A ballot box

Briefing: Will a Labour government lead to employment law reform?

In its green paper, A New Deal for Working People, the Labour Party announced proposals for transformational changes to employment law, placing a particular focus on “pay, security, inequality and discrimination”. Given the outcome of the local elections and Kier Starmer’s wide lead in several reputable opinion polls, a Labour government appears to be the likely outcome in the upcoming 4 July General Election.

In this briefing, Pam Loch, Solicitor and Managing Director at Loch Associates Group, says the prospect of Labour returning to power after 14 years in opposition raises the very valid question of whether radical immigration and employment law reform is now on the cards.

Labour’s proposals would certainly swing the pendulum of power towards employees and workers, with the plan to create a single status for employees and workers, the creation of employment protection from day one, an increased minimum wage and more family-friendly rights and protection. Labour also plans to change the employment landscape by banning firing and re-hiring practices and giving employees the legal right to disconnect. 

Could these proposed employment law reforms change the employment environment and create a nation of responsible, progressive employers, to then positively impact talent attraction, productivity and staff retention? Or are these measures going to impose greater risk and financial burden on small and medium-sized businesses that are already stretched to their limits?

Single employment status
At present, there are three main categories of employment status:

  • Employees: Individuals who work under the terms of an employment contract that outlines contractual duties, working hours and pay.
  • Workers: Individuals who are considered ‘workers’ are similar to employees, but an employer often has no obligation to pay them if there is no work to be done. This category encompasses zero-hour contracts and may also include agency workers and consultants.
  • Self-employed. Self-employed individuals sit separately from the employer, providing support services when needed on an ad-hoc basis. Legally, those who are self-employed have zero employment rights because they operate on their own and are not under the employment jurisdiction of an employer.

Each of the three categories has differing employment rights and responsibilities assigned to it (employees have the most, often followed by workers then self-employed personnel). Labour proposes to create a single ‘worker’ status to apply to both workers and employees while retaining a separate category for the self-employed. In essence, there would be two categories (employees and workers together followed by self-employed).

There could be some merit in creating a more simplified approach, but the creation of a single category could have quite significant consequences for businesses and industries that work with casual workers and consultants, who may not qualify as self-employed under Labour’s proposals. While those groups do not currently qualify for benefits such as holiday and sick pay, pension, parental rights and protection under unfair dismissal, they could if Labour goes ahead with its plans. 

As a result of potential employment law reform, businesses who may be impacted by this will need to review the status of their staff and budget for the financial ramifications of more individuals acquiring rights that they do not currently have. 

Changes to unfair dismissal rights
Protection from unfair dismissal was originally introduced under Edward Heath’s Conservative Government in 1971, with employees currently qualifying for this protection after two years of service. Whilst this qualifying period has changed several times, Labour’s pledge to remove the qualifying period altogether, and give workers this protection from day one, could have significant consequences for businesses, placing more focus on recruitment due diligence and people management once employed. 

It is worth keeping in mind the potentially significant financial risks a successful claim by an employee can create for a business. Whilst the removal of the cap on compensatory awards for unfair dismissal, as proposed in the Green Paper, would only apply to employers who find themselves liable, it is likely to result in employers being more risk averse, especially around dismissals.

Directors may also find themselves exposed as Labour plans to hold them personally liable for any unpaid money awarded to workers, meaning in the event of a potential business liquidation, workers could bring claims against the director’s personal wealth. 

Banning ‘fire and rehire’ practices
Labour has also set out proposals to tackle the ‘fire and rehire’ of employees, a practice where a business dismisses someone who has refused contractual changes and then re-hires them under the new terms. The Green Paper identifies three areas that need to change to stop this practice, including: 

  1. Improving information and consultation procedures to ensure workers are involved in the contractual changes;
  2. Making changes to trade union notice and balloting to allow for defensive action to be taken when this action occurs; and
  3. Adapting dismissal and redundancy legislation to prevent dismissals based on the non-acceptance of contractual changes.

Further employment law reforms
The Green Paper also calls for an increased minimum wage, a right for workers to disconnect from work and employer communications, day one statutory sick pay, extension of paternity and maternity rights, and pregnancy protection with regard to return to work – all of which could have huge consequences for small and independent businesses. 

A new deal
The Green Paper clearly states Labour’s intentions to strengthen employee rights, reset the balance of power and place the onus on the employer to protect all employees from day one of their employment. Whilst it will be interesting to see whether Labour fulfil their commitment of introducing a bill within 100 days of gaining power, (and when the changes then become law), it is important that businesses get up to speed with these potential changes and are aware of the steps they would need to take to be legally compliant. 

Loch Associates is hosting a ‘Level up’ webinar, considering the potential employment and immigration law changes that may come into effect after the General Election on 4 July. To find out more and book a place, visit Level Up - Loch Associates Group