A new Labour Government: All change for employment law?

The results are in. After weeks of intensive campaigning, debate and controversy, Kier Starmer and his team have emerged victorious, and the UK has entered a new chapter of majority Labour Government. But what will this mean in practice for UK employers?

In a comprehensive policy document at the core of the party’s employment law offering, Labour announced a detailed plan back in May to ‘make work pay’ through ‘delivering a New Deal for Working People’. The party’s manifesto also made the pronouncement that ‘Britain’s outdated employment laws are not fit for the modern economy’.   Consequently, Labour boldly promised to ‘introduce new legislation in Parliament within 100 days of entering government’ to address the issues it wants to tackle. However, introducing legislation to Parliament is only the first step in any proposed law (or ‘bill’) being passed; it would need to be debated, possibly amended, and approved by each of the Houses of Parliament, before receiving royal assent and being ‘made’. Therefore, Labour’s commitment in reality is to publish draft legislation, rather than change the law, within that tight timeframe.

Labour also committed separately to consulting on such matters with businesses and unions; so, while Labour intends to ‘hit the ground running’, the legal changes it envisages will take some time to implement.

Within this context, we consider Labour’s key proposals, and which changes are likely to be top of the new administration’s ‘to-do’ list.

Employment status

Labour has pledged to reform the UK’s current ‘three-tier’ employment status structure where staff are classified as ‘employees’, ‘self-employed’ or an intermediate category of ‘worker’, with different employment rights and protections applying to each category. Differentiating between these categories is perceived to be legally complex, requiring ‘an encyclopaedic knowledge of case law’ arising in the context of the ‘gig economy’ (for example, the Uber and Deliveroo litigation).

Labour proposes to replace these categories with a ‘single status of worker’, contrasted with the genuinely self-employed, and, by doing so, to ‘transition towards a simpler two-part framework for employment status’.

This process is likely to be lengthy and require detailed consultation, followed by extensive amendments to legislation, and so is unlikely to take effect in the early days of a new administration.

Day 1 Employment Rights

Headlining Labour’s employment law agenda is its proposal to remove the qualifying period for making unfair dismissal claims in an employment tribunal, as well as for eligibility for core employment rights such as sick pay and parental leave.

The first of these is the most significant: Currently, an employee must accrue two years continuous service before they are eligible to claim unfair dismissal in an employment tribunal (increased from 1 year in 2012).  The new government proposes that this will become a ‘Day 1’ right, with employees acquiring the right to claim from the very start of their employment.

This would significantly increase inherent recruitment risks for employers, as it is currently unclear how contractual probationary periods to assess an employee’s suitability for a role would be accounted for. More robust performance management processes for newer recruits might also be required.

Viewed alongside the ‘single status’ proposal, under which ‘workers’, who are currently ineligible to claim unfair dismissal would presumably acquire the right to do so if/when they acquire the same single status as employees, the removal of the qualifying period could hugely increase the risk of claims faced by employers. The consultation on this proposal will be very interesting to follow.  

Time limits and compensation caps

On the same theme, Labour has also pledged to increase the time limit for all employment tribunal claims from three months to six months, which again has the potential to increase claim volumes. However, it is important to note that under the current system, many claims presented outside the three-month limitation period are already accepted and heard by employment tribunals, as Judges retain a broad discretion to allow late submission.

Perhaps more significantly, Labour had previously indicated, in an earlier ‘green paper’, that statutory limits on employment compensation will be removed. Little detail has been provided, and the proposal is notably absent from the New Deal document and manifesto.  However, this presumably refers to the cap on the compensatory award for ‘ordinary’ unfair dismissal (without any element of discrimination). The cap currently stands at £115,115 (or one year’s pay for the individual; whichever is the lower). However, the average award for unfair dismissal falls far short of the current maximum, so lifting the cap may have limited practical impact on employers’ financial risk.

Experience tells us that employees will often seek to attach a weak discrimination or whistleblowing claim to a claim of unfair dismissal (as dismissals for these reasons attract uncapped compensation). While lifting the cap on ‘ordinary’ unfair dismissal claims would almost certainly make negotiating settlement of claims and managing employee expectations more difficult, it might serve to remove the current incentive to ‘pile on’ additional grounds of complaint where they may not be merited.

Fair Pay

The outgoing government made significant strides in increasing national minimum wage (NMW) rates in recent years. However, Labour intends to take this further by ensuring that NMW rates take into account the actual cost of living; currently the NMW rates are based on average earnings. The existing age bands, allowing payment of a reduced rate to younger workers, will also be abolished, in favour of a flat rate for all age groups.

Additionally, it is reported that Labour is considering the introduction of ‘Fair Pay Agreements’ (highly unusual in the UK but well established in other EU jurisdictions) under which pay rates are determined by sectoral collective bargaining. However, a perceived lack of support for this radical step within the business community may prompt the party to step back from this pledge, perhaps consulting in a specific sector (e.g. social care) to test the water before making any sweeping policy changes.

Ending ‘one-sided’ flexibility

In its New Deal policy document, Labour professed a commitment to ‘Securonomics’ a selection of policies intended to promote stable, predictable work and individual economic security.

Part of this plan is the party’s longstanding commitment to banning ‘exploitative Zero Hours contracts’ which do not guarantee employees a minimum number of hours of work. In previous election campaigns, Labour supported an outright ban. However, in this campaign, this proposal was scaled back to tackling situations where such contracts are deployed cynically or unfairly by employers. The focus will now be on addressing ‘one-sided flexibility’ and empowering employees to request a contract that more accurately reflects the hours they actually work.

Also on the agenda is a ban on ‘fire and rehire’ as a mechanism for implementing changes to employee contracts. The outgoing Conservative government very recently produced a statutory Code of Practice on this issue, which was branded by Labour as ‘inadequate’ and earmarked to be significantly strengthened, so we expect further movement in this area.

Discrimination law

To the confusion of employment lawyers, Labour has led its proposals to update discrimination law with a proposal to expand Equal Pay legislation, which currently applies to gender pay disparities only, to cover disabled and BAME employees. This is perhaps a surprising choice, as Equal Pay claims are notoriously cumbersome and slow-moving in comparison to other discrimination claims. Many commentators feel that using this mechanism to enhance protection for disabled and BAME employees is misguided and may well fall away if a consultation exercise is carried out.

In a related measure, it is likely that both Ethnicity Pay Gap Reporting and Disability Pay Gap reporting will become mandatory for larger employers (over 250 employees) under a Labour government. Gender Pay Gap Reporting has been mandatory in the UK for seven years. However, the previous Conservative administration stepped back from making Ethnicity Pay Gap Reporting compulsory, favouring non-mandatory guidance for employers looking to increase transparency in this area.

Compulsory reporting on both ethnicity and disability pay gaps is likely to be hampered, at least initially, by categorisation issues; both groups contain a wealth of diversity and much depends on how individual employees self-identify.

Another political ‘hot potato’ is Third Party Harassment (where, for example, an employee is harassed by a client, customer or member of the public). This seems to be back on the table for Labour even though an attempt by the outgoing Conservative administration to reintroduce this protection was dropped during the relevant legislation’s passage through Parliament last year. More detail on this proposal, and any preventative steps employers may be expected to take is awaited.

Trade Unions and Industrial Action

Labour’s manifesto pledged to introduce a raft of other measures to ‘strengthen the collective voice of workers’ and to enhance Trade Union rights.

Key proposals in this area include stripping back some of the ‘red tape’ around organising strike action and a possible repeal of ‘minimum service levels’ introduced by the previous Conservative administration to ensure a base level of staffing in specified industries during industrial action.

The party has also committed to simplifying the process of Trade Union recognition and improve access to workplaces for trade union representatives, both of which may pose significant challenges to employers who do not currently have a strong culture of employee representation.

Comment

More information is needed on the detail and timing of most of these proposals — and is it important to remember that all are subject to change or evolution. While some will require significant consultation or additional policy work, others such as Day 1 employment rights, and increases to employment tribunal time limits, may present fairly ‘quick-wins’ for a new government keen to showcase its employee-friendly credentials.

With a Labour Prime Minister at the helm for the first time in nearly fifteen years, employment law and policy are expected to take centre stage once again.  UK employers and people managers should prepare themselves for fast-paced change and a busy period ahead.