Labour’s new deal: all change for employment law?

The countdown to the General Election is on, with the UK heading to the polls much sooner than many Westminster-watchers had anticipated.

There are several weeks of intensive campaigning still to go, and we haven’t yet had sight of the parties’ final manifestos. However, drawing on existing policy documents, announcements made at party conferences and campaigning around recent local elections, it’s possible to make an informed guess at how the employment law agenda may look if there is a change of government this summer.

Keir Starmer’s Labour has announced a detailed plan to ‘make work pay’ through ‘delivering a New Deal for working people’, and new employment legislation has been promised within 100 days if the party wins power. But what will this mean in practice for UK employers? We consider Labour’s key proposals and which changes are likely to be top of a 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 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 it proposal to remove the qualifying period for unfair dismissal claims, as well as for core employment rights such as sick pay and parental leave.

Currently, an employee must accrue 2 years continuous service before they are eligible to claim unfair dismissal in an employment tribunal (increased from 1 year in 2012). This would become a ‘Day 1’ right, with employees acquiring the right to claim from the very start of their employment.

This would significantly increase the risks inherent in recruitment, 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 Labour’s ‘single status’ proposal, under which ‘workers’ currently ineligible to claim unfair dismissal would presumably acquire the right to do so, the removal of the qualifying period could hugely increase the risk of claims for employers.

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 has previously indicated that statutory limits on employment compensation will be removed. Little detail has been provided, and the proposal is notably absent from the latest iteration of the party’s employment policy document, but 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 employer spend.

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 undoubtedly 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 current Conservative government has taken significant strides to increase minimum wage rates in recent years. However, Labour will take this further by ensuring that NMW rates take into account the actual cost of living; currently the minimum 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 are considering the introduction of ‘Fair Pay Agreements’ (highly unusual in the UK but well established in other EU markets) 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 professes 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 were in support of an outright ban. However, this seems to have been scaled back to tackling situations where such contracts are deployed cynically or unfairly by employers. The focus will 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 current administration very recently produced a statutory Code of Practice on this issue, branded by Labour as ‘inadequate’ and earmarked to be significantly strengthened.

Discrimination law

To the confusion of employment lawyers, Labour has led off 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 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 employees (over 250 employees) under a Labour government. Gender Pay Gap Reporting has been mandatory in the UK for seven years. However the current administration stepped back from making EPGR compulsory, favouring non-mandatory guidance for employers looking to increase transparency in this area. 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’ 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 despite the fact that an attempt by the current administration to reintroduce this protection was dropped during the relevant legislation’s passage through Parliament. More detail on this proposal, and any preventative steps employers may be expected to take is awaited.

Trade Unions and Industrial Action

As well as the potential introduction of Fair Pay Agreements, Labour has also pledged to introduce a raft of other measures to strengthen Trade Union rights.

Key proposals in this area include stripping back some of the ‘red tape’ around organising strike action, reinstituting the ban on using agency workers to cover striking workers, and a possible repeal of ‘minimum service levels’ introduced by the current administration to ensure a base level of staffing 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 gave 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.

Employment law and policy have traditionally been key general election battlegrounds, and the 2024 campaign looks to be no exception. While the outcome of the July poll is of course unknown, we can be certain that there are interesting times ahead for UK employers and people managers.