Make Work Pay – a review of the new Labour government’s plans for employment law reform

Please note the government issued an Employment Rights Bill on 10 October. This Bill is its primary vehicle to make the proposals contained in its Plan to Make Work Pay law. You can find our update on the Bill here. The note below will, therefore, no longer be updated.

In its first King’s Speech since its general election victory, the new Labour government has confirmed that it will introduce an Employment Rights Bill within its first 100 days and will publish a draft Equality (Race and Disability) Bill. The aim of this legislation will be to deliver many of the employment law reforms that Labour has promised during its election campaign. These reforms are far-reaching and will impact all employers, regardless of size or sector, if (or alternatively perhaps, when) they come to fruition.

Most of Labour’s proposals are set out in its ‘Plan to Make Work Pay' (MWP), which it published at the start of the general election campaign. MWP promised ambitious and hard-hitting employment reforms to ‘back working people to take their voice back, improve their terms and conditions and ensuring protections at work are fit for the world today’. Labour’s manifesto then made a commitment to implement MWP ‘in full’ and included some additional employment law policies.

The King’s Speech, on 17 July, confirmed that the government’s Employment Rights Bill will deliver on the policies set out in MWP. However, it was not clear from the Speech which policies will be included in the Bill and which will happen in slower time. The briefing notes which accompany the Speech make specific reference to a number of the proposals contained in MWP, including, for example, banning ‘exploitative’ zero hours contracts and making unfair dismissal a day one right, so we can expect those proposals to be included in the Employment Rights Bill – but that list may not be exhaustive. The Speech also confirmed the introduction of a draft Equality (Race and Disability) Bill which would implement some of Labour’s equalities proposals, including race and disability pay gap reporting and enshrine a right to equal pay for ethnic minorities and disabled people. A third Bill, the Skills England Bill, is intended to deliver on Labour’s manifesto commitment to ensure the supply of skills needed for the economy, which will involve creating a formal link between migration data and skills policy. This could have implications for employers who recruit from overseas. For more information on Labour’s plans for business immigration please see here. This means that employers need to be prepared for a period of significant change.

Below we look at Labour’s key proposals in the round and consider what they might mean for employers. Whilst not all of the proposals below may make it into the Employment Rights Bill or the Equality (Race and Disability) Bill, they are likely to remain on the long list and may well, given Labour’s commitment to implement MWP in full, come into being as the government’s term in office progresses.

Zero hours contracts

Labour is committed to ‘Securonomics’ which means ‘giving working people security in their day-today lives’. This explains why zero-hours contracts have long since been in their sightline as an area for reform, not least as it has concerns that new technology and new ways of working mean workers may face undesirable insecurity over working hours.

That said, Labour also acknowledges that opportunities to work flexibly do bring benefits for many workers. Whilst recognising that the uncertainty and lack of security that the use of zero hours contracts presents is undesirable for vulnerable workers, not all people who work on zero hours contracts would be classed as vulnerable workers – some workers on zero hours contracts benefit from and enjoy the flexibility they offer every bit as much as the employer does. 

In MWP, Labour proposes to ban what it refers to as ‘exploitative’ zero hours contracts. They propose to implement this by offering workers on zero hours contracts the right to have a contract which reflects the number of hours they regularly work, based on a twelve-week reference period (albeit it is unclear at this stage how this twelve-week reference period might work where there are natural seasonal peaks in the number of hours worked, such as a pre-Christmas rush in retail environments). It is also not clear from MWP whether the word ‘exploitative’ applies to all zero hours contracts i.e. is Labour taking the view that all zero hours contracts are exploitative and should therefore be banned? If so, will those workers for whom the flexibility is beneficial (as Labour acknowledges it can be) be prevented from working under this form of contract? 

One, arguably more likely, reading of Labour’s proposals is that, rather than an outright ban, Labour will seek to address the problem by providing workers who are at risk of being exploited with the opportunity to move onto a contract which reflects their regular hours whilst those who enjoy the flexibility offered by zero hours can leave matters as is. However, whilst this is one interpretation, the position is not clear. As an aside, the previous government had plans to introduce a similar right allowing certain workers and agency workers to request a predictable working pattern. The details of this right (including any commencement date) had not been finalised prior to the election being called, so it seems likely that it will be superseded by the new government’s plans in this area.

In a bid to end ‘one-sided flexibility’ we may also see specific clauses prohibited from these types of contracts – for example a requirement for a worker to be available for more hours than the employer is in a position to offer.

Under Labour’s proposals, workers will also have the right to receive reasonable notice of changes in shifts or working time and would receive compensation that is ‘proportionate’ to the notice given for any shifts which are cancelled or curtailed.

To offer comfort to employers, there is also a specific reference in MWP that employers would not be prevented from offering fixed-term contracts including seasonal work.

Fire and rehire

This is a practice whereby an employer, unable to agree changes to terms and conditions of employment with their workforce, dismisses its workers and reengages them on the new, and often less favourable terms. Labour had promised to ‘outlaw’ this practice. However, in MWP, Labour acknowledges that ‘It is important that businesses can restructure to remain viable and preserve their workforce when there is genuinely no alternative’ but this ‘must follow a proper process based on dialogue and common understanding between employers and workers’. A code of practice, introduced under the last government to provide guidance for employers on dismissal and reengagement, came into effect on 18 July. However, the Secretary of State for Business and Trade, Jonathan Reynolds, has confirmed that whilst this code will remain in place for now, new legislation will be brought forward to end the practice of fire and rehire and a new, strengthened code of practice will replace the existing one.

Interestingly, MWP also talks about ending the ‘scourge’ of ‘fire and replace’, a practice which sees workers dismissed and replaced by a workforce willing to work on lesser terms and conditions.

The practice of ‘fire and rehire’ garners plenty of headlines - in reality it is rarely deployed by employers as the employee relations fallout can ultimately be difficult to retrieve. The parameters contained in MWP, which seemingly permit its use in limited circumstances, would need to be clarified in any new code of practice. At what point will a business be able to decide that it needs to ‘fire and rehire’ in order to ‘remain viable’ – these timeframes would not be standard across the board so there would be a need for flexibility.

Equally, take away an employer’s ability to dismiss and reengage, the danger is you leave the employer with potentially only one option – namely to dismiss.

Day one rights

This proposal – and it’s a very big one which has been (to our mind) under-reported – includes providing ‘basic individual rights’ from day one for all workers. A full list of rights has not been included but would certainly include unfair dismissal, parental leave (including maternity/paternity/adoption and shared parental leave, one assumes) and sick pay. Currently only employees are entitled to these rights – and removing the qualifying period for employees would certainly be significant. However, importantly, as drafted in MWP, the proposals to award day one rights would not only remove the qualifying periods for employees but would also extend these basic employment rights to the wider category of ‘workers’ which would be a seismic change.

Whether this is intentional drafting is not clear. In MWP the possible conflation of status will be subject to very detailed consultation – and as such will be likely to take some time. Extending these ‘employee’ rights to ‘workers’ at this stage would potentially, therefore, be at odds with Labour’s promise to consult.

The reference in MWP to ending the ‘current [our emphasis] arbitrary system which leaves workers [our emphasis] waiting up to two years to access basic rights’ may be an indication that the use of the word ‘worker’ rather than ‘employee’ is not intentional as workers are not currently entitled to bring these types of claims. If, however, the reference to ‘worker’ is intentional, and this change were to be brought in ahead of any decision on status, then this would represent very significant change for employers – particularly those who rely on seasonal and casual workers.

Even if the removal of qualifying periods is, for now, limited to rights for employees, this would still be a big change – particularly in respect of unfair dismissal rights where currently two years’ service is required for (most) claims.

Labour has confirmed this change would not prevent the dismissal of employees for reasons of ‘capability, conduct or redundancy, or probationary periods’ with ‘fair and transparent rules and processes’. The briefing notes which accompanied the King’s Speech confirmed that employers will still be able to ‘operate probationary periods to assess new hires.’ Quite what this all means remains to be seen but without doubt it would be an onerous and potentially costly change for business (particularly if these rights are extended to cover all workers). It would likely lead to employers reviewing and extending their use of probationary periods and more rigorously evaluating employees during those periods. It could also lead to employers reviewing and more vigorously monitoring their hiring practices to help reduce the risk of appointments failing and extending their use of fixed-term contracts in order to ‘road-test’ the employee prior to offering a permanent contract – a practice which is not uncommon in Europe.

Single status of worker

Labour has its sights set on creating a single status of worker so that ‘employees’ would be reclassified as ‘workers’ with that broader status being awarded the full suite of employment rights. However, whilst still committing to ‘move towards’ a single status, it acknowledges in MWP that employment status is a complex area of law and has committed to consulting in detail on how a simpler status framework that differentiates between workers and the genuinely self-employed could properly capture the breadth of employment relationships we have in the UK. This will be a sensible move given the level of complexity, as without this level of scrutiny, switching to a two-status model could unintentionally stifle flexibility and innovation. Given this, we were not surprised to see that worker status did not appear as a proposal to be addressed in the Employment Rights Bill – this doesn’t mean it won’t make an appearance in that Bill but we believe this is unlikely and that this is an area of reform that will be addressed in slower time.

MWP does not consider the issue of tax and yet it is integral to any decision on status. If employees and workers were to share an employment status (and associated rights) then it seems likely they would need to share a tax status as well (which currently they may not do – many workers are self-employed for tax purposes whereas employees are taxed through PAYE). This would not be popular with either workers or employers as it would potentially leave employers, who use workers, with a very significant additional NICs bills to pay. This in turn could lead to workers and employers looking to reorganise their ways of working and could result in employers and workers transitioning to the use of more self-employed contractors – which one might assume would not be Labour’s intention – not least as this could leave vulnerable workers in a weaker position.

Wherever any revised boundaries between the categories of worker and self-employed might ultimately be drawn, continued litigation on status would seem almost inevitable.

Redundancy rights and TUPE

A proposal in MWP which may appear simply to be a technical change would potentially have a big impact on employers. The proposal, given as an ‘example’ of how Labour will strengthen redundancy rights (implying there could be more to come), would ensure that the right to collective consultation in a redundancy situation would be determined by reference to the number of people impacted across the business as a whole rather than the current recognised practice of at one workplace (or ‘establishment’ to use the legal terminology). If implemented, this would likely see more employers having to engage in collective consultation more often. As we will see below, this chimes with Labour’s intention to strengthen the trade unions and ‘worker voice’.

Strengthening existing protections for workers in TUPE situations is also promised. Again, this proposal refers to ‘workers’, not ‘employees’ – this is in stark contrast to a consultation launched in May this year, in which the previous Conservative government proposed to reaffirm that only employees (and not workers) are protected by TUPE. Employers and contractors - particularly those who are involved in outsourcings - could be significantly affected by this and so consideration of this point should feature in any ongoing commercial discussions as to the application or otherwise of TUPE and the apportionment of related liabilities.

Family friendly rights

A host of revisions and extensions to the suite of family friendly rights is also proposed. These include:

1. Making flexible working the default from day one for all workers except where this is not reasonably feasible – quite what this means remains to be seen. The right to request flexible working has recently been made a day one right but Labour’s proposal is somewhat opaque – what does ‘making flexible working the default…except where it is not reasonably feasible’ actually mean? Whilst it is not entirely clear, one likely interpretation could be that employers will have to permit a worker’s request ‘except where it is not reasonably feasible’ to do so. Whilst flexible working is much more commonplace now, this would represent a significant move away from the current position where an employer has eight statutory grounds available for turning down a request.
2. A review of the ‘parental leave system’ is promised within the first twelve months of the new Labour government. We assume this is intended to cover maternity, paternity, shared parental leave etc rather than ‘parental leave’ in the technical legal sense.
3. Employers would not be able to dismiss a pregnant woman for six months after her return except in specific circumstances.
4. Labour will review the new right to carer’s leave and will consider whether to introduce paid leave (currently the right is to unpaid leave).
5. The right to bereavement leave for people experiencing the ‘loss of a loved one’ will also be introduced for all workers.

Equality at work

The new government has a number of proposals in this area which include:

1. Equal pay – proposals include the introduction of measures to ensure that outsourcing could not be used by employers to avoid paying equal pay and the introduction of a regulation and enforcement unit to help speed up the resolution of equal pay issues. As mentioned above, and coming good on a manifesto pledge, Labour has committed to publishing a draft Equality (Race and Disability) Bill which would implement race and disability pay gap reporting and enshrine a right to equal pay for ethnic minorities and disabled people. It’s worth noting that black, Asian and ethnic minority and disabled employees can already bring direct and indirect discrimination claims if an employer discriminates against them on the grounds of pay, and arguably the test to prove an equal pay claim is more onerous and complex for claimants.
2. Dual discrimination – Labour confirmed in its manifesto that it will ‘strengthen protections against dual protection’. Dual discrimination was not specifically mentioned in either the King’s Speech nor in the briefing notes but perhaps the government intends to do this, not through new legislation, but by enacting section 14 of the Equality Act, which outlaws direct discrimination because of a combination of two or more protected characteristics. Employees already can (and do) bring claims for discrimination based on one or more protected characteristics without the specific need for dual protection under the Equality Act.
3. Pay gap reporting - as regards gender pay gap reporting, under Labour’s plans large firms will be required to develop, publish and implement an action plan to close their gender pay gap – and in the King’s Speech it was confirmed that this will be included in the draft Equality (Race and Disability) Bill. Many employers already report in this area but this will be an additional requirement for some. Ethnicity and disability pay gap reporting would also be mandatory for employers with more than 250 staff. Many employers already publish this information – particularly as regards ethnicity pay – but this is a complex area and careful thought will be required in drafting the supporting legislation.
4. Menopause – in MWP Labour confirmed that large employers with more than 250 employees would need to produce ‘Menopause Action Plans’ setting out how they would support employees through the menopause – again many larger employers are likely to have policy or guidelines in place already. Interestingly, in its manifesto Labour also made a commitment to strengthen protections against ‘menopause discrimination’ but no reference to this was made in the King’s Speech.

Right to switch off

In MWP, Labour proposes to bring in a right to switch off but again, chiming with the ‘worker voice’ theme, it seems that this would be introduced by giving workers and employers ‘the opportunity to have constructive conversations and work together on bespoke workplace policies or contractual terms that benefit both parties’ rather than by a standalone right which is a refinement on their previous proposal. 

This is a helpful refinement for employers. It was always unclear how a hard and fast right to switch off would have worked in our increasingly flexible working world, where many employees have far more choice over when and how they work their hours. Questions were raised over the circumstances in which employers might be permitted to breach the right and whether employees would be able to opt out. Offering up the ability for employers and employees to craft a bespoke model could allow for a range of different workplace practices to be accommodated. Interestingly, however, this revised approach appears similar to the model adopted in Ireland in 2021, which has reportedly led to limited changes in working practices beyond an increase in the use of email disclaimers. 

Technology and surveillance

Mindful of the opportunities and the risks posed by developing technologies, Labour proposes to safeguard against discrimination (a known risk with some AI tech) and to put ‘worker voice’ at the heart of ‘Britain’s digital transition’.

Employee monitoring is also under scrutiny (irony intended!) with a requirement for employers to consult and negotiate with employee reps or trade unions where surveillance technologies were to be introduced.

Fair pay

Various proposals have been mooted in MWP, and then repeated in the briefing notes to the King’s Speech, including:

1. A new remit for the Low Pay Commission to reflect ‘the cost of living’ when setting minimum wage rates.
2. Removal of the age bands within the adult rates which currently apply to NMW – which Labour describes as ‘discriminatory’.
3. Removal of the lower earnings level for sick pay entitlement to make it available to all ‘workers’ (again not ‘employees’) as well as removing the waiting period.
4. A new Fair Pay Agreement (“FPA”) in the adult social care sector – which may see further FPAs introduced across other sectors. Previously there were proposals in place for FPAs across multiple sectors so it is interesting to see this change of approach to a ‘dipping of the toe’. Recognising that this would be a significant departure for the UK, detailed consultation before any FPA is introduced in this sector is promised within MWP.

Voice at work

Following what it sees as a trend around the world of countries looking to boost worker representation, in MWP Labour sets out its stall by saying it is seeking to bring in a ‘new era of partnership that sees employers, unions and government work together in co-operation and through negotiation’. A prospective reality or an optimistic vision?

In recent times we have seen some great examples of trade unions and employers working together pragmatically to resolve difficult workplace issues – holiday pay and approaches to ease cost-of-living pressures being two such examples. However, we have also seen strikes and other forms of industrial action as well as, in some cases, generally more acrimonious relationships and if Labour’s vision is to come to pass, it would require both employers and trade unions to fall in line to achieve this.

Labour is proposing to update trade union legislation by repealing the legislation introduced by the Conservatives in recent years, reversing the effect of some recent case law and introducing some new rights. Changes would see:

1. Electronic balloting introduced which would make ballots easier, cheaper and speedier to run and would, inevitably, improve turnouts.
2. Simplification of the process of union recognition and recognition thresholds.
3. Trade unions for those in the gig economy.
4. Rights for unions to access the workplace for recruitment and organising purposes.
5. A new duty on employers to inform all new employees of their right to join a union (which will need to be included in the written statement of particulars) and to inform staff of this on a regular basis.

So, there can be no doubt that the new Labour government will seek an enhanced role for trade unions which for many in the private sector will be outside of their current ways of operating. This could prove to be a new dawn for those employers, and for the trade unions which seek recognition, and it will be interesting to see how this unfolds over time.

The above outlines the key proposals of which employers should be aware. There are additional proposals that employers will also need to consider – Labour has also proposed to extend time limits for bringing Employment Tribunals claims to six months, to introduce a Single Enforcement Body also known as a Fair Work Agency and to apply a socioeconomic duty (akin to the public sector equality duty) to public bodies. 

Labour claims in its MWP to be ‘pro-worker and pro-business’. Does MWP deliver this? Some concessions do seem to have been made from earlier proposals, not least in terms of the apparent slowing down the speed of change in some areas with commitments to consult ‘fully’ with business, workers and civic society. This may avoid or at least reduce the risk of unintended consequences. But make no mistake - whilst some of the proposals may have been refined, Labour’s MWP, if implemented in whole or even in part, would mean a very comprehensive overhaul of workers’ rights.

Unsurprisingly, we are lacking significant amounts of detail at this stage. However, now that Labour is in government that detail should soon start to materialise – not least when we see the new Employment Rights Bill. It may be that not all of these changes will be as significant as they first appear – employment status may ultimately be parked in the ‘too difficult’ box, for example – but the removal of qualifying requirements, the emphasis on trade union and worker voice and the sheer volume of additional change will mean that employers will have a huge amount to contend with.

This will (clearly!) be a developing picture and we will continue to bring you updates and commentary as the new Labour government’s ambitions unfold. 

If you would like to discuss how these proposals for employment law reforms might impact your business or any of the issues raised in this update, please contact Luke Bowery or your usual employment team contact.

This update was co-authored with Kate Redshaw.

Disclaimer: This update gives general information only and is not intended to be exhaustive. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its contents.