Will Labour's employment reforms work for your business?

The Labour Party has reaffirmed its intentions for employment reform in government. The Party has said that although this agenda will take time to implement in full, it intends to begin the parliamentary process for enacting much of it within its first 100-days in power.

Assessing key reforms to qualifying periods for employment rights, worker status and overtime will be critical for ensuring your business is prepared for a Labour government.

The CBI has worked closely with businesses to understand how Labour’s reforms will impact them. The top three areas where there are consequences for business operations include Labour’s plans for:

The removal of qualifying periods for statutory employment protections, including unfair dismissal, parental leave and sick pay waiting days

The two-year qualifying period for unfair dismissal underpins the legal basis for probation periods in the UK. Its removal means a business can be taken to an employment tribunal if somebody who is dismissed during their probation believes they have been treated unfairly, as they can already in cases of discrimination. This will raise the expected cost of employment, given the legal and reputational costs that a business incurs defending a tribunal claim regardless of the outcome. Labour has said it will ensure employers can operate probationary periods to assess new hires but has not said how it will guarantee this. It is likely that consultation will include assessing whether there are lighter-touch practice expectations for dismissal during probation that can ease businesses’ concerns about the potential for tribunal claims – such as a new Acas Code on probation. Ahead of this reform businesses are considering:

• Using agency workers and fixed-term contracts, which offer easier routes for disengaging staff.
• Hiring processes, as getting it wrong in recruitment will now carry greater risk and cost.
• Performance management processes for new hires, as formal disciplinary meetings, written warnings and appeal processes may need to take place earlier to give a business sufficient confidence that dismissal won't be determined unfair by a tribunal.

A two-part framework for employment status

The UK currently has a three-part framework for employment status where a different balance of rights and flexibilities are afforded to employees, workers and the self-employed. Much of the legal distinction between the three depends on the degree of control an employer exercises over staff and the mutuality of their obligations to each other. Labour has made clear its intent to consult in detail in this area, and its intended end outcome being a merging of the employee and worker classifications for all but the self-employed. At the same time, Labour wants to consider how within its new two-part framework the existing flexibilities offered to staff under the current worker status might be retained. The impact of a move to a two-part framework could have will depend on:

• If existing business models are viable without ‘workers’. Given the enhanced rights and benefits that come with being an employee, it may no longer be possible to offer the same level of flexibilities to staff for the same level of employment cost. A workforce consisting of only employees or the self-employed, rather than workers, could also restrict a businesses’ capacity to respond to variable demand. Similarly, there will be staff engagement impacts that come with the removal of flexibilities or the removal of protections and enhancements that a move towards either employee or self-employed models respectively entail.
• Whether a two-part framework can offer an acceptable degree of reciprocity of existing staff flexibilities and business obligations. Some protections given to employees may be considered inconsistent with the arms distance relationship between an employer and a ‘worker’ – for example, a right to maternity and paternity pay but no obligation on that member of staff to have established their service or to continue working for that employer.
• The capacity to operate with legal uncertainty on the application of a new two-part framework. The courts have shown themselves capable of adjudicating on the application of the existing status framework to evolving areas of economic activity, such as the gig economy, but this has taken time. A new framework may void much of the existing case law and will again require testing through the courts to ensure the lines between statuses are clear, particularly as new ways of working develop.
• Businesses’ ability to absorb higher levels of labour shortages. The flexibilities offered under worker status are attractive to many who would otherwise be inactive, such as those with caring responsibilities in need of control over when and where they work. Fewer people in the labour market could have a macro impact on the levels of shortages seen across the economy.

A right to a contract reflective of the hours worked over the past 12-weeks

This new right is how Labour intends to ban zero-hour-contracts although it will apply to all employees regardless of their stated contractual hours. Consultation on this is expected to include how the proposal might accommodate seasonal work. In response to this proposal businesses are assessing:

• The viability of offering staff overtime. Staff working beyond their contracted hours could action their right to have those hours permanently, including in periods where customer demand is insufficient to justify those hours for the business. This is a factor being considered particularly by businesses that operate in markets with seasonal demand. Labour’s new Plan to Make Work Pay document notes that workers will continue to have the right to be paid overtime rates as now but makes no reference to the safeguards needed to give employers the confidence to offer it.
• Use of agency workers or fixed-term contracts. These arrangements provide an alternative to offering permanent staff overtime. They can be used for short periods that fall under the 12-week reference period for the new right to apply.
• The employee relations impact of restricting overtime. Overtime is often highly valued by staff, particularly where it helps them to voluntarily increase their incomes or decrease their workload in response to their changing personal circumstances. The reasons for removing it and/or hiring temporary staff may need to be clearly communicated to avoid damaging morale.

…whilst changes to industrial relations law, equalities law, restructuring rules, labour market enforcement and the minimum wage will have also important consequences for businesses.

Other proposals

In addition to the three above, the ‘Plan to Make Work Pay’ includes a long list of other proposals that could also impact businesses significantly. Some are only set out in high-level terms with detail likely to follow in consultation documents. Many businesses are considering the implications of the following: