How Labor’s victory could impact the employment law landscape

Labour’s victory in the general election will bring significant changes to employment law and the very nature of the employment relationship. The party plans to introduce these changes within its first 100 days, but it is not yet clear what this will mean. While some proposals seem relatively straightforward, others raise complex issues that will require careful consultation and consideration, and all have significant implications for employer liability and employee rights. Employers will need to keep their ears open to the changes that are underway in the months ahead.

Employment status

Perhaps Labour’s boldest commitment is its plan to reshape the status of employment. Currently, there are: employees (with a full set of employment rights), workers (with fewer employment rights) and the self-employed. Although these categories have existed for around 20 years, during that time the British courts have spent a lot of time trying to determine which category a particular relationship falls into, with a key battleground emerging around the distinction between “employee” and “self-employed”.

‘Workers’ have rights, such as minimum wage and holiday pay, but they are generally taxed as if they were self-employed and are often not subject to PAYE and Class 1 national insurance contributions for either employers or employees. For clarity, Labour is proposing a single ‘worker’ status, which we believe will broadly cover those who are currently ‘employees’ and ‘workers’, and give both groups the full range of employment rights. However, we anticipate that this risks increasing the burden on employers, reducing flexibility and leading to a higher tax bill – for both the worker and the employer.

“First Day” Rights

Another change likely to have a significant impact on businesses is the proposal for “day one” rights to unfair dismissal, sick pay and family leave.

The immediate protection against unfair dismissal will likely require employers to take a much more rigorous approach to recruiting, onboarding and managing employees. There is no indication that the existing grounds for dismissal will be revised, but employers will now need to demonstrate both a valid reason and have followed a fair process for all dismissals to avoid an unfair dismissal claim – and not just for employees with two or more years’ service. There are some suggestions of potential flexibility during a probationary period, such as a shorter process for employees during this period, but this is not confirmed. It will therefore be essential for employers to ensure that managers have the skills to analyse the reasons for any proposed dismissal and carry out the appropriate corresponding procedure.

It is worth noting that Labour’s previous proposals included removing the cap on unfair dismissal claims (currently set at the lower of annual salary or £115,115), but this measure was not mentioned in the manifesto. It is therefore unclear whether it will be implemented. If the cap is removed, it will significantly raise the stakes for employers with highly paid employees.

Compensation reports

To promote a diverse and inclusive workforce, Labour has proposed making more judicious use of gender pay gap reporting data and extending pay gap audits to disability and ethnicity. Ethnicity pay gap reporting has been proposed in the past, but it can get stuck on a taxonomy, which in turn can lead to data protection issues. If the categories are too broad, this can lead to insignificant data and make it difficult to assess progress. However, on the other hand, detailed categorisation risks singling out individuals in workplaces with low numbers of ethnic minorities or disabled people, potentially leading to breaches of data protection laws. It’s a tough tightrope to walk and, ultimately, any change will require businesses to invest in ensuring they remain compliant.

Enforcement

While they may not make headlines, the reforms that could have the most impact are those aimed at enforcing workers’ rights. Only half of the awards made by employment tribunals are paid in full. The chances of employers being audited for breaches of the national minimum wage, working hours and modern slavery are very low. Labour hopes to address this by making managers personally liable for paying awards and by creating a single body to enforce the rights established by Parliament.

Any employment reform will take time to implement. However, there is no doubt that reform will be put in place and that a new enforcement agency will ensure that it is implemented. Business leaders must monitor developments closely in the coming months and ensure they stay ahead of the curve to prepare for the changes that are on the horizon.

Catrina Smith is chair of the Legislative and Policy Committee and David Regan is chair of the Education Committee of the Employment Lawyers Association.

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