Labour’s worker rights shake-up leaves UK business on edge

A battle over workers’ rights is already prompting disquiet across UK boardrooms and will play a central role in the next general election campaign as Labour seeks to strengthen the role of unions in workplaces. 

Banning zero-hour contracts, ending “fire and rehire” tactics and giving staff protection against unfair dismissal from day one are some of the reforms in a package billed by the main opposition party as a “new deal for workers”.

The measures form part of a broader drive to restore the power of unions and the role of collective bargaining, boost wages and give workers more security and control over their hours and terms of employment.

But they are prompting deep unease among business leaders, who say they are ready to work with a Labour government but that many of the proposals could backfire and hit workers as well as employers if they are rammed through without consultation.

“I want to be crystal clear about this, we are going to level-up workers’ rights in a way that has not been attempted for decades,” Sir Keir Starmer, the party’s leader, told a conference this month, while warning that his party’s reforms “might not please everyone . . . in the wider business community”.

Deputy Labour leader Angela Rayner has meanwhile said the reforms would “be a key part of our plan to grow the economy, moving from insecure, low-paid jobs to prosperity . . . and higher productivity”.

Even as other crucial promises, such as £28bn of annual green investment, have fallen victim to fiscal caution, the Labour leadership has doubled down on a pledge to bring forward an employment bill within 100 days if it wins power in the election, expected this year.

This marks a clear change of tack from the Conservative government’s approach of nudging employers to improve job quality.

Rupert Soames, president of the CBI, told the Financial Times this month that the business lobby group was telling members to “wake up, smell the coffee — this is a major thing that’s coming up”. He added: “It doesn’t mean to say it’s good, doesn’t mean to say it’s bad, but you need to understand the implications.”  

One of the proposals that most alarms employers would give workers basic rights — to sick pay, parental leave and, crucially, protection against unfair dismissal — from the first day of a job. At present, staff have to wait up to two years, up from one year under the last Labour government.

The party has said the change would not prevent employers using probationary periods “with fair and transparent rules and processes” — part of a compromise it struck last year to try to reassure business.

But while this would be “hard to argue against”, it could have a big impact, forcing employers to be far more rigorous in handling probation periods, said Darren Newman, an employment law expert.

“Every so often you hire someone and it’s just clear it’s not going to work out,” said Neil Carberry, chief executive of the Recruitment & Employment Confederation, adding that the change risked fuelling long, complex litigation.

A sharp rise in claims could worsen existing strains on overloaded employment tribunals. Vicky Wickremeratne, partner at law firm Allen & Overy, said: “The service would need to be resourced to deal with it.”

Also contentious is a pledge to ban zero-hour contracts — under which employers offer no guaranteed minimum of working hours. They now cover more than 1mn UK employees.

The Trades Union Congress, the umbrella body for the union movement, has said these contracts give employers “almost total control” over workers’ hours and earning power, making it impossible for them to plan their lives. But even some unions would oppose a total ban, as the contracts are standard in areas such as the performing arts.

The TUC thinks a practical solution would be to give workers a right to a contract reflecting their regular working hours. Lawyers say even this might be circumvented by bosses constantly changing shift patterns.

Business groups meanwhile say zero-hour contracts often suit workers who want flexibility, and allow employers to offer employee rights to people who would otherwise only be taken on as temps.

“You’d want responsible employers to use these things effectively. But how far do you go with legislation, versus encouraging people?” asked Peter Cheese, head of the CIPD organisation for HR professionals.

Blunt-edged legislation in other areas could also backfire, businesses say. A ban on “fire and rehire”, where employers use the threat of dismissal to impose worse terms and conditions, could simply lead them to move straight to redundancies, some argue.

Legislating to create a single status of “worker” for all but the genuinely self-employed — a move aimed at helping those in the gig economy, such as food couriers — is also fraught with difficulty, and Labour has promised to consult widely before acting. The Conservatives made the same pledge but failed to follow through, partly because changing the law could create new grey areas.

“It’s really tricky . . . Show me the definition and I’ll show you how to exploit it,” Newman said. In a blizzard of further proposals he picked out the pledge to restore sectoral pay bargaining, initially through a pilot in social care, as potentially the most consequential.

But Carberry said even this first pilot would take years, and establishing a culture of collective bargaining in the private sector would be far harder because “it’s not where we are in the UK”.

Labour’s vow to strengthen unions’ hand by repealing anti-strike laws passed after the recent wave of public sector walkouts, and 2016 legislation that made it harder to take industrial action, is more clear-cut.

Unions have also won promises to give them greater access to workplaces, a lower bar to winning statutory recognition and the ability to run strike ballots online — a long-awaited change that could make it far easier to take action.

TUC general secretary Paul Nowak said he wanted employers to “get on board” with changes “desperately needed” to create a fair economy. But a poll of the CBI’s membership showed that a clear majority opposed day one employment rights, the repeal of anti-strike laws and sectoral collective bargaining.

Many business leaders are unwilling to be too openly critical. But they are urging Labour, if elected, to work through the details of its proposals in partnership.

Cheese said companies often shared unions’ aims of boosting workers’ welfare. “The question is how you make sure that we’re creating an environment of consultation and not of conflict.”

Carberry said the REC’s “encouragement to Labour is to get around the table”, adding: “You need to . . . work with the grain of the labour market.”