Labour’s employment proposals: implications for employers

What might the employment law world look like if, as expected, Keir Starmer walks into Number 10 at some point later this year? The Labour Party has made some striking proposals as laid out in their “New deal for working people” green paper.

Of course, not all pre-election commitments are stuck to. It is quite possible that we will end up with a much watered-down version of the current proposals, and depending on which leaks you believe, plans may already be afoot to tone down what is proposed.

It’s still worth considering the broad shape of the proposals, as they give a good insight into the likely direction of travel. We focus on three of the more significant proposals below.

Proposed changes to Unfair Dismissal law

The headline proposals are to:

• Make unfair dismissal a day one protection, removing the qualifying period (currently two years continuous service for ordinary unfair dismissal claims).
• Remove the limit on compensatory awards for unfair dismissal claims (although those who are likely to benefit most from this change are high earners, who are probably not the demographic Labour is primarily targeting).
• Extend unfair dismissal protection to workers (see below for comment on proposed changes to employment status).
• Extend the three-month time limit for claims of unfair dismissal in the Employment Tribunal (although it’s not yet clear by how much).
• Introduce personal liability for directors of companies who fail to comply with tribunal orders (for example, by not paying compensation awarded).
  
  

To state the obvious, these proposals would likely result in a surge in Employment Tribunal claims, which would increase pressure on an already strained Tribunal system. As a result, employers could face more and longer litigation processes.

If these proposals do become law, employers may react by taking precautionary measures, such as:

• Carrying out more thorough recruitment process to limit the risk of hiring unsuitable candidates.
• Making greater use of probationary periods for new recruits. In some jurisdictions protection from unfair dismissal only kicks in after probation is passed. It is not yet clear how Labour’s proposal is intended to interact with probationary periods, but either way, justifying terminating for failing to pass a probationary period is likely to be easier than at a later date.
• In preparation for this, employers may want to review existing probationary periods for new joiners to ensure they provide enough protection in terms of length (six months is advisable) and the ability to extend this at the employer’s discretion.
• Carrying out a fair process when dismissing all employees, even those with short service. Ensure managers feel comfortable handling performance management processes and are aware of the importance of starting them promptly in order to make effective use of probationary periods.
  
  

Proposed changes to employment status

Labour also proposes to create a two-tier system of “worker” and “self-employed”, rather than the current three tier system of self-employed/worker/employee.

As it stands, those in the worker category have some, but not all protections. For example, they have protections under the Equality Act 2010, and statutory holiday pay, but they don’t benefit from other rights, including:  

• Unfair dismissal protection,
• Statutory minimum notice,
• Statutory redundancy pay,
• Statutory maternity/paternity, adoption leave and pay, and
• Right to request flexible working.
  
  

Under the proposals, anyone who falls within that enlarged employee category would have access to the full suite of rights, thus increasing worker protections.

It remains to be seen whether this proposal would achieve the desired goal of reducing disputes over employment status. Employment status is a notoriously difficult concept to pin down. While reducing the number of categories from two to three may simplify the position somewhat, the reality is that establishing the true nature of working arrangements is likely to remain a nuanced and complex issue.

Proposal to ban “fire and rehire”

Labour has been very open in its criticism of “fire and rehire” which is the practice of dismissing employees and re-engaging on new (often less favourable) terms. The political appeal of targeting this practice is obvious, and it comes as no surprise that it features in Labour’s plans.

We have recently written about the updated draft code of practice on fire and rehire here. Labour does not appear to consider this to be sufficient, and is proposing an absolute ban on fire and re-hire.

Some recent reports have suggested that Labour may be considering watering down this proposal. We can understand why. It is already the case that fire and re-hire should be an absolute last resort. However, is it right that fire and re-hire will never be appropriate? For example, we have done quite a lot of work with independent schools who have been facing astronomical increases in the costs of ongoing membership of the Teachers’ Pension Scheme (TPS), and in some cases fire and rehire may be the most viable route to achieving that. For some schools, remaining in the TPS would have meant the school having to close down. There is certainly a risk that banning the practice altogether could result in some businesses being left with no option but to make redundancies or at the extreme face potential closure.

Potential timing

Labour’s original promise was to bring forward an employment bill of rights within the first 100 days of Labour coming into power. Media reports in recent weeks have, however, cast doubt on this promise. There have been suggestions from various leaks that the party will drop the commitment to start legislating in that period and will move to a promise to consult on legislation instead. 

However, in a recent summit meeting between unions and Kier Starmer, Labour reiterated its commitment to the New Deal for Working People. It appears, therefore, that the 100-day promise is back on the table, although a further meeting between Labour and the unions has been scheduled for early June, so the conversation is not over yet.

Other proposals

Labour has made many other proposals, including:

1. Enhanced Family Friendly Rights: Extending maternity/paternity leave, introducing a right to bereavement leave and strengthening protections for pregnant employees.
2. Enhanced sick pay rights: Removing qualifying period of continuous service for sick pay, raising SSP and making it available to all workers.
3. Introducing a right to “switch off”: Right for individuals to not regularly work outside normal working hours.
4. Discrimination law: Various changes proposed, including allowing equal pay claims based on ethnicity and disability (these are currently limited to sex).
5. Zero-hour contracts: Proposal to ban zero-hour contracts and contracts without a minimum number of guaranteed hours (again, there is speculation in the press as to whether Labour is planning to weaken this proposal).
6. Strengthening trade union rights: Including rights of entry into workplaces to organise, meet and represent their members, more secure electronic workplace ballots and a duty on employers to inform all new employees of their trade union options available to them.
7. Internships: Ban unpaid internships except when they are part of education or training course
8. Wages: Minimum wage to be increased to £10 per hour
9. Review of Health and Safety law: Including reviewing provision for stress, mental health, the impact of new technology.
   
   

Many thanks to Ali Ahmad for their help in preparing this blog.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2024