Following the Labour Party’s landslide win in the general election that took place on 4 July 2024, the new Government has proposed plans to reform employment law, and reform it significantly.
The Labour Party has published a ‘Plan to Make Work Pay: Delivering A New Deal for Working People’. As part of the King’s Speech delivered on 17 July 2024, the new Government has confirmed that an Employment Rights Bill will be introduced within 100 days of Labour entering office, i.e by 12 October 2024 at the latest. The Bill is dubbed “the biggest upgrade to workers’ rights in a generation”.
Keir Starmer’s briefing note which was published alongside the King’s Speech provides some further information about what the Bill will include, but it lacks specific detail so we will need to wait for the draft Bill to get a better idea about how the changes will affect the umbrella sector.
At this stage, we know that the Bill will include the following key points of note:
- Unfair dismissal as a ‘Day 1’ right
This is a significant change from the current legal position and is one of the most substantial changes for the umbrella sector. Currently, an employee must have two years’ continuous service to be afforded protection from unfair dismissal. This means that an employer can terminate an individual’s employment within two years with little or no risk.
At the moment, the risk to umbrella companies of unfair dismissal claims is minimal, as the majority of employees are on the books for less than two years. It remains to be seen how a day-one right to claim unfair dismissal will be implemented in a sector which exists to provide short-term, flexible labour. In principle, if an assignment ends and the employee’s employment is terminated because they don’t have another assignment (i.e there is no work for them), that would amount to a redundancy situation. Currently an individual must have two years’ service to be eligible for a redundancy payment, but that might change under the new law. It is presumably not the Government’s intention that an agency worker will be entitled to a redundancy payment each time that an assignment ends.
The Government has indicated that probationary periods will be important in allowing employers to take a view on an employee’s performance in the early stage of the relationship and we are likely to see probationary periods taking on greater significance (whereas currently they are rarely used for umbrella employees). The Government has also confirmed that fixed term employment contracts can still be used. As a result, many umbrellas may turn to fixed terms contracts (which would align with the anticipated length of the assignment) in place of 336-hour overarching contracts of employment, but we will need to understand the detail of the new law before any substantial changes are made to operating models.
- Banning exploitative zero-hour contracts
The Government’s original proposal to ban zero hours contracts outright has been somewhat watered down, with a new package of measures proposed to address ‘one-sided flexibility’ and ‘exploitative’ contracts instead.
The new Government intends to introduce a right for workers to request a contract with predictable working hours which reflects the number of hours they regularly work in practice (specifically, the average number of hours they have worked over the previous 12 weeks), although we anticipate that employers will be able to reject such requests on certain grounds. Those grounds weren’t specified in the King’s Speech so we will need to await the draft Bill. It is anticipated that businesses will be able to refuse such requests on similar grounds to a flexible working request, including the burden of additional costs and insufficient available work. Nevertheless, umbrella companies will need to introduce a mechanism (and train their staff) to deal with such requests.
As part of their efforts to address one-sided flexibility, Labour will introduce a requirement for businesses to give ‘reasonable notice’ to change shifts and ‘proportionate compensation’ for cancelling or curtailing shifts at short notice. It’s not yet known what ‘reasonable’ and ‘proportionate’ will mean in this context but given that end-clients sometimes change their temporary labour requirements by the day or even the hour, this will require careful management to avoid costly compensation payments.
It is as yet unclear how the Government expects these measures to be implemented in respect of the contingent labour market, where the requirement for contingent labour fluctuates so greatly. The Government has committed to consulting with businesses before the new laws are introduced, so it will be important for trade bodies and businesses in the sector to engage with any consultation.
- Increased National Minimum Wage rates
The Government’s intention to remove National Minimum Wage age bands so that the National Living Wage is payable to all workers regardless of age has caused some concern amongst umbrella companies and agencies, as this could push up wage costs in circumstances where end-clients in some sectors are already sensitive to the wage increases we’ve seen over the last few years.
- Proposed abolition of worker status
Although not specifically mentioned in the King’s Speech, Labour have made no secret of the fact that they intend to abolish worker status and adopt a two-tiered model of employees and genuinely self-employed individuals. Such a fundamental shift will require careful consideration and the notable absence in the King’s speech of any proposal to address status means it is likely to be one for further down the line.
That said, the other rights which Labour are proposing to introduce in the short term (such as those identified above) may dilute the need to review worker status in any case, by bringing the rights of employees and workers closer together.
The future
The Bill will be tabled by 12 October 2024 and will then have to proceed through the Parliamentary approval process, as well as being subject to the promised consultation period. It is therefore unlikely that any of the proposed measures will become law until later in 2025 at the earliest. The new Government has a tightrope to walk between strengthening workers’ rights on the one hand and not undermining economic growth on the other. It will be important for the sector to continue to analyse and discuss the proposed changes once more detail is known, so that businesses can plan and adapt their operating models to take advantage of any opportunities and mitigate any risks arising from the planned changes.
This bulletin is for general guidance only and should not be used for any other purpose.
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