
At Royal Assent or soon afterwards
- Measures to enhance protection against dismissal for taking industrial action introduced.
April 2026
- The maximum protective award for noncompliance with collective redundancy consultations will be doubled.
- Paternity leave and unpaid parental leave will become “day-one” employment rights.
- The lower earnings limit for statutory sick pay (SSP) and waiting period (i.e., where employees are not entitled to SSP, currently three days) for SSP will be removed.
- All complaints of sexual harassment will qualify as protected disclosures.
- The Fair Work Agency, which will be the new state enforcement body for a wide range of employment rights, will be launched.
October 2026
- Tougher measures on fire and rehire practices will come into force.
- The requirement for employers to take all reasonable steps to prevent sexual harassment will come into force (building on the positive duty to take reasonable steps introduced in 2023).
- Employers will be subject to additional duties to prevent third-party harassment.
- The time limit for making employment tribunal claims to increase from three to six months.
2027
- Enhanced dismissal protections for pregnant women and new mothers will be introduced.
- Protection from unfair dismissal will become a day-one right.
The government is continuing to consult on certain areas of the ERB. It has stated that it intends to ensure clear and comprehensive guidance on the new laws is issued in advance of implementation deadlines to allow time for familiarisation and preparation.
Government amendments to the ERB
In July the government announced two new amendments to the ERB, relating to nondisclosure agreement (NDAs), which includes the corresponding provisions in settlement/release agreements, and statutory bereavement leave for pregnancy loss.
NDAs
NDAs will be void if seeking to prevent individuals from speaking out against discrimination and harassment in the workplace, which has now been extended to include allegations about failure to make reasonable adjustments. The amendment comes following years of high-profile campaigning from organisations such as Can’t Buy My Silence, founded in the UK by Zelda Perkins, who was the first person to break her NDA with movie producer Harvey Weinstein.
When misused, NDAs can silence victims of workplace discrimination and harassment, allowing cycles of abusive practices to go unchecked. There are, however, instances where victims themselves request confidentiality, and, when used appropriately, NDAs can be a useful tool to facilitate settlement of cases that might otherwise result in lengthy and stressful tribunal processes. If the option of a confidential settlement is removed entirely, employers might be more inclined to defend claims in an attempt to clear their reputation, which before they might have settled at an early stage with the guarantee of confidentiality for both parties.
Although well intentioned, it is important that the government ensures that in its final form, such a ban will not have the unintended consequence of removing an option for victims of workplace harassment and discrimination. Careful thought should be given as to whether there is a balance to be struck in which both parties can agree to confidentiality if they wish, rather than an outright ban. Further changes in respect of NDAs will be coming into effect from 1 October 2025, which we discuss further below.
Bereavement leave
Currently, the law in Great Britain does not offer any specific protections to people who suffer the loss of a baby prior to the 24th week of pregnancy. The original draft of the ERB provided for a broad right of bereavement leave but still did not address any pregnancy loss prior to the 24-week mark.
The proposed amendments would extend the new right to bereavement leave to employees who experience pregnancy loss before 24 weeks, although the exact amount of leave will be consulted on. As with the broader right to bereavement leave, the ERB is silent about pay during any period of statutory leave.
Bereavement leave in cases of pregnancy loss will trigger a number of considerations for employers, such as confidentiality when discussing such a sensitive topic, the timing of any leave and whether employers should offer enhanced leave, which may address the typical issue of low rates of take-up with any form of unpaid leave.
2. The Victims and Prisoners Act 2024 — Changes to NDAs and Implications for Employers
The Victims and Prisoners Act 2024 introduces important restrictions on the use of non-NDAs, with direct consequences for employers that rely on confidentiality clauses in settlement agreements, contracts, or internal procedures.
Any NDA entered into on or after 1 October 2025 will not be enforceable if it prevents a victim of crime from disclosing information to specified bodies for certain purposes. In practice, this means that a confidentiality clause cannot prevent a victim from speaking to the police, lawyers, medical professionals, or recognised support services about their experience. The reform reflects growing concern that NDAs have, in some cases, been used to silence victims of serious misconduct or criminal behaviour, creating barriers to reporting and support.
While organisations may still use NDAs to protect legitimate business interests — such as trade secrets or sensitive commercial information — they must ensure that clauses cannot be interpreted as restricting disclosures connected to criminal conduct.
This reform is part of a broader policy agenda that strengthens the rights of victims and places greater responsibility on organisations to uphold those rights and should be read alongside proposals regarding NDAs under the ERB (set out above). Employers should take proactive steps: auditing their use of NDAs, updating template agreements, training HR and legal teams on the new requirements, and considering the broader cultural implications of transparency in workplace misconduct cases. The reputational impact of mishandling such issues is likely to be just as significant as the legal consequences.
3. Review of the Senior Managers and Certification Regime (SMCR)
On 15 July 2025, the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and His Majesty’s Treasury (HMT) each published consultations on the SMCR (which was introduced in 2016 to enhance individual accountability and strengthen corporate governance following the 2008 economic crash), proposing reform. The regulators’ stated objectives are to streamline the regime, enhance proportionality and efficiency, and reduce regulatory burdens while ensuring the framework remains effective in safeguarding standards and market integrity. Our colleagues in the Financial Services Regulation team have set out an update here.
The consultation framework contemplates a two-phase reform programme:
- Phase 1 reforms, which could be implemented without legislative change, focus on reducing friction in day-to-day compliance.
- Phase 2 proposals, dependent on primary legislation led by HMT, would introduce more structural reforms to the regime.
Phase 1: Immediate, Nonlegislative Adjustments
The FCA and PRA propose several practical changes designed to improve flexibility and ease the compliance burden on firms:
- Revised 12-week rule — The current rules permit firms to appoint temporary cover for a senior management function (SMF) for up to 12 consecutive weeks without regulatory approval. Under the proposals, the 12-week period would instead represent the time within which firms must submit an application for approval, during which the appointee would remain subject to the senior manager conduct rules.
- Simplified criminal records checks — The validity period of checks would be extended, and repeat checks would no longer be required where an existing SMF holder moves within the same firm or group.
- Clarification of SMF7 scope — The group entity senior manager function would be extended to include controllers exercising significant influence over the day-to-day management or conduct of UK entities.
- Adjustment of “enhanced firm” thresholds — The threshold for classification as an enhanced firm would be raised, thereby reducing the number of firms subject to the most onerous requirements.
- Streamlined statements of responsibilities (SoRs) — Rather than requiring updates following every change, firms could submit SoRs on a periodic basis (e.g., every six months), offering a more proportionate approach.
These changes are aimed at simplifying processes and alleviating operational challenges while preserving the core regulatory objectives of accountability and oversight.
Phase 2: Legislative Reforms Under Consideration
Subject to HMT’s legislative timetable, Phase 2 would entail more fundamental reforms to the SMCR:
- Abolition of the Certification Regime – The current framework for annual “fit and proper” assessments would be replaced, giving regulators flexibility to design a new, more adaptable system.
- Streamlined SMF approval process – Consideration is being given to eliminating the requirement for pre-approval in low-risk cases, alongside further consolidation and simplification of approval documentation.
- Relaxation of Statement of Responsibility requirements – Prescriptive drafting obligations would be removed, allowing firms greater discretion to design and maintain SoRs in line with their own governance structures.
These proposals, if enacted, would represent a material recalibration of the SMCR, potentially reshaping the balance between regulatory oversight and firm-level accountability.
Potential Implications for Firms
The proposed reforms may deliver several benefits for employers, including:
- Reduced compliance burden — Less onerous documentation and fewer regulatory submissions may lower administrative and resourcing demands.
- Greater flexibility in senior appointments — The revised 12-week rule could ease transitions where firms need to make interim arrangements for SMFs.
- More proportionate application of the regime — Raising the enhanced firm threshold should ensure that more stringent requirements are targeted at larger and more complex firms.
- The consultations mark an important development in the evolution of the SMCR. While Phase 1 changes are relatively modest and operational in nature, Phase 2 reforms could materially reshape the regime, particularly through the proposed abolition of the Certification Regime. Firms should begin considering the practical implications now, both in terms of potential efficiencies and in preparing to respond to the consultations before reforms are finalised.
4. FCA Consultation on Nonfinancial Misconduct — Key Points for Firms
On 2 July 2025, the FCA published Consultation Paper CP25/18, setting out proposed guidance on nonfinancial misconduct. The aim is to clarify when such nonfinancial misconduct may breach the FCA Conduct Rules (a set of ethical standards for financial services employees) or affect fitness and propriety and to ensure consistent treatment across all regulated firms. Employers should be aware of these changes, and our colleagues in the Financial Services Regulation team have set out an update here.
5. Recent Employment Appeal Tribunal Case on Jurisdiction1
The Employment Appeal Tribunal (EAT) has confirmed that UK employment tribunals retain jurisdiction to hear discrimination claims against overseas respondents, providing useful guidance on the post-Brexit framework.
Background
The claimant brought complaints under the Equality Act 2010 against the limited liability partnership (LLP) of which he was formerly a member and a number of respondents including three Swedish-domiciled individuals (the “Swedish Respondents”). It was not disputed that the Employment Tribunal (ET) had territorial jurisdiction in respect of the complaints.
However, the Swedish Respondents argued that the tribunal lacked international jurisdiction to hear the claims against as individuals them because they were not present in the UK at the time the claim was served on them. They asserted that territorial jurisdiction was insufficient; rather, because they are non-UK-domiciles, an applicable rule of international jurisdiction also had to be satisfied.
ET decision
The ET dismissed this argument for the following reasons:
- Service was valid under the Employment Tribunals Rules of Procedure 2013 (ET Rules), with no additional requirements for overseas parties.
- Prior to 31 December 2020, it was the Brussels Regulation that decided issues of jurisdiction. Post-Brexit, it is Section 15C of the Civil Jurisdiction and Judgments Act 1982 (CJJA) that is applicable. The ET held that Section 15C was satisfied, as the claimant’s LLP membership could be treated as an employment relationship for these purposes, with England and Wales having the closest connection to the dispute.
EAT decision
The EAT rejected the Swedish respondents’ argument that a source of international jurisdiction, as distinct from territorial jurisdiction, must be found in all cross-border cases. As long as the notice of claim was sent to the respondents in compliance with the ET Rules, no other service requirement applied. Thus, the ET was correct to conclude that there was no further step required in order for the Swedish respondents to be subjected to the ET’s jurisdiction.
Furthermore, the EAT held that the effect of Section 15C of the CJJA was to preserve the rights of employees, not to reduce them. The EAT based this decision on the explanatory memorandum of CJJA 1982, which made it clear that the intention of the amendments was to continue the protection offered to employees by the Brussels Regulation. The aim of the Brussels Regulation was to protect employees by rules of jurisdiction that are more favourable to the employees’ interests because employees are traditionally seen as the “weaker” party in the employment relationship. As such, Section 15C should be read in a manner that aligns with the aims of the Brussels Regulation, which is to make it easy for employees to enforce or defend their rights and avoid multiplicity of proceedings.
Key takeaways
This judgment confirms the following:
- There is no requirement to seek permission to serve claims outside the jurisdiction.
- Section 15C CJJA applies not only to traditional employees but also to LLP members where the relationship shows sufficient subordination.
The decision underscores the tribunals’ willingness to interpret jurisdiction rules broadly to protect claimants, ensuring that employees (and similar workers) can enforce rights in the UK even against overseas respondents, including individuals.
6. Recent EAT case on Employer’s Vicarious Liability2
The EAT has recently clarified the scope of employer liability for sexual harassment, which provides that anything done by a person in the course of their employment must be treated as also done by the employer.
Background
The respondent is a hospitality recruitment agency that sends its employees to work for different clients. The claimant wrongly believed that she was due to work on the day of the incident. She arrived at the respondent’s office, where she thought she had missed the transport that the respondent arranged for her. She was then given a lift by her colleague (CD), who sexually harassed her. The claimant brought a claim for sexual harassment against the respondent on the basis of Section 109(1) of the Equality Act.
ET decision
The ET concluded that CD was not acting within the course of employment and so the respondent was not liable.
The ET found that CD was not required by the respondent to drive the claimant to her job. The only reason the claimant accepted CD’s offer was because she believed she had missed the transport that the respondent normally arranges for its employees. The ET also gave weight to the fact that the respondent did not know or approve of CD offering to drive the claimant. Furthermore, the ET also found it relevant that CD’s motive in offering a lift was “not because of a requirement linked to his employment.” All these factors led the ET to conclude that the harassment was not done in the course of employment.
EAT decision
The claimant brought an appeal on the grounds that (1) the ET failed to have regard to whether the circumstances of the harassment were an “extension of their employment,” (2) the ET did not consider relevant factors, and (3) the ET instead looked at irrelevant factors. The EAT upheld the appeal on all three grounds.
1. Extension of their employment
The EAT stated that what is in the course of employment is a question of fact for each employment tribunal to resolve. Antidiscrimination legislation should be given a broad interpretation and is not to be interpreted in accordance with the law on vicarious liability in tort.
A good starting point is to examine whether the wrongdoer was at work, in working hours, carrying out work activities at the time of the act. The ET was entitled to hold that the act of harassment was not done while CD was at work and that he was not carrying out his work duties.
However, where the ET erred is that it should have then considered whether there is still a “sufficient nexus or connection with work such as to render it in the course of employment.” The ET should have looked at whether the circumstances were such as to make the situation an “extension of work and the workplace.”
2. Failure to consider relevant factors
The EAT stated that it was necessary for the tribunal to analyse factors such as CD’s conduct preceding the incident (such as the suggestive texts that CD was sending to the claimant while working) and determine whether the sexual harassment formed part of a course of conduct.
The EAT also held that the ET should have examined the closeness of the connection between CD’s job and the reason the claimant was in his car. The EAT considered it relevant that CD had previously driven the claimant to a job.
3. Consideration of irrelevant factors
The EAT confirmed that it is irrelevant whether the act itself was done with the employer’s knowledge or approval. The EAT also did not think it was relevant for the ET to consider whether CD’s motive in offering the lift was “because of a requirement linked to his employment.” Even if CD’s motivation in offering the lift was that it would provide an opportunity to harass the claimant, that does not mean that CD was not in the course of employment. If not, protection would be excessively watered down.
The EAT stressed that acts done outside normal hours or duties can still fall within the “course of employment” if there is a sufficient connection to work. The case has been remitted to the ET for reconsideration.
Practical takeaways for employers
- Work-related conduct outside the office: Activities such as car lifts, after-work gatherings, or social events may still expose employers to liability.
- Policies and training: Employers should ensure that harassment policies are up to date and clearly communicated and that employees have regular training on harassment and discrimination at work. This is particularly important in light of the mandatory duty on employers to take all reasonable steps to prevent harassment at work.
- Employer knowledge is not required: A lack of awareness or approval is not enough to shield employers from liability for the acts of its employees.
With year-end socials approaching, this case is a timely reminder to employers to reinforce expected standards of conduct and take proactive steps to reduce risk.
7. EU Pay Transparency Directive — What Employers Need to Know
The EU Pay Transparency Directive (the Directive) must be implemented by EU member states by 7 June 2026, with staggered employer reporting obligations phased in from 2027 depending on the size of the organisation. It applies to all employers with staff in the EU, which of course no longer includes the UK, regardless of where the organisation headquartered.
Key requirements effective from 2027:
- Recruitment: Employers must disclose salary ranges in job adverts or before interviews and cannot ask candidates about past pay.
- Transparency for employees: Staff can request information on their pay and average pay (by gender) for comparable roles. Pay structures and criteria must be objective and gender-neutral.
- Pay secrecy bans: Contracts and policies must not prevent employees from discussing pay.
- Gender pay-gap reporting: Employers with 100+ staff across EU member states must publish gender pay-gap data. Gaps ≥ 5% without objective justification will trigger joint assessments with employee representatives (e.g., unions or works councils).
- Enforcement: Employees can claim compensation; fines and other sanctions will be imposed under national law. EU member states are obliged to ensure that employees have the right to compensation at levels that provide effective compensation in a way that is “dissuasive and proportionate,” but levels of compensation and fines will be set by local law.
Next steps for employers with employees in the EU:
- Understand how the Directive has been (or will be) implemented in each jurisdiction relevant to the organisation.
- Review and adjust recruitment materials such as job advertisements and interview materials, employment contracts, and pay policies.
- Audit pay structures and ensure that documentation is transparent.
- Build data systems for gender pay-gap reporting.
- Prepare to engage with employee representatives where required.
Employers should be aware that noncompliance may result in litigation, reputational damage, and significant administrative burdens. Sidley has local counsel contacts across the EU and can assist with preparation planning for the Directive.
1AB v Grafters Group Ltd [2025] EAT 126
2Prahl and ors v Lapinski [2025] EAT 77
Attorney Advertising—Sidley Austin LLP is a global law firm. Our addresses and contact information can be found at www.sidley.com/en/locations/offices.
Sidley provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships as explained at www.sidley.com/disclaimer.
© Sidley Austin LLP
