Apr 2025 – Employment Rights Bill unpacked: Fair Work Agency
The Employment Rights Bill creates a new state enforcement agency for specific employment rights, including some major new enforcement powers.
The Employment Rights Bill creates a new state enforcement agency, likely to be called the “Fair Work Agency” (FWA). It will cover areas which are already covered by existing enforcement agencies, plus a new remit over holiday pay. The Bill sets out a range of enforcement powers, and additional powers to enforce failure to pay statutory holiday and sick pay, backed up with financial penalties and an ability to recover enforcement costs from the employer.
What will the FWA cover?
The Bill covers the following areas:
- Rules on employment agencies and employment businesses
- National minimum wage rights (NMW) – including entitlement and record-keeping requirements
- Modern slavery offences
- Statutory Sick Pay (SSP)
- Statutory holiday pay – the right to payment for holiday, including any arrangements for rolled-up holiday pay for irregular hours and part-year workers
- A new obligation to keep records demonstrating compliance with statutory holiday entitlement for six years, with failure to comply being a criminal offence punishable by a fine
- Gangmasters licencing
- Financial penalties for failure to pay sums ordered by an Employment Tribunal or in a COT3
The most significant new addition for employers is the enforcement of rights to holiday pay as this is not currently subject to enforcement by a state agency and is also a notoriously complex area for employers. The inclusion of financial penalties for failure to pay tribunal awards and settlements is a bit of an oddity as this power is not used regularly in practice. The Bill also gives powers to add to the list of employment rights that are covered by the FWA. This could include major new areas such as discrimination law, or an extension to narrower rights – such as statutory pay for family-related leave. However, there seem to be no current plans to extend the FWA’s remit in this way.
What powers will it have?
- New powers to enforce failures to pay certain statutory payments to workers have been added. The FWA will be able issue a notice of underpayment to employers, which specifies the amount payable to each individual within 28 days. This can cover underpayments going back up to six years, covering unpaid sums from when the Bill is passed (or back six years in all cases for unpaid NMW). The notice of underpayment must also impose a penalty of 200% of the sum due, capped at £20,000 per individual, payable to the Secretary of State. Separate regulations will specify when a penalty is not required. Avoidance of a penalty is likely to be exceptional.
Power to issue a notice requiring a person to provide information – either by attending a specified time or place to answer questions, or by providing specified documents. - Enforcement officers being able to enter business premises to examine documents, require any person on the premises to produce documents, or check any computer or other equipment used to process or store information or documents. Enforcement officers can also seize documents. In certain circumstances, and if they also obtain a court warrant, enforcement officers can also enter people’s homes.
- Power to request a labour market enforcement (LME) undertaking. If the Secretary of State believes that a person has committed a labour market offence, they can be asked to comply with any requirements set out in an LME undertaking. A court can make an LME order if an undertaking is refused, and failure to comply with that order is a criminal offence. A labour market offence will include the new criminal offence of failing to keep holiday records, as well as existing offences under NMW legislation.
- New criminal offences that can apply to all breaches of employment rights covered by the FWA. It is an offence to knowingly or recklessly produce false documents and information. It is also an offence to intentionally obstruct enforcement action or fail to comply with an enforcement requirement without reasonable excuse. The penalty is a fine, imprisonment for up to 51 weeks (in England and Wales), or both. Corporate officers can also be found guilty of these offences if they consented to the conduct, or it was attributable to their neglect.
The new powers will be especially significant for employment rights that were not previously covered by enforcement bodies, particularly the right to holiday pay.
New enforcement mechanisms and costs – key new provisions
- An ability to recover enforcement costs from employers who are not complying with the law by requiring them to pay a charge. Depending on how the costs are to be calculated, this could prove expensive for employers if charged on top of a penalty and requirements to pay missing payments.
- The FWA will be able to bring Employment Tribunal proceedings on behalf of a worker, if the worker has the right to bring a claim but it appears they are not going to. Any financial award would still go to the worker. This applies to all types of Employment Tribunal claims, not just those falling within the FWA’s remit.
- The FWA will also be able to provide legal assistance to any party to civil proceedings relating to employment law, trade union law, or the law of labour relations. If a party they support is awarded costs, the FWA can reclaim their expenditure out of these costs. This could change the way landmark test cases are run, as costs are normally awarded to the successful party once a case reaches the Court of Appeal or Supreme Court – the FWA may be more willing and able to back such cases if costs can be recovered.
Ultimately, the significance of the FWA for both employers and employees will depend on its resources and funding. The FWA is likely to generate its own revenue to some extent through imposing penalties, and the new power to charge enforcement costs to non-compliant employers could add substantially to this if used regularly. The FWA could prove to be a lot more proactive than HMRC and other enforcement agencies if is adequately funded.
How significant is this in practice?
- Holiday pay. This is very significant because the right to paid holiday applies to all workers, and it is not currently subject to state enforcement. It is a particular risk for employers who have taken a “wait and see” approach to some of the more complicated areas of holiday pay. This could result in employers having to pay, at a minimum, 100% of any unpaid holiday pay to the FWA if a breach is uncovered.
- SSP. There is currently no direct state enforcement of the right to SSP. HMRC can determine whether SSP should be paid if there is a dispute between an employee and employer, but this requires the employee to make a complaint and there are no penalties for getting it wrong. This is likely to be of less concern to employers than holiday pay enforcement because the right to SSP is simpler to operate correctly.
- Employment agencies. This is not a significant change; the Employment Agencies Standards Inspectorate already has powers to require information or documents and enter business premises.
- National minimum wage. HMRC already has significant enforcement powers, including requiring LME undertakings and issuing LME orders, the ability to order employers to make missing payments and the power to impose penalties.
- Modern slavery. This does not appear to be a significant change to the powers already held by the Gangmasters and Labour Abuse Authority, which can conduct unannounced inspections and require access to premises, the provision of documentary evidence, and interviews with workers and conduct criminal investigations where an offence is suspected.
- Immigration. Immigration rules as a whole are not covered by the FWA. There is one change though, as the current system of immigration LME undertakings and orders is being replaced by the provisions in the Bill. These new provisions will not make any significant change in practice.
Next steps and what employers can do
As with most of the reforms in the Bill, the FWA is unlikely to be up and running before the end of 2026. The Bill requires a labour market enforcement strategy to be set every three years, so the first of these will give some guidance on where resources are likely to be focussed. Employers should already be complying with all of these important rights, particularly those that are currently backed by criminal and civil penalties such as modern slavery and employment agencies rules. Holiday pay is the main area where employers may need to focus, especially now that the FWA is to be given significant additional enforcement powers. Although we would expect the FWA to target employers perceived to be exploitative, the risks of overlooking the rules look set to increase. This also looks like a deliberate shift away from individual enforcement of rights through the overburdened Employment Tribunal system, towards a more centralised state enforcement backed by financial penalties.
If you have any specific questions you would like advice on or if you would like information about what is discussed in this article, then please contact: Abi.Frederick@lewissilkin.com of Lewis Silkin LLP