Labour’s proposed employment reforms: What will employers need to consider?

Single status of worker

Proposal

One of the main proposals put forward by the Labour Party in their Green Paper is a change to employment status.  This is the creation of a single status of “worker” for all those except the genuinely self-employed. Currently in the UK, there are three categories of employment status: “employee”, “worker” and “self-employed contractor”.  The employment rights and protections that an individual is entitled to will depend on their employment status, with employees entitled to the widest range of rights.  Currently, those falling within the “worker” category are entitled to rights regarding their working time, the National Minimum Wage, discrimination and whistleblowing.  They are not, however, entitled to statutory unfair dismissal rights, statutory sick pay or maternity, paternity, adoption or shared parental leave.  

The Labour Party proposes to consult on employment status and remove the impact of “bogus self-employment”.  The reason put forward for this change is to create a simpler framework and provide transparency and to reduce Employment Tribunal disputes relating to employment status.  The result would be that all workers would be afforded the same rights and protections including sick pay, holiday pay, family friendly rights and protection against unfair dismissal.

Implications

It is not clear how this proposal will be implemented.  The current government consulted on whether it would be possible to legislate to codify the different statuses, but determined that this would be a complex exercise. Instead, employment status is determined by a significant amount of case law and the government introduced guidance.   

Creating a single status of worker will have a significant impact on the rights available, increasing the number of individuals entitled to the minimum rights which, in in turn, could have significant cost implications and impose additional administrative burdens on employers.

What steps should employers take?

If this proposal is introduced, then employers should

• Perform an audit of the current workforce to determine who would fall within the single worker status and who is clearly self-employed; 
• Consider whether there are any changes that can be made to the working arrangements that apply to those workers;
• Consider what effect this will have on the pay and benefits available to those workers; and
• Be ready to amend any policies and procedures to reflect any changes.

Workers to be given day one rights

Proposal

The Labour Party proposes to strengthen the protections afforded to all workers by ending the qualifying periods for basic rights.  The basic rights referred to in the Green Paper are unfair dismissal, sick pay and parental leave.  Currently, employees generally are required to meet a qualifying period of two-years’ service before they can bring a claim for unfair dismissal (unless the dismissal falls within one of the categories which is automatically unfair).  

Commentary since the publication of the Green Paper has suggested that this would not prevent employers introducing and implementing probationary periods with fair and transparent rules and processes.

Implications

Making the right to bring an unfair dismissal claim a day one right will be a significant change to the law.  This, combined with the suggested removal of the cap on compensation (see below), will significantly increase the claims brought in the Employment Tribunal.   

It is not clear what other rights will become day one rights.  There is reference in the Green Paper to other issues such as parental leave and sick pay, but this is yet to be confirmed.  Some of these proposals will increase the administrative burden for employers particularly if the workers are short term workers.

What steps should employers take?

This proposal is likely to require a significant change in how employers deal with their employees, particularly ensuring that there is more rigorous recruitment to guarantee that the employee is a good fit with the employer from day one.

Employers may also need to use probationary periods more effectively.  If the proposal does allow for some probationary period, then dismissal at the end of the probationary period may have less financial implications for employers. 

Other changes to unfair dismissal

Proposal

The Green Paper also outlines the Labour Party’s proposal that all workers receive full compensation if they suffer loss because of an employer’s breach of the law.  To implement this, the Labour Party plans to remove the current cap on compensation for loss of statutory rights, including the right not to be unfairly dismissed.  The current compensatory award in most cases is capped at £115,115 or 52 weeks, pay whichever is the lower.  There is also a proposal that the Labour Party will extend the time period for bringing claims to Employment Tribunals (currently three months). 

Implications

Removing the cap on compensation for loss of statutory rights (combined with the proposals to (i) make certain rights a day one right; (ii) extend the time limits for making a claim; and (ii) extend the right to bring a claim to all workers and not just employees) will significantly increase the number of claims being brought in the Employment Tribunals.  It will also have an impact on any financial settlement that an employer may offer on termination.

What step should employers take?

If this proposal is introduced, employers will need to:

• Ensure that all performance and conduct processes and procedures are robust and comply with the principals of fair process; 
• Ensure that those who carry out any such process are fully aware of the requirements for a fair procedure;
• Consider the length of any contractual notice period, as this could have an impact on the level of compensation that is payable; and
• Consider the nature of any settlements that will be entered into (as noted above, the removal of the cap is likely to result in higher settlement agreements).

Ban on Zero hours contracts

Proposal

The Labour Party has proposed is that it will ban zero hours contracts and give workers predictable contracts. This means banning contracts that do not have a minimum number of guaranteed hours. In addition, anyone working regular hours for 12 weeks or more will have the right to a regular contract to reflect those hours normally worked. This is so that all jobs will provide a baseline level of security and ensure all workers get reasonable notice of any change in shifts or working time. In March 2024, it was reported that the Labour Party’s reason for this proposal is to stop “exploitative” zero hours contracts, which may signify that the Party is not pursuing an outright ban.

Implications

There is a constant debate regarding the benefits of zero hours contracts with employers and employees both claiming that they can benefit from the flexibility offered by such an arrangement. The Labour Party has agreed that it will consult on this proposal and it may be that the legislation will in fact only deal with those who are exploited under such arrangements i.e. by being paid an extremely low amount.

What steps should employers take?

Employers should be considering the use of zero hours contracts and what terms they currently have in place. Many employers are already moving away from zero hours contracts, but there are certain sectors, such as hospitality, where they are used more regularly. The current government have already proposed a change with the introduction of the Workers (Predictable Terms and Conditions) Act 2023 which is expected to come into force in September 2024. It will amend the Employment Rights Act 1996 to give employees, workers and agency workers the right to request a predictable work pattern.

Changes to flexible working and other family friendly rights

Proposal

The Labour Party proposes to make flexible working a day one right and employers will be required to accommodate this request as far as is reasonable.  
With regard to other family friendly rights, the Labour Party is committed to extending statutory maternity and paternity leave, introducing the right to bereavement leave and strengthening protections for pregnant women by making it unlawful to dismiss a woman who is pregnant for six months after her return, except in specific circumstances. The Labour Party also proposes to review parental leave within the first year if elected including shared parental leave. 

Implications

With regard to flexible working, employers will already be aware that, as of 6 April 2024, the right to request flexible working has become a day one right, but the proposal by the Labour Party seems to go slightly further, with the suggestion that employers will be required to accommodate the request as far as is reasonable. This may imply that there will be a removal of the current statutory grounds.  

Changes have also been made to protections for those on family leave where they are facing a redundancy situation with the introduction of the Protection from Redundancy (Pregnancy and Family Leave) Act 2023. However, the Labour Party proposal appears to further extend this change, but further details are not given in the Green Paper. 

What steps should employers take?

Employers should be clear about the business grounds on which they refuse any request for flexible working and have evidence to support the requirements of the business.
In addition, employers should review their contractual provisions offered. It is not clear yet what proposals the Labour Party is suggesting in terms of its review of the maternity and parental leave arrangements and many employers, may, in any event, offer enhanced contractual provisions.   

Trade union rights

Proposal

The Labour Party proposes to establish fair pay agreements across the economy through sectoral collective bargaining, reversing the decline in collective bargaining coverage. The proposal is that these agreements would be a “floor” across industries and, although they would not remove the need for minimum standards in legislation, they would ensure that minimum rights do not become the maximum.  Although there is no clear detail about which sectors will be covered by these agreements, indications have been given that this will begin in adult social care.  

The Labour Party is also committed to repealing anti-trade union legislation which removes workers’ rights, including the Trade Union Act 2016, in order to remove unnecessary restrictions on trade union activity. The Labour Party also proposes to strengthen trade unions’ right of entry to workplaces to organise, meet and represent their members, and allow trade unions to use secure electronic and workplace ballots and simplify the law around union recognition.

Implications

The introduction of fair pay agreements is new for the UK, although they do exist in other jurisdictions.  As mentioned, it is not clear which sectors will be subject to these agreements.

What steps should employers take?

Employers who have trade unions already involved should monitor any proposals for strengthening the activities of trade unions. In addition, any employers in the adult social care sector should monitor discussions regarding fair pay agreements. 

Action to close gender, ethnicity and disability pay gaps

Proposal

The Green Paper contains a proposal to require the publication of ethnicity pay gaps to be made mandatory for firms with more than 250 staff to mirror gender pay gap reporting.  The Labour Party has also set out additional proposals regarding changes to the Equality Act 2010 (the Equality Act). Press articles from February 2024 reported that the Labour Party plans to extend equal pay rights to black, Asian and minority ethnic staff (BAME workers), including by:

• Extending the full right to equal pay that now exists for women to BAME workers;
• Ensuring the scheme covers disabled people; and
• Enacting protections against dual discrimination (which are in the Equality Act but have not yet been implemented). 

Implications

Employers should be aware of the difficulties regarding a claim to harmonise ethnicity and disability pay protection with existing sex equality protection. Currently, the right to bring an equal pay claim is limited to differences in pay based on sex. Claims about pay relating to other protected characteristics are brought by way of a direct or indirect discrimination. Difficulties exist in being able to find a comparator for the protected characteristics proposed.    

What steps should employers take?

The press reports have indicated that these proposals would follow a consultation with business groups and unions and would be phased in to give employers time to adapt to paying all their staff fairly. There are significant issues with this and further clarification is needed, but employers in the meantime should be ensuring equality among their staff. 

Other proposals

There are other proposals that employers should be aware of which will impact on the workplace:

• Outlawing the procedure of fire and rehire. It is not entirely clear how the outlawing of fire and rehire practices will take effect. An employer is currently permitted to consult and then dismiss employees in order rehire them and offer new terms and conditions. It is presumed that this will be by enhancing the obligation to inform and consult employees and also increasing the protections under the unfair dismissal legislation. Employers are already required to follow a Code of Practice on this practice and it is only permitted as a last resort where employees do not agree to any such changes in their terms and conditions and an employer is required to take the steps for business reasons;
• The introduction of the right to disconnect.  The right to switch off already exists in certain EU countries.  It is not clear exactly the nature of the right and also how an employee would enforce this right;
• A ban on unpaid internships; and
• A review of health and safety law

What next

Further details on all these proposals are necessary. Neither the results of the election nor the timing of any changes are certain. However, employers should be aware of the impact of the measures proposed by the Labour Party and be planning for any steps that they need to take should Labour win the election.