What could employers expect in the first 100 days of a new Labour government?

What could employers expect in the first 100 days of a new Labour government?

With the UK general election set for 4 July, employment is now firmly part of the electoral spotlight.

Labour’s New Deal for Working People was published on 24 May 2024 under the title ‘Labour’s Plan to Make Work Pay’. Its focus is on providing workers with greater security of employment, or “securonomics”.

If Labour is successful in forming a new government in July, as is being predicted in the polls, it has promised to introduce a new Employment Bill to Parliament within 100 days. The party has said the bill will be “the biggest upgrade of workers’ rights” in a generation and it is likely to contain policies that are easier to implement and require the least consultation.

A bill must, of course, pass through a number of stages in Parliament before it becomes law, which would mean that the first 100 days of a Labour government would see a new Employment Bill that would eventually become law. Policies on incentives for encouraging businesses to employ staff, will no doubt be published elsewhere, including in the election manifestos of the other UK political parties standing for election in July.

Unfair dismissal: A day-one right

The qualifying period for claiming unfair dismissal has changed over the years (there is currently a two-year eligibility period in Great Britain and a one-year eligibility period in Northern Ireland, in order for employees to claim that they have been unfairly dismissed in most cases). There is no qualifying period in the UK for employees to claim their dismissal is automatically unfair or discriminatory.

Labour has proposed making the right to claim unfair dismissal a day-one right for employees. It is not yet clear whether this proposal would mean employees could, for example, be dismissed following a lighter-touch procedure during their probationary period than for those who have passed any probationary period the employer has set. Clearly, employers will not want to follow a series of formal written warnings or longer dismissal processes where it quickly becomes clear that the employer has made the wrong hire and an employee is not suitable for their role. A potential day-one right to claim unfair dismissal means that employers will want to ensure that conversations with employees about performance or other concerns are documented, and that probationary periods are used and managed properly. This is current best practice, particularly given the claims dismissed employees can bring, such as discrimination, that do not require any minimum length of employment service.

"Labour has proposed making the right to claim unfair dismissal a day-one right for employees"

Day-one sick pay and parental leave pay

Currently, Statutory Sick Pay (SSP) is available to those who earn at least £123 per week, or £533 per month. SSP is paid to qualifying workers at a rate of £116.75 a week (at a pro-rated day rate). SSP cannot be reclaimed by employers.

Labour proposes abolishing the lower earnings limit so that SSP is universally available to all workers regardless of their earnings and would also remove the current three-day waiting period (SSP is generally not payable for the first three days of sickness absence). The removal of the earnings limit would affect businesses that employ very low-paid part-time earners, as well as introducing the need for employers to pay staff sick pay for ad-hoc very short-term, one or two-day absence periods.

Labour would also remove the current 26-week qualifying period for statutory parental leave pay, such as maternity pay, to make this a day-one right also.

Zero-hour contracts

Labour has promised to legislate to ban zero-hour contracts. This will affect businesses that rely on staff, such as ‘zero-hour’ workers, being entirely flexible as to the hours they work and where the employer does not guarantee any minimum number of hours of work under the contract. Contracts will have to provide for several hours that are regularly worked, calculated over a 12-week reference period. The ban would not prevent employers from continuing to use temporary (fixed term) contracts of short duration, such as contracts for businesses that are seasonal. Consequently, where a business has work that fluctuates, this would instead mean either using temporary (fixed term) contracts with guaranteed hours, or casual hours contracts where a minimum number of hours are guaranteed to the worker. Effectively, those minimum guaranteed hours would still need to be paid even if the work is not available, so would be a premium for the employer to pay to retain that level of flexibility.

Minimum wage

Another big headline is Labour’s commitment to the introduction of a “real living wage” by changing the Low Pay Commission’s remit to account for the cost-of-living, alongside median wages and economic conditions, rather than focusing on inflation only, when setting suggested rates. Although this would be a longer-term change given the recent more significant rise in National Minimum Wage rates for employers this April.

Employment status

UK employment law recognises three categories of workers:

1) Those that are employees with full employment rights

2) Those that are workers with worker rights such as the right to be paid at least the National Minimum and the right to paid holiday and sick pay

3) Those that are genuinely self-employed. In contrast, taxation legislation does not recognise the intermediary ‘worker’ status and individuals are taxed either under PAYE as an employee or on a self-employed basis.

Labour is proposing to scrap the current ‘worker’ category and give workers full employment rights, so that there is no longer a distinction between workers and employees for employment law purposes. This, would give workers a right to parental leave pay, including maternity pay, as well as redundancy pay, the right to request flexible working and protection against unfair dismissal. They would also transfer their employment when a business or service provision changes hands under the TUPE Regulations.

Whilst Labour is silent on this, the proposed legislative change to employment law would make it likely that this would be harmonised with the taxation regime, so that workers (who are not already on the employer’s payroll) would be taxed under the PAYE and employer/employee National Insurance regime.

However, this proposal would be subject to consultation and would be very complex to implement, so would be a longer-term potential change after 2024. Previous governments since the 2017 Taylor review have consulted on simplifying the test for worker status, but it has proved to be particularly complex and has probably been shelved for that reason.

"As well as increased enforcement of employment law (coupled with additional guidance for small business employers on compliance), Labour has also promised tougher penalties for employers who fail to comply with tribunal orders"

Employment tribunal claims

Most tribunal claims must be brought within three months of the act complained of, or dismissal. Labour proposes extending the period of time within which claims must be brought to six months.

This would likely increase the number of claims against employers (given the bigger window of opportunity for bringing a claim). However, given the current employment tribunal backlog and shortage of employment tribunal judges, this may mean that claims would take longer to reach a hearing. Labour has also proposed removing the cap on compensation for ordinary unfair dismissal claims (which is currently capped at one year’s gross salary or £115,115 for employees in Great Britain, whichever is the lower).

Company directors’ liability for tribunal awards

As well as increased enforcement of employment law (coupled with additional guidance for small business employers on compliance), Labour has also promised tougher penalties for employers who fail to comply with tribunal orders, including failure to pay any tribunal compensation award. This would include personal liability for directors of those companies at the time. Although it is not yet clear when a company director would be made personally liable for unpaid company debts in the form of tribunal awards, this suggests it would become even more important for company directors to check that their director’s liability insurance covers directors (personal) liability for tribunal awards, or (at renewal time), to find an insurance policy that provides this cover.

Adult social care work

Labour cites that staff turnover in this sector (involving for instance those who work in care homes and also those who care for adults and travel to and from a number of different homes in a day) amounts to 33% turnover every year and has a vacancy rate of 10%.

Labour proposes to help fix this by encouraging collective pay bargaining under a new Fair Pay Agreement as well as ensuring that travel time that is working time, is paid. The intention is to increase pay and structured training and career progression for workers in the adult social care area, to assist with retention of staff and working conditions. Whilst the proposals would, of course, potentially increase the costs of employing staff for care providers, its aim is to increase staff retention and better morale for care workers.

Should Labour form a new government in July, we will need to await the detail of the policies in Government White Papers and consultations. Those policies may well change overtime, including in their passage through Parliament.

Updates on changes

Markel will continue to provide updates on legal changes that affect employers, but for now it’s a question of “watch this space”.