The new government’s plans for employment law changes are set to be sweeping and transformational. Adam McCulloch examines the Institute of Directors’ verdicts on some key aspects of Labour’s plans.
Businesses and unions have been consulted, leading to continuing tweaks Labour’s Plan to Make Work Pay, its New Deal for Working People. The Institute of Directors (IoD) has carried out research among businesses over the past few years to determine attitudes and to provide pointers as to how policy may evolve. It states that ministers’ employment law changes “must be introduced in a phased and well-signposted way, in order to avoid overwhelming business and minimise the risk of unintended consequences”.
Labour’s proposals will only apply to England, Wales, and Scotland. Northern Ireland’s parliament will introduce its own set of changes after a lengthy period when legislation was frozen because its assembly was suspended.
End fire and rehire
IoD verdict: Welcome
The IoD’s research found that a majority (61%) of business leaders agreed that ministers should outlaw dismissal and re-engagement, with only 19% opposed to such a move. The minority pointed out that fire and re-engage was a vital option for businesses that might otherwise fail. After consulting businesses, the IoD feels the focus of policy reform should be to ensure that dismissal and re-engagement is only used in circumstances where an organisation faces a serious and credible risk to its viability.
It also warns that it should not be threatened as a negotiation tactic. While the code of practice to be introduced this summer represents a step towards these aims, further restrictions on the use of fire and rehire would be justifiable in order to prevent abuse of the system. “Labour’s commitment in Plan to Make Work Pay to introduce a strengthened code of practice is therefore welcome,” says the IoD.
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Zero hours changes
IoD verdict: Cautious welcome
In a survey of IoD members in February 2024, half (48%) of business leaders stated that, while they consider zero-hours contracts to have a valid role to play in the UK economy, the practice needs significant reform to safeguard the interests of employees.
For many businesses, such as retail and hospitality, zero-hours contracts are a crucial tool, says the IoD, in enabling them to manage fluctuating demand. From employees’ point of view, reforms to zero-hours contracts should avoid compromising the ability of people to access working arrangements that suit their lifestyles
For the IoD, the focus of this reform should be on ensuring that zero hours’ use is restricted to cases where employers cannot guarantee a minimum number of hours of work because of fluctuating demand, rather than as a way of reducing employee entitlement to rights and benefits.
Labour’s plan to give employees the right to a contract which reflects the number of hours they regularly work, based on a 12-week reference period, is welcomed by the directors’ body. It says it represents “a nuanced means of retaining the use of zero-hours contracts where they are used by employers to respond to genuine fluctuations in demand while preventing their being abused”. However, the IoD points out that further detail as to what constitutes “regular hours” was key, and the length of the reference period should be subject to consultation and evidence-based. It concludes the proposal is broadly in line with business sentiment.
Employment status changes
IoD verdict: Some reservations
In an IoD survey conducted in April 2024, 49% of business leaders agreed with the proposal that employee and worker employment statuses should be replaced with a single category of “worker”, while 27% disagreed.
Although the research found broad support among business leaders for simplifying the framework and preventing abuse of the system, the IoD seems to put more weight on the views of those who remain concerned over the loss of flexibility for employers and employees and the usefulness of the present distinction between employee and worker statuses. It says a move to a two-tier framework for employment status risks oversimplifying the range of employment relationships that exist.
According to the IoD: “Each of the three current employment statuses describe distinct employment relationships that should carry with them distinct rights and obligations on both sides. The focus of policy reform should therefore be on ensuring that individuals are not miscategorised, rather than on reducing flexibility by merging the employee and worker statuses.”
However, according to the directors’ body, the commitment to ending bogus self-employment and inappropriate use of worker status in the Plan to Make Work Pay is welcome.
Right to switch off
IoD verdict: Unenthusiastic
Here, the directors body asks if a blanket ban on contacting employees out of hours is based, reflected an outdated, “traditional conception of a 9-5 job”. Many employees are now able to exercise informal flexibility over their working hours, it points out. As such, many opt to work outside of contracted hours in exchange for flexibility during contracted hours.
The IoD warns that policy should avoid taking a “one-size-fits-all” approach, and should instead enable employers to adapt the policies to suit their specific needs. It acknowledges that Labour has updated its proposals in this area, which was welcome, and points out that a code of practice will encourage employer-employee dialogue while avoiding the risk carried in a legislative approach of compromising emerging informal flexible working practices.
Day-one rights
IoD verdict: Cautious welcome
While IoD research has found that business leaders, on the whole, disagreed with the principle of ending the qualifying period for all employment rights, most of the concerns raised in qualitative feedback, says the IoD, relate to what such a move would mean for probationary periods, which were considered essential.
For many businesses already struggling with rising costs and tight margins, the potential of high costs stemming from universal day-one employment rights could increase the perceived risk associated with hiring a new employee.
However, Labour has evolved its plans so that probationary periods will be retained. This has been welcomed by businesses. The IoD says: “It is essential that the requirements attached to these do not preclude employers from parting ways with employees for any non-discriminatory reasons. More broadly, any alignment of qualifying periods should take steps to reduce the risk to employers of taking on new staff.”
Ethnicity pay gap reporting
IoD verdict: Positive
A survey of IoD members in December 2021 found that, while around a third (31%) of business leaders reported that they would view ethnicity pay gap reporting for large companies as not serving a useful purpose, a significant proportion (28%) would welcome such a change. Most of the remaining respondents raised concerns about employee anonymity (18%) and the burden that reporting would place on business (15%), rather than the principle of mandatory ethnicity pay gap reporting itself.
The qualitative responses to both questions, says the IoD, include concerns that difficulties in defining ethnicity and disability will undermine the validity of any statistical insights. The survey found scepticism around the efficacy of reporting in effecting change in business behaviour, and frustration at the increasing number of reporting requirements being placed on employers.
However, some businesses were more positive, highlighting the potential of such a policy to emulate the success of gender pay gap reporting in focusing business attention on the issues. The IoD concludes that the mandatory disability and ethnicity pay gap reporting for large employers proposed in Plan to Make Work Pay would serve as a useful step in increasing transparency around progress on diversity, equality and inclusion. It recommends: “Any requirements around action plans should be as light-touch as possible, enabling employers to develop plans which reflect their specific circumstances.”
In conclusion, the IoD says it is positive about Labour’s overall plans. Alexandra Hall-Chen, principal policy adviser for employment at the institute, says the research shows “there is appetite in the business community for reform, but that the specifics of the policies will be crucial in determining whether they support or stifle economic growth”.
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