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All Change! Labour Government – What should Employers be doing now?

Article by: Stephens Scown

Labour has committed to implementing significant changes to our employment laws in the next 100 days.

Here is our summary of the most significant proposed reforms some of which are likely to be implemented relatively quickly, along with steps employers may wish to consider taking to manage these changes.

Labour’s plans to overhaul UK employment law

Labour plans to carry out a set of the most significant and wide-reaching changes to employment law for a generation. Its starting point is the bold assessment in its manifesto that ‘Britain’s outdated employment laws are not fit for a modern economy’ and it sets out intentions to bolster employment law rights for ‘working people’.

Labour’s manifesto ‘Change confirmed its commitment to implement the proposals in its policy document, ‘Labour’s Plan to Make Work Pay: Delivering A New Deal for Working People’. This contains impactful policies including on increases to the national minimum wage, banning ‘exploitative zero hours contracts’, ending fire and re-hire, and introducing basic rights from day one of employment including protection against unfair dismissal. See our recent article on Labour’s proposals here and further detail on these proposals below.

How quickly will employment law change?

Labour has committed to introduce legislation to implement its New Deal for Working People within 100 days of government, which means by 12 October 2024. Although this does not mean that all the various changes will take immediate effect in the short-term. Simply that Labour has committed to starting the process as promptly as it can.

The first step in the legislative process is the King’s Speech, which is scheduled for 17 July 2024. This is likely to include an announcement of a new Employment Rights Bill which would include at least some of Labour’s headline employment policies. Labour has promised to have a full consultation on its New Deal before implementing it, which may entail a consultation on a draft Bill, but this is unclear currently. The Bill would need to progress in the usual way through the two houses of Parliament. There would undoubtedly need to be secondary legislation and codes of practice to flesh out the detail of the new proposed employment policies.

In addition, it has been the convention for new employment legislation to be introduced twice a year in April and October and this could cause a delay. However, that is not to say a Labour Government would have to follow this pattern. In short, it could take some time for proposals in an Employment Rights Bill to become law, several months up to possibly a couple of years or more.

There are some Labour proposals that could take effect rapidly, for example, reform to the national minimum wage as outlined below.

What are the more immediate headline changes and practical steps for employers to prepare now?

Labour has set out proposals for many changes in employment law ranging from protections relating to pay, against discrimination, supporting trade unions and protecting work-life balance as per its manifesto. We have identified the proposals that may have the most immediate effect and/or impact and some ways in which employers may consider managing the changes ahead now.

1. National Minimum Wage

The National Minimum Wage (NMW) increased significantly on 1 April 2024, see our article here for details. However, Labour has committed to ensuring that the NMW is a real living wage that people can live on and to remove age bands that represent a lower minimum wage for younger workers.

The convention has been for the Low Pay Commission to annually advise on a new rate in October, which takes effect in the following April. Labour could choose to implement these changes as early as April 2025. It may choose to postpone removal of the reduced age band payments and instead consult in the meantime with businesses that may be affected. This change is likely to have a significant impact on the retail, leisure and hospitality sectors where under 21’s are often employed.

Labour has indicated a greater clampdown on non-compliance with the NMW to ensure it is enforced, including working with its proposed Single Enforcement Body (SEB) and HMRC. The New Deal confirmed the plan to establish a SEB to enforce workers rights with strong powers to inspect workplaces, including for the purpose of NMW compliance.

Once we know more about the NMW proposals undoubtedly employers are going to be assessing their business costs and budgets. In the meantime, employers would do well to at least ensure compliance with the current NMW regime.

2. Zero Hours Contracts

Labour has announced that it wishes to ban ‘exploitative zero hours contracts’ and implement a right to a contract based on average working hours over a 12-week reference period. It has rowed back from an outright ban on zero hours contracts, although what might be considered “exploitative” has not been defined. At the moment, it is unclear exactly how this pledge will work in practice. However, on 7 May 2024 Rachel Reeves (Shadow Chancellor at the time) stated that “exploitative” contracts would be banned, but after 12 weeks Labour would allow people with regular hours to move away from a zero hours contract. Nevertheless, if someone wanted to remain on a zero hours contract, they would have freedom to do so.

Implementing this flagship Labour proposal has the potential to reduce flexibility for employers and employees, increase costs and create resourcing challenges where work fluctuates. It is anticipated that this will be included in a new Employment Rights Bill, but that there would be substantial consultation and secondary legislation prior to implementation.

3. Day 1 rights – Unfair Dismissal

Amongst Labour’s most significant pledges for employment law is for unfair dismissal to be a right from day one of employment. In the New Deal Labour states that “basic individual rights” will be provided for all workers, “ending the current arbitrary system that leaves workers up to two years to access basic rights or protection”, which includes against unfair dismissal. In general terms the current qualifying period to claim ordinary unfair dismissal rights is two years. The intention is for employers to still be able to use probationary periods to review new hires. However, the changes under the New Deal would entail transparent rules and processes and that new staff not be dismissed without due reason or cause.

This proposal is likely to be subject to considerable consultation as it would have a huge impact on employers and would also entail introduction of a new Acas Code of Practice to address dismissals. Furthermore, it would lead to a dramatic increase in claims for an employment tribunal system that is already under-resourced. We predict that this change is unlikely to take effect until October 2025 or April 2026 at the earliest. In the meantime, employers are advised to be selective in their recruitment of staff and make sure they have a system in place to make good use of probationary periods, including reviewing new recruits during and at the end of such periods.

4. Day 1 rights – Parental and Paternity Leave

The New Deal proposed a raft of family friendly rights including for ‘parental leave’ to apply from day one of employment. The system of parental leave is due to reviewed in the preliminary year of a Labour Government. It is not clear if Labour is referring to ‘parental leave’ as per the narrow legal definition of that term with associated rights. Currently statutory parental leave refers to the right to take unpaid leave while a child is under 18 for up to a total of unpaid 18 weeks unpaid leave. There is a one-year qualifying period, and this type of leave is rarely used by employees. There is also a qualifying period for statutory paternity leave, which requires six months of employment. It is quite possible that Labour could easily remove the requirement for a qualifying period of employment for these family leave rights to be used.

5. Bereavement leave

Currently, there is no legal right to take paid time off work for bereavement, this is unless an employee is eligible for parental bereavement pay when a child dies. See our article here for information on parental bereavement rights.  Otherwise, some employers allow employees to take a short period of paid time away from work, but that is often an enhanced right provided on a discretionary basis. Labour has stated that entitlement to bereavement leave would be clarified and extended to all workers. It is anticipated that this change may be implemented within the first two years of the Labour Government or longer.

6. Day 1 rights – Statutory Sick Pay

As another day one right Labour intends to strengthen rights to Statutory Sick Pay (SSP), which entails removing the lower earnings limit to make it available to workers and remove the three-day waiting period before SSP is payable. These changes are anticipated to be included in the Employment Rights Bill and could be implemented relatively easily as soon as April 2025.

7. Fire and Re-hire

Labour has confirmed its intention to end the practice of “fire and rehire” as a way of varying an employee’s terms and conditions of employment. This is a practice whereby an employer gives an employee notice that they propose to dismiss on their current contractual terms and offers to re-hire on a new contract of employment.

Labour has acknowledged where there really is no other alternative, an employer should be able to restructure in order to continue to exist and operate. However, it has stated this, “must follow a proper process based on dialogue and common understanding between employers and workers.” The intention is to reform the law to provide remedies against abuse and to introduce a stronger statutory code of practice to replace the one that was due to be implemented by the Conservative Government. Although Labour has referred to the current Code on dismissal and re-engagement to be implemented as “inadequate”, it has not made clear if it is going to stop it coming into force on 18 July 2024.

Employers should keep a watching brief on what changes Labour intends to implement here and when. In the meantime, if considering a fire and re-hire process, it is strongly recommended that an employer ensures it has solid, justifiable grounds for doing so and carries out a fair and thorough consultation with staff around this.

8. Greater Protection Against Sexual Harassment

Currently, new legislation is time-tabled to take effect in October 2024 as introduced under the Conservative Government, which would implement a new, positive duty for all employers to take reasonable steps to prevent sexual harassment of employees in the course of their employment. See our article here for information. Labour has expressed a previous intention for this legislation to cover protection for individuals against harassment by third parties. It is not yet clear if Labour still intends to implement this legislation in its current form or strengthen it in this regard.

Employers should in any event take adequate steps to prevent their staff against harassment by third parties, for example, this may include customers in the hospitality sector. There is still the possibility of constructive dismissal, unfair dismissal, along with sex discrimination claims without this added layer of protection. Appropriate steps may include up to date policies and procedures, a ‘speak up’ culture encouraged amongst staff and adequate risk assessments.

9. Tips Act

New legislation is already timetabled to come into effect in October 2024 requiring employers to ensure all tips, gratuities and service charges are allocated fairly and transparently between their workers. Labour has confirmed its proposal to strengthen the law for hospitality workers to receive their tips. It is not entirely clear if Labour is planning to proceed to implement the current legislation in the pipeline, but it seems likely, and this would be a quick win.

The legislation, due to come into force shortly, requires an employer to have a written policy on how it deals with tips, gratuities and service charges. Employers will need to keep records of such payments received for three years.

It is notable that there is a 12-month limitation period for related claims to brought by a worker (in employment law this is often three months). An employment tribunal can require an employer to review their tip allocation policy. Employers can be required by an employment tribunal to pay tips, gratuities and service charges not just to the worker who has brought a claim for this, but also to any workers employed by the employer. Compensation of up to £5,000 per claimant can be awarded to reflect additional financial loss caused by non-payment.

Employers in the hospitality sector would be well advised to assume this legislation is still coming into effect for the time being and to take steps to implement the changes.

10. Trade union reforms

The Labour party has proposed wide-reaching reforms around trade unions, and this is anticipated to be implemented within the first two years of Government. This includes the repeal of legislation introduced by the Conservatives to restrict lawful industrial action, including longer notice periods, greater ballot thresholds, restrictions on picketing and the end of industrial action mandates after six months.

What other employment reforms does Labour have in the pipeline?

There are other pledges that Labour has made that are anticipated to be effected in the longer-term. This includes ‘Single worker status’, Labour intends to carry out an extensive consultation on implementing this, which means that there will no longer be two tiers of employment rights with ‘employees’ receiving the greater rights and ‘workers’ being relegated to more basic, minimum rights only such as paid holiday and the national minimum wage. Instead, there would be single ‘worker’ status for all but the genuinely self-employed. This will not be an easy change to make and would involve complex legislative reform. It is not anticipated that such reforms will take effect in the short-term and this may be towards the end of Labour’s first term in office.

Other reforms that may take effect further on down the line include widening of pay gap reports, which are proposed for the disability and ethnicity pay gaps. Also, a Single Enforcement Body for the purpose of inspecting workplaces and bringing proceedings on behalf of workers in connection with health and safety, national minimum wage, ‘worker exploitation’ and health and safety. This would require consultation and planning about its staffing, how it should be funded and its remit. So, it may take some time before this is put in place.

Article by Laura McFadyen

Stephens Scown Solicitors LLP

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