Labour proposals for workforce reform

The latest possible date for the forthcoming UK General Election is 28 January 2025, although many are predicting a date in November as being the most likely.  

If Labour forms the next government, they have pledged to introduce an ‘Employment Rights Bill’ within their first 100 days in power. The party has set out the sweeping reforms it proposes to bring about in its Green Paper: A New Deal for Working People. Latest polling predictions and Labour’s recent by-election successes means that there is a real possibility that at least some of their proposed changes could be introduced.   

Creation of a single status of ‘worker’ 

An individual’s statutory rights depend on their employment status and whether they are an employee, a worker, or a self-employed contractor. Employees have full employment law rights (subject to certain qualifying periods) including the right to claim unfair dismissal. Workers have fewer rights but have protections under national minimum wage and working time legislation while self-employed contractors have extremely limited rights.   

Labour proposes to combine employee and worker statuses into one unified ‘worker’ status, moving to a two-tier system of workers and self-employed. The Green Paper highlights “unscrupulous employers” who “treat their staff like regular employees whilst falsely claiming they are not, denying staff rights they are owed as employees” and claims many individuals “work like regular employees – in uniform, full time, with work set entirely by management -but are falsely classified as self-employed workers”.  

The Birketts view  

Correctly identifying employment status is fraught with difficulty for many employers. This exercise isn’t helped by the fact that the statutory definitions of employee and worker vary across different pieces of legislation, and that other monikers for working relationships are used which have no foundation in employment law, such as a casual or zero hours contract. To complicate matters further, for tax purposes there is no worker category.  

As a result, employment status is an enduring feature in claims before the courts and tribunals, particularly with the advent of the ‘gig-economy’ and the economic squeeze that has led many people to take up second jobs.  

The possibility of introducing a simplified framework for employment status with just two categories rather than the current three might, on the face of it, hold some appeal. It might well reduce the number of claims and lengthy legal arguments over whether an individual should be properly categorised as a worker or employee. However, it will extend employment law rights previously reserved only for employees to workers, at significant cost to employers. Labour’s proposal also doesn’t address the potential impact on the workforce and the flexibility over hours and days of work that many individuals (and employers) currently benefit from.   

The current government is aware of these issues. In its response to its consultation on employment status, published in July 2022, it acknowledged that whilst there was appetite for reform, there is no easy solution. It concluded that the benefits of creating a new framework were outweighed by the potential disruption associated with legislative reform. It also concluded that most responses (from all stakeholders) felt that the intermediary worker category remained helpful and should be retained – referring to the flexibility it allows both individuals and businesses. Labour’s approach of combining employee and worker status is unlikely to be a straightforward solution and will require significant amounts of legislative amendments to achieve.  

Strengthening rights and protections 

Labour also proposes to:  

1. remove the qualifying periods of continuous service required to benefit from key employment rights, including unfair dismissal, sick pay, and parental leave  

2. extend the time limit for bringing claims in the employment tribunals 

3. introduce personal liability for directors of companies 

4. remove the statutory limits on compensation. 

To take an ordinary unfair dismissal claim as an example, employees must have two years’ continuous employment with an employer to benefit from the statutory right not to be unfairly dismissed. A claim must be brought within three months of the effective date of termination (subject to Acas conciliation and the tribunal’s ability to extend time in certain circumstances). Currently, there is a statutory cap on the compensatory award payable in a successful claim: the lesser of either 52 weeks’ gross pay or the statutory limit for the relevant year (increasing to £115,115 from 6 April 2024). Likewise, the basic award (the other element of compensation in an unfair dismissal claim) is calculated by reference to a statutory cap on a week’s pay (increasing to £700 from 6 April 2024). An unfair dismissal claim may only be brought against an employer, and there is no personal or vicarious liability for directors of an employer in their personal capacity, unlike claims for unlawful discrimination.  

The Birketts view 

These significant changes proposed by Labour would almost certainly result in a large increase in the number of claims brought against employers. In the Green Paper, Labour acknowledges that the “Employment Tribunal system is at breaking point” but does not address how the increased pressure resulting from these reforms would be tackled. An extension to existing time limits will reduce certainty and limit businesses’ ability to make decisions with the lingering threat of a potential claim. Claimants may have to wait even longer for their cases to be determined, making it more important to front-load tribunal preparation such as taking witness evidence early on to mitigate the risk of fading memories and key witnesses changing roles.  

Conversely, at present there can be a tendency for some claimants to shoehorn the facts of their case into alternative claims without any minimum service requirement (or any cap on compensation) such as discrimination or whistleblowing claims. Whether Labour’s reforms might reduce this practice remains to be seen.  

Other proposals include:  

1. A ban on zero-hours contracts and unpaid internships  

2. Increasing the national minimum wage and extending SSP to self-employed contractors  

3. Establishing a single enforcement body to enforce workers’ rights  

4. Banning ‘fire and rehire’ practices  

5. Extending family friendly rights, including making it unlawful to dismiss a woman for six months after returning to work from pregnancy except in specific circumstances (which are not detailed in the Green Paper) 

6. Introducing the right to switch off and not be contacted by their employer outside of working hours 

7. Making flexible working a day one right  

8. Harassment-free workplaces (including third party harassment) and mandatory ethnicity pay gap reporting for large employers  

9. Trade Union reforms, including repealing the Trade Union Act 2016 and the recent Strikes (Minimum Service Levels) Act 2023, simplifying the trade union recognition procedure, and allowing electronic balloting 

The Birketts view  

The finer details of how these proposals would work in practice have not been published, and some of them have already been introduced at least to some extent by the current government.  

The right to request flexible working arrangements will become a ‘day one’ right from 6 April 2024, although note this is not a right to be granted a flexible working request. An extension to current redundancy protection for employees during pregnancy and after return from maternity, adoption and shared parental leave is also coming into force from 6 April 2024. Government plans for a single enforcement body, as set out in its 2018 Good Work Plan and consulted on in 2019, were however put on hold in early 2023. 

Many of the wide-ranging proposals put forward by the Labour party will require extensive consultation before draft legislation can be produced, meaning that their ‘100 day’ promise for an Employment Rights Bill is somewhat ambitious. It might be that some of the proposals are watered down, or even abandoned, once the party manifestos are published in advance of the General Election. However, it’s fair to say that a new Labour government, if elected, will inevitably result in significant reforms to workforce rights, and will signal a period of further change for employers to grapple with.