The new Labour Government has promised to introduce a wide range of reforms to employment law so that employment protections are “fit for the modern economy and ready for the future of work”. Its stated perspective is that if living standards and workplace rights are improved, this will in turn increase productivity and create the conditions for sustained economic growth.
Labour’s election manifesto committed that new employment legislation will be introduced within 100 days of entering office, based on the implementation of “Labour’s Plan to Make Work Pay: Delivering A New Deal for Working People” which it published in May 2024 (the New Deal). It also committed to consulting fully with businesses, workers and civil society on how to put its plans into practice before passing legislation.
Evidently some of the changes will be brought in imminently, while others may take a year or two to come to fruition, if not longer. The pace of reforms will also in many cases depend on whether primary legislation (i.e. an Act of Parliament) is required, whether the reform can be achieved through secondary legislation such as a statutory instrument, or if no legislation is needed to make the change.
Which of these changes are likely to have the greatest impact on employers, and what actions can they take to prepare for their introduction?
Day one unfair dismissal rights
The right not to be unfairly dismissed has always depended on the employee having a qualifying period of employment. Since 2012, as a rule an employee needs to have been continuously employed for a minimum period of two years in order to be eligible to bring an unfair dismissal claim. Before 2012 there was a one-year qualifying period.
The new Government plans to remove this rule so that unfair dismissal rights are enjoyed by employees from day one of their employment. The current qualifying period for unfair dismissal is viewed as arbitrary and problematic for examples, and an example of “one-side flexibility” in how the UK labour market operates. It is also viewed as presenting risks to productivity, since the lengthy wait for basic employment rights does not provide them with the security to change jobs.
Employers will still be able to dismiss employees with under two years’ service for potentially fair reasons, such as capability or conduct, and it appears that failure to pass a probation period will be added as another category of potentially fair reason for dismissal, with recognition that the proper operation of probation periods should be a legitimate way for employees to assess new hires. However employers will be required to follow fair and transparent rules and processes in order to establish a fair dismissal.
This removal of the qualifying period for unfair dismissal rights stands to be a game-changer in the UK labour market in terms of providing working people with greater security around their employment. It will require employers to put in place and follow suitable policies and procedures for managing probation periods, coupled with clear probation period clauses in employment contracts, as well as ensuring that their performance management and capability processes remain fit for purpose. Employers will also need review and in some cases overhaul their recruitment procedures, and to move away from a mindset of “taking a flier” on their new hires.
Possibly this change to unfair dismissal law will over time see a reduction in the volume of discrimination claims and claims for automatic unfair dismissal (such as based on whistleblowing) brought by claimants who had less than two years’ service and so until now have been ineligible to bring ordinary unfair dismissal claims.
Statutory sick pay (SSP)
The basis for the proposals is that the current SSP regime and eligibility rules provide an inadequate safety net for employees who fall ill, and as a result leave many forced to choose between their health and financial hardship. This was particularly brought into sharp focus during the pandemic when many people on low incomes and without occupational sick pay rights could not afford time off work and went out of their way to avoid taking Covid tests.
This analysis was shared by the cross-party House of Commons Work and Pensions Committee which published its report on Statutory Sick Pay in March 2024. It concluded that SSP did not currently provide adequate protection for those who most need protecting from financial hardship during periods of sickness absence, and so failed to perform its primary function of providing a basic level of income protection.
At present those whose earnings are below the lower earnings limit (LEL), currently £123 per week, are excluded from any entitlement to SSP. This rule is the legacy of sick pay rights depending upon “paying the stamp” with National Insurance contributions. It is planned to remove this exclusion so that SSP is available to all workers. According to the TUC’s figures, this will benefit 1.3 million people, 70% of whom are women. This will include people who have multiple jobs with different employers, each earning below the LEL, and those not claiming state benefits.
The second major change to SSP will be the abolition of “waiting days”, so that an employee is eligible to receive SSP from day one of their absence, rather than only from the fourth day of sickness. Some 70% of all sick days currently do not qualify for SSP as they fall within the first three days of a period of sickness. In addition to the financial hardship grounds, it is arguable that this can have the effect of prolonging periods of sickness absence and increasing transmission of infectious diseases such as flu, as employees keep working out of fear of the financial consequences of taking time off.
There are so far no proposals for a significant increase to the rate of SSP, currently £116.75, which is one of the lowest sick pay rates in Europe. This was one of the recommendations of the House of Commons Committee report, which proposed aligning the rate with the flat rate of statutory maternity pay (currently £184.03 per week) or, if lower, 90% of earnings.
These changes to the SSP regime should encourage employers towards a more active management of sickness absence from the start, such as improving their systems for employees to self-report absence and putting in place rehabilitation and return to work plans at an earlier stage.
Employers should also prepare to monitor carefully whether the reforms to SSP will result in significant behavioural change by their employees – whether it will result in increases in productivity, or whether there is the potential for levels of absenteeism to increase.
National Minimum Wage (NMW)
The new Government will complete the removal of age bands so that all workers over the age of 18 are entitled to the full National Living Wage (NLW) rate. This will specifically affect workers aged 18–20. It is not yet clear whether this will include apprentices who are aged 18 and over.
This builds on recent changes to the NMW age bands and rates. Originally workers were not entitled to the full NLW rate until age 25. This was reduced to age 23 in April 2021, and in April 2024 again reduced to age 21.
With the aim of ensuring that the NMW is “a real living wage that people can live on”, the remit to the Low Pay Commission (which advises the Government annually on setting the NMW rates) will be changed so that the NMW will take into account the cost of living, as well as reflecting median wages and economic conditions.
Enforcement of the NMW is also promised to be improved through the creation of a ‘Single Enforcement Body’, in place of the various existing enforcement bodies, and the allocation of necessary powers and resources to this body to undertake targeted and proactive enforcement work.
Employers can prepare for these changes by identifying which of their employees fall in age 18-20 category and generally ensuring that their pay arrangements are compliant with the NMW legislation, such as correctly paying employees for travel time.
Flexible working
Since April 2024, the right to request flexible working under the statutory scheme is a “day one” right for all employees. It was previously the case that an employee needed to have been continuously employed for at least 26 weeks to have this right.
The new Government plans to build on these changes to ensure that the right to work flexibly is a genuine default, unless there are very good reasons why flexible working is not reasonably feasible. It will also promote opportunities for flexi-time contracts and working hours which better accommodate school terms and school holidays, where these are not currently available.
There are also plans to introduce a “right to switch off” so that the boundary between work and home life is maintained and working from home does not turn the home into a 24/7 workstation. The details of these plans are however not yet clear.
Employers should make sure that their flexible working procedures are kept up-to-date, and that their managers receive appropriate training so that they can properly handle flexible requests and implement a presumption in favour of flexible working wherever possible.
Zero hours contracts
Recently on the statute book, but not yet in force, is the Workers (Predictable Terms and Conditions) Act 2023. This is expected to come into force around September 2024. It will create a new right for workers and agency workers to request a predictable working pattern in certain circumstances, including a condition of 26 weeks’ service. The framework for these requests is modelled on the flexible working regime. It is notably only a right to request, and not a default right to a secure contract.
As part of its measures to give working people greater security and to end one-sided flexibility, the new Government promises to ban exploitative zero hours contracts, and to ensure the right to a contract which reflects the number of hours regularly worked based on a 12-week reference period.
It also promises to introduce measures to ensure that workers receive reasonable notice of any change in shifts or working time, and a right to compensation if any shifts are cancelled or curtailed at short notice.
Employers should prepare for these changes by reviewing their suites of employment contracts, and in particular consider the merits of offering employment contracts with fixed hours to staff currently engaged on zero hours contracts or casual contracts but have regular patterns of work.
For further information please contact Senior Associate Patrick Glencross or a member of our employment team on 01227 763939.
