Make Work Pay – a review of Labour’s latest plans for employment law reform

Last week the Labour Party released its manifesto ahead of the general election on 4 July. The manifesto reconfirmed Labour’s commitment to implement its Plan to Make Work Pay (MWP) in full and restated several other equalities policies which had already been announced but which did not appear in MWP. MWP sets out an ambitious and hard-hitting set of employment law 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.’ It also supersedes Labour’s Green Paper, A New Deal for Working People, which set out its original proposals for employment law reform.

A refresh and review of the Green Paper was certainly needed. Published in 2021, some of its proposals (or versions thereof) have since been implemented by the Conservatives, for example changes to flexible working, the new duty to prevent sexual harassment and the issuing of a code of practice to restrict so called ‘fire and rehire’ and of course the cost-of-living crisis has hit. But with pressure from business to row back on what they saw as a ‘full-fat’ shake-up of employment rights, to what extent has Labour taken these views on board?

In its manifesto Labour also confirmed it will introduce legislation within its first 100 days, should it come to power, to implement MWP. Below we take a look at some of their key proposals. You can read our analysis of the employment policies contained in the Conservative and Liberal Democrats ‘respective manifestos here.

Zero hours contracts

Whilst recognising that technology and new ways of working mean workers may face undesirable insecurity over working hours, Labour also acknowledges that opportunities to work flexibly do bring benefits for many workers. 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 now refers to as ‘exploitative’ zero hours contracts. ‘Exploitative’ is a new addition from the wording used in the Green Paper.

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 introduction of 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 MWP is that, rather than an outright ban, Labour is seeking 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 current government had plans to introduce a similar right allowing certain workers and agency workers to request a predictable working pattern. However, given there are a number of outstanding points yet to be finalised in relation to this new right (including any commencement date), it remains to be seen how this legislation might be progressed, in light of the dissolution of Parliament.

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 would also have the right to receive reasonable notice of changes in shifts or working time but, in a change from the Green Paper, would only receive compensation that is ‘proportionate’ to the notice given for any shifts which are cancelled or curtailed – the Green Paper had provided that workers would be entitled to be paid in full for shifts cancelled without appropriate notice.

To offer comfort to employers, there is also a specific reference 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, Labour now 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 promise to ‘reform the law to provide effective remedies against abuse’ has now been included alongside a strengthened code of practice to replace the code brought in by the current government.

Interestingly, as it would be a new proposal, 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 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 – would include 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 its Green Paper, this was the intention but that was to be done in conjunction with conflating the status of ‘employee’ with that of ‘worker’ (see below). In MWP the possible conflation of status, whilst still a proposal, would now be subject to very detailed consultation – and as such would be likely to take some time. Extending these ‘employee’ rights to ‘workers’ at this stage would potentially, therefore, be at odds with Labour’s shift in position as regards the timing of the proposed conflation of status.

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’. Quite what this 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 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.

One upside for employers is that the proposal to remove the compensation cap on unfair dismissal awards seems to have been dropped…

Single status of worker

Labour’s initial proposal in its Green Paper was to create 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, it seems that this is an area where Labour has been in listening mode. Whilst still committing to ‘move towards’ a single status, it acknowledges 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 would 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.

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 bill 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 new proposal in MWP which did not appear in the Green Paper and 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 the consultation launched earlier in May, in which the current government proposes 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:

• 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.
• A review of the ‘parental leave system’ is promised within the first twelve months. We assume this is intended to cover maternity, paternity, shared parental leave etc rather than ‘parental leave’ in the technical legal sense.
• Employers would not be able to dismiss a pregnant woman for six months after her return except in specific circumstances.
• Labour would review the new right to carer’s leave and would consider whether to introduce paid leave (currently the right is to unpaid leave).
• The right to bereavement leave for people experiencing the ‘loss of a loved one’ would also be introduced for all workers.

Equality at work

Labour has a number of proposals in this area which include:

• 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. In its manifesto (albeit not in MWP) Labour has also committed to introducing a Race Equality Act, which would (amongst other things) extend the right to equal pay to black, Asian and ethnic minority employees. The manifesto also confirms that Labour will extend the right to equal pay to disabled employees. 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.
• Dual discrimination – Labour has confirmed in its manifesto that its proposed Race Equality Act will ‘strengthen protections against dual protection’. Reiterating a previous commitment, Labour has confirmed in its manifesto that it will strengthen protections against dual discrimination and it is expected to do so by enacting section 14 of the Equality Act, which outlaws direct discrimination because of a combination of two or more protected characteristics. However, 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.
• Pay gap reporting – as regards gender pay gap reporting, large firms would be required to develop, publish and implement an action plan to close their gender pay gap – many employers do this already but this would 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.
• 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’. However, whether their intention is to go beyond what is already included in MWP remains to be seen.

Right to switch off

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 are mooted including:

• A new remit for the Low Pay Commission to reflect ‘the cost of living’ when setting minimum wage rates.
• Removal of the age bands within the adult rates which currently apply to NMW – which Labour describes as ‘discriminatory’.
• 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.
• A new Fair Pay agreement 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.

Voice at work

Following what it sees as a trend that countries around the world are looking to boost worker representation, 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 were to come to pass, should they be elected, 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:

• Simplification of the process of union recognition and recognition thresholds.
• Trade unions for those in the gig economy.
• Rights for unions to access the workplace for recruitment and organising purposes.
• 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 if Labour comes to power it will be seeking an enhanced role for trade unions which for many in the private sector will be outside of their current ways of operating. This would be a new dawn for those employers and for the trade unions which seek recognition and if Labour is elected, 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 would also need to consider – time limits for bringing Employment Tribunals claims would be extended to six months, a Single Enforcement Body would be introduced and a socioeconomic duty (akin to the public sector equality duty) would apply 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 not least in terms of 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. If Labour does win the election and the detail starts to materialise it may be that not all of these changes will be as seismic as they first appear – employment status may, once more, 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. We will continue to bring you updates and commentary as the run-up to the general election continues.

If you would like to discuss how the Labour Party’s 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 relay on its contents.