New UK Government Brings Significant Changes to Employment Laws:
Top Five Things Employers Need to Know
July 2024, Covington Alert
Introduction
The UK has a new centre-left Labour party government for the first time in fourteen years. With this comes change, and a focus on strengthening workers’ rights.
Labour has set out its various employment-related proposals in its Plan to Make Work Pay, which has been incorporated into its Manifesto. Labour has said that it will consult “fully with businesses, workers and civil society” on how to put its plans into practice before legislation is passed – promising to implement at least some of these proposals within the first 100 days of coming into power (by mid-October 2024).
This alert highlights the five most significant changes likely to affect our clients.
1. Unfair dismissal will become a Day One right and have a longer claim period
Currently, UK employees that have been in continuous employment for at least two years have the right not to be unfairly dismissed. This means that to dismiss such an employee the reason for the dismissal must be for one of five potentially “fair” reasons (these being capability, conduct, redundancy, a statutory restriction or “some other substantial reason”). Therefore, it is considerably simpler for employers to dismiss employees with less than two years’ service (provided the reason for dismissal isn’t discriminatory or relating to whistleblowing). This creates an unofficial two year ‘probationary period’.
However, Labour intends to make unfair dismissal a “Day One” right, applying to all employees as soon as they are hired. This will make it more difficult and potentially more expensive to dismiss recently-recruited employees (although Labour have mentioned that employers will still be able to operate probationary periods, provided they are “fair and transparent”). For example, it will likely be necessary for a recently-recruited but underperforming employee to be put on a performance improvement plan prior to termination, to ensure that the dismissal has followed a fair process. It is possible that, to work around this change, businesses may decide to initially hire employees on short, fixed-term contracts, and then transition to a permanent contract after a period of, say, six months. Overall, employers will need to recruit more carefully so as to avoid facing a greater number of unfair dismissal claims.
This likely increase in unfair dismissal claims may also be compounded by Labour’s proposal to raise (from three months after dismissal to six months) the limitation period for bringing Employment Tribunal claims. This will give employees who are unsure about bringing a claim more time to consider their options, and also allow disgruntled employees to build stronger initial claims with their lawyers prior to submission.
2. Introduction of an employee right to “switch off”
Labour proposes to introduce a right to switch off for UK employees, based on existing Irish and Belgian models. This would likely mean that employees will have rights not to routinely perform work outside their normal working hours, not to be penalized for refusing to attend to work outside normal working hours, and not to be routinely contacted outside normal working hours.
The specific details of this proposed right will be ironed out in consultation. Broadly speaking, some employers will need to adapt their working practices to ensure that employees are not made to regularly work outside of their normal working hours. New policies will need to be introduced to inform employees of their rights.
3. Enhanced redundancy and TUPE rights for employees
Labour intends to make it more difficult for employers to avoid triggering collective consultation obligations in redundancy scenarios. Currently, it is necessary to commence collective consultation where, within a 90 day period, there are 20 or more proposed redundancies in a single “establishment”. The meaning of “establishment” has caused some controversy – notably in light of the Woolworths case, in which each outlet in a high-street retail chain was considered to be its own establishment, meaning that Woolworths’ obligations to collectively consult with employees at each of those outlets were, in some cases, avoided or lessened.
Labour plans to change the law so that, when determining how many employees are at an “establishment”, the number of employees made redundant across a company’s individual sites will be aggregated. This will likely result in collective consultation obligations being triggered much more frequently, and require employers to keep running 90 day counts of the number of redundancies made across all of their sites.
In addition, the protections provided to employees under the Transfer of Undertakings Protections of Employment Regulations 2006 (“TUPE”) will be clarified so that they explicitly extend to cover workers. This follows on from Labour’s proposal to remove the distinction between “employees” and “workers” (see 4. below). Put very briefly, TUPE provides that, where certain conditions are met on an asset transfer or where there is a change of service providers, employees are automatically transferred from the first entity to the acquiring/receiving entity. If workers were also to be protected by TUPE, the result would be that in an acquisition scenario, for example, a buyer could be forced to inherit a broader range of individuals (such as zero-hours workers), than it would currently.
4. Removal of the distinction between “worker” and “employee”
The UK has three categories of working status: (i) employee; (ii) worker; and (iii) self-employed. The “worker” category is a blend of the other two: workers benefit from some – but not all – of the statutory protections that employees enjoy, whilst at the same time (potentially) benefitting from the flexibility afforded to the self-employed, and being taxed as though they are self-employed. Many of those who work in the gig economy are “workers”.
Subject to the outcome of a consultation, Labour intends to merge the “employee” and “worker” categories into one. This would result in current “workers” becoming “employees”. Employers that make use of workers would therefore need to provide those individuals with all employee rights (including unfair dismissal) rather than the more limited worker rights. This will decrease flexibility and make it harder to end individual’s contracts, and will increase headcount. Former workers would now also count towards employee thresholds used to trigger employment rights, such as collective redundancy consultation. It will also require employers to withhold tax for these workers and pay national insurance contributions, thus raising costs for the business.
5. Mandatory reporting of ethnicity and disability pay gap
Labour plan to make it mandatory for UK employers with more than 250 staff to mirror the existing gender pay gap reporting regime but for ethnicity and disability pay gaps. For those companies that do not already report voluntarily, the introduction of ethnicity pay gap reporting is likely to be particularly complex, given that it will involve comparisons between many ethnic groups, as opposed to the binary categories of male and female under the gender pay gay reporting system.
In addition, it will become mandatory for large companies to introduce action plans off the back of gender pay audits, which will demonstrate the steps they will take to close their gender pay gaps.
Other proposals
Labour’s manifesto sets out various other proposals which may impact your business, including:
- Sick pay and parental leave will also become “Day One” rights.
- Banning zero-hours contracts (except in extreme circumstances).
- Introducing the prospect of “collective grievances”, so that employees can collectively submit grievances about conduct in their place of work to ACAS (the UK’s national statutory conciliation body).
- Making it much harder to “fire and rehire” employees.
- Strengthening whistleblowing protections.
- Increasing the minimum wage, and statutory sick pay.
- Banning unpaid internships (except where they are part of an education or training course).
- Strengthening the powers of trade unions and simplifying the process of trade union recognition.
If you have any questions regarding the issues raised in this client alert, please contact the members of our Employment practice.
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