What does Labour government mean for employers and employment law?

With their landslide victory and whopping majority won at the election earlier this month, Keir Starmer and team are well positioned to push ahead with their program of legislation reforms. Below we look at a few key changes proposed to employment law and what impact this could have for employers.

Day one right against unfair dismissal

Unfair dismissal rights were introduced with the Industrial Relations Act 1971, and since then the shortest qualifying service to be able to bring a claim for unfair dismissal was six months. The current qualifying period is two years continuous service, and this has been the law since 6 April 2012. The Labour party is proposing to give employees the right not to be unfairly dismissed from day one of employment. This is a significant change that could have a huge impact on the way employers manage new hires, probation periods and fixed term contracts.

Most employers know, and occasionally rely on the fact, that employees need two years’ service before they can bring a claim for unfair dismissal. In practice this has meant that employers have been able to dismiss employees with less than two years service relatively easily, without the need for a full and fair process. Furthermore, most employment contracts include a probation period which allow the employer to terminate employment ‘for any reason’ and often with a shortened notice period.

If Labour passes legislation which provides unfair dismissal rights from day one of employment, the two year ‘grace period’ for employers will be no more, and dismissing an employee during a probation period will require a full and fair process, potentially with written warnings being required before any dismissal. Even terminations at the end of a fixed term contract could be subject to the new rules and could result in unfair dismissal claims. This will of course increase the risk of employing people, and may cause some employers to be more cautious and lean towards non-employed resources such as agency staff or freelancers. It is also likely to lead to a surge in employment tribunal claims from short service employees who will no longer have to wait two years to bring a claim. Most employers who take advantage of the flexibility and agility afforded by the current rules will be hoping this change does not materialise any time soon.

Average hours contracts to replace zero hours contracts

Zero hours contracts are again in the crosshairs for Labour with their plans to outlaw zero hours in favour of average hours contracts. The proposed right for employees to a contract which reflects their regular hours (based on an average over a 12 week period) will give employees more security and predictability in their wages, and will hopefully tackle unfair and exploitative practices from employers who have abused zero hours arrangements, often at the detriment of employees.

On the flip side, the enforcement of average hours contracts is likely to reduce flexibility, for both employers and employees, increase baseline costs for employers, and make it more challenging for businesses to resource effectively and efficiently in industries with fluctuating demand. This could again lead to employers choosing to use agency and freelance staff to meet such demands, and pose significant contractual challenges for the gig economy.

Flexible working by default

The right to request flexible working from day one of employment came into effect on 6 April 2024 following the passing of the Flexible Working (Amendment) Regulations 2023. However, Labour intend to further strengthen this right, making it more difficult for employers to refuse flexible working requests, with the aim of making flexibility the genuine default from day one of employment. Whilst specific details are unclear, it is likely this will involve further restrictions on the legal statutory reasons for refusing a flexible working request, and potentially higher levels of scrutiny from tribunals in reviewing employers’ decisions and rationale for refusal.

National Living Wage and under 21s

Despite the significant increase to the National Living Wage in April this year (jumping up from £10.42 to £11.44 per hour) Labour has said it will do more and change the rules applied by the Low Pay Commission so that future rate changes are linked to the cost of living. They have also promised to scrap the 18-20 age band in the National Minimum Wage framework which currently provides a minimum rate of £8.60 per hour for those aged 18-20. This change will have the biggest impact on industries where student and younger workers are more common, such as hospitality and seasonal work.

Other key changes proposed in Labour’s workers’ rights revolution include:

·         Fire and rehire restrictions

·         Increased requirements in redundancy consultation

·         Increased TUPE protections for workers

·         Ban on unpaid internships

·         Increased trade union rights

·         Ease of restrictions on industrial action

Keir Starmer has said that the aim of these reforms is to ‘unlock growth and take the brakes off Britain.’ But there is growing concern, particularly in smaller businesses, that the additional burdens likely to fall on employers could make them less likely to invest and less likely to hire. Time will tell. What is clear now, is that all employers should be reviewing their contracts, arrangements and operations to make sure they are ready to operate in a world of increased worker rights.

If you want to discuss what impact these proposed changes might have on your business then please get in touch, we are ready to support you. Email: andrew@pondcroftconsulting.com