Labour’s employment law reforms: what employers in retail, leisure, and hospitality need to know

Labour's potential victory in the general election in July could usher in the New Deal for Working People, necessitating swift action within the retail, leisure and hospitality sectors to deal with the impact of the changes. The changes could have a significant impact within the sector and businesses should start planning now to ensure that they are fully prepared.

Genuine living wage and removal of age bands

The previous Labour government introduced the National Minimum Wage.  A new Labour government would seek to take this a step further by making the national minimum wage a real living wage that workers will be able to live on, reflecting for the first time the cost of living.  They have stated that they will achieve this by widening the remit of the Low Pay Commission so that alongside median wages and economic conditions, the minimum wage will also reflect the need for pay to take into account the cost of living. This is likely to accelerate the progress towards a NMW rate of £15 per hour. 

Alongside this and perhaps more critical for the sector is that Labour has confirmed that it will remove the age bands for national minimum wage so that all adults are paid the same, regardless of their age.  Many in the sector have a high proportion of workers engaged on the 18-20 year old rate and those businesses should start modelling what this change could mean to their wage bill.

Removal of qualifying period for unfair dismissal claims 

One of the headline changes Labour are seeking to introduce is the removal of the qualifying period for unfair dismissal claims. Labour have stated that the removal of the qualifying period will not affect probationary periods, meaning that employers will maintain some ability to dismiss new workers who prove to be a poor fit for their role during this initial period although we anticipate that there will be limits imposed on how long those probationary periods can last.

Currently, employees only have the right to not be unfairly dismissed when they have reached two years’ service.  This means that within an employee’s first two years of service, employers are more easily able to dismiss an employee, providing them with the opportunity to see if the employee is the right fit for the role and affords flexibility to employers when the long-term potential and ongoing need for the role is uncertain. 

Labour’s removal of the qualifying period is likely to make it more difficult for employers to dismiss their newer workers. Employers in the sector will therefore have a reduced ability to dismiss newer workers and will need to ensure that they have a robust and stringent dismissal policy and procedure to reduce the risk of claims.  Employers may also want to adopt more thorough recruitment processes to ensure that their new hires are the correct fit before hiring them as it will be more difficult to dismiss them after their employment has begun.  These measures are likely to incur costs for employers.

The removal of the qualifying period may also contribute to the already low retention rates of staff within the sector.  As employees under the current model benefit from protections because of their length of service, they are arguably less likely to leave their employment for fear of losing these protections.  However, if employees no longer benefit from their length of service, they may be less inclined to stay with their current employer and be more likely to change jobs more frequently. 

The most significant and likely result of this reform is that more workers will be eligible to bring claims of unfair dismissal, meaning that an increase in claims is likely.  Labour say they’ll also remove the cap on compensation for unfair dismissal claims, potentially resulting in higher awards should a claimant be successful in their claims.  Should Labour form the next government, it will be vital for employers to follow fair dismissal procedures for all employees and should consider further training for their line managers.

Ban on ‘fire and rehire’ and zero-hour contracts

Fire and rehire is the practice where an employer makes an employee redundant and re-engages them on new terms and conditions.  The use of this practice, or the threat of its use, provides employers with a way of compelling employees to agree to worse or reduced terms and conditions.  Labour will seek to end this practice, and the practice of fire and replace (in which an employee is dismissed, and the role is filled by another candidate on worse terms than the former employee), by introducing a strengthened code of practice and effective remedies against such practices.  This means that employers will be unable to adopt this practice as a way of cost saving/ restructuring and may face fines or be ordered to pay compensation when they do.  Employers may expect an increased obligation to consult with employees and should seek advice before attempting to vary their employee’s contracts.  For the sector one of the most common uses of this practice is attempting to change shift patterns which have become contractual through custom and practice and changing allowances/benefit entitlements. 

Labour have also promised to ban zero-hour contracts that are ‘exploitative.’  The proposal is to provide workers with predictable hours and work by introducing a new duty on employers to provide a contract based on the hours worked in the proceeding 12-week period.  What is deemed to be an ‘exploitative’ zero-hour contract has not yet been fully particularised by the Labour party, but it is believed that employees will be able to remain on a zero-hour contract should they wish to do so.  This means that businesses in the sector may be able to continue hiring workers on zero-hour contracts, but the employee may be able to request that this is turned into guaranteed contractual hours, removing the flexibility and choice from employers.   

Labour have confirmed that this will not impact seasonal or fixed-term contracts, still providing employers within the sector the ability to increase their staff numbers during peak times of the year, such as Christmas and school holidays.  These types of contracts may enjoy a renaissance as a result.

Single worker status 

Currently, there are three categories of workers in the UK, self-employed, worker, and employee.  Each of these categories have varying level of employment protections and rights, with the self-employed being the least protected, and employees being the most protected; only employees are entitled to bring claims of unfair dismissal and redundancy.  Accurately determining worker status can sometimes be an extremely difficult task, not only for the worker themselves, but for their lawyers, making it difficult to know protections and rights an employee should be afforded. If elected, Labour seeks to clarify this uncertainty by pooling worker and employees together.

This may bring complications for employers in retail, leisure, and hospitality sectors who use zero-hour contracts.  For example, if workers on a zero-hour contract have the ability to bring claims of unfair dismissal, then in circumstances where the workers are not being provided with work because there is none available, it may effectively amount to a dismissal.  This may then require the employer to make redundancies or find a potentially fair reason to dismiss the worker, despite not wanting to dismiss them. This would significantly impact employer’s ability to be flexible with hours and contracts, which is crucial to both employers and employees in the sector. 

Tips

A new Labour government would also ensure that all tips go to employees.  However, The Employment (Allocation of Tips) Act 2023 is already seeking to achieve many of Labour’s promises, which is expected to come into force on 1 October 2024. For more information on The Employment (Allocation of Tips) Act 2023, how it will affect your business, and how to prepare for it, please see here.

Sick pay 

To be eligible for Statutory Sick Pay (SSP), an employee must satisfy the lower earnings limit (£123 per week as of April 2024) and have been ill for more than 3 days in a row.  Labour is seeking to remove both requirements, making SSP more accessible. 

The removal of the 3-day waiting period may result in employers seeing more employees taking off time due to being sick, as they would be no longer disincentivised by the waiting period.  We are also seeing an increase in new employees working just a few shifts to access SSP for prolonged periods during their probationary periods. This increased entitlement may create further challenges for employers in this initial period of employment.

Family rights 

Labour also intends to strengthen a variety of family friendly rights for workers, including:

• Making parental and shared parental leave a day one right;
• Extending statutory paternity and maternity leave;
• Making it unlawful to dismiss a woman who is pregnant, on maternity leave, or has returned to work within in 6 months of her maternity, except in specific circumstances;
• Making unpaid carer’s leave paid; and
• Introducing the right to bereavement leave for all workers.

Many of these reforms have not been fully particularised and require further development and comment from Labour about their implementation. 

Right to switch-off

With an increase in working from home following the pandemic, some workers are beginning to feel that their homes are becoming a 24/7 office and find it difficult to ‘switch-off’ or say no to work outside of their normal working hours., Labour wants to introduce a right to ‘switch-off.’  however, Labour haven’t specified yet how they would aim to achieve this. 

How this will affect the sector will be dependent on how stringent the rules are.  Many employers in the sector will rely on location/store-wide group chats to message their workers about opportunities to cover or swap shifts with minimal notice, which can serve to benefit the employer and employee alike.  However, if the right to switch off would extend to no work-based communication outside of working hours, it could make these kinds of flexible arrangements difficult to maintain. 

Extended Employment Tribunal limitation dates

As a rule, if an employee or ex-employee wants to bring a claim at the Employment Tribunal, they must do so within three months of the event they are complaining about.  However, the Labour Party want to extend this to six-months. Although this is unlikely to have a drastic impact on the sector but may result in an increase in Employment Tribunal claims, as workers will be eligible to bring claims for longer, providing them with more time to get advice and pursue their action. This coupled with some of the other changes referenced above could mean a return to the days when employers in the sector faced a significant number of tribunal claims on a regular basis. 

Conclusion

The Labour Party have promised that their New Deal for Working People would introduce new employment legislation within 100 days of entering government.  Although it’s impossible to say now whether the proposed changes would ensure fairer working conditions and greater job security for all, what is clear is that businesses in the sector should start to prepare now to ensure that they don’t face significant legal costs and/or have insufficient time to plan and potentially make changes to mitigate the impact.

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