employers braced for biggest shake-up in a generation

Louise spent the last few weeks before giving birth battling with her employer over her right to claim maternity pay.

She had worked long, semi-regular shifts for a security company for more than a decade but her zero-hours contract meant she did not automatically qualify for statutory pay. In the final week of the period determining if she was eligible, the company abruptly cut her hours to zero. They eventually paid up — but not without HM Revenue & Customs intervening to overcome unpleasant threats and obstruction from HR.

“They were using zero-hour contracts to get around their obligations,” said Louise, who asked not to use her full name. “It was really, really blatant.”

If the UK’s new Labour government acts on its promise of a “New Deal” to boost workers’ rights, her experience should be consigned to the past.

A clampdown on zero-hours contracts — giving workers in similar positions to Louise the right to an agreement reflecting the hours they work in practice — is just one of the big changes envisaged in a package of planned reforms billed as the biggest shake-up of employment law in a generation.

Zero-hours contracts affect only a small proportion of the UK’s workforce but symbolise a labour market in which flexibility for employers has come at the cost of security for individuals. As they do not guarantee any shifts, workers are unable to predict their earnings week to week, let alone their entitlements to maternity, holiday or sick pay.

Over the past 50 years, “in most aspects of the working relationship, power has tilted away from workers and in favour of employers,” argues Steve Machin, economics professor at the London School of Economics. “The shift has gone too far and has been bad for the economy and those working in it”.

Labour wants to redress the balance with sweeping reforms affecting every corner of the jobs market. Proposed policies include a default right to flexible working, wider coverage for statutory sick pay and stronger rights for trade unions to enter workplaces and bargain with employers.

Some of the most complex reforms — including redefining employment status to create a clear boundary between workers and the self-employed — are now longer-term aspirations that will need extensive consultation.

But the proposal that most alarms employers could be implemented almost immediately, through a simple change in secondary legislation. It would give employees protection against unfair dismissal from the first day in a job, abolishing a two-year qualifying period.

Labour says employers will still be able to dismiss new hires during a probationary period. But the change will be “a shock to the system” because probation processes will need to be rigorous enough to withstand scrutiny by a tribunal, according to employment law consultant Darren Newman. “It will genuinely make people worry about recruitment, especially small businesses.”

Lawyers say one unintended effect could be to make employers more wary of taking a chance on someone with an atypical background. Another could be to make them more brutal about terminating contracts at the end of probation if there is any doubt about performance — rather than giving borderline candidates extra time to improve.

The bigger worry is that it might deter them from hiring at all.

In countries that have higher hiring and firing costs, such as France, Spain and Italy, regulation has not noticeably hurt employment, according to a recent report by the Resolution Foundation think-tank. But it is associated with a slower hiring rate; and a “two tier” workforce in which many people are stranded on less secure temporary contracts.

Charlotte Wootton, a mother who works in two zero-hour jobs. ‘A lot of mums get backed into a corner because it’s the only way to get the flexibility,’ she says © Andrew Fox/FT

“Sometimes employers find ways to stick to the letter of the legislation but avoid the spirit,” says Alan Manning, professor at the LSE. He thinks UK workers have been asked to shoulder too much risk in recent years, to the detriment of their mental health, but that “we have to get the detail right”.

Business groups, while worried at the potential for increased costs, have signalled willingness to co-operate — provided Labour keeps its promise of extensive consultation.

“If we have the right mechanisms in place, like probation periods, then we can find a way through,” Shevaun Haviland, director-general of the British Chambers of Commerce, told a conference last week. Many businesses already operate worker-friendly policies such as flexible work or enhanced sick pay, she added.

Recruitment agencies view the proposals as a bigger threat, questioning the assumption that workers are best off in permanent employment. But Neil Carberry, chief executive of the Recruitment & Employment Confederation, says his main concern is that rules be enforced by a properly resourced agency, so recruiters who follow the rules are not undercut by less scrupulous rivals.

Any additional costs, whether from expanded sick pay or an obligation to compensate workers for cancelled shifts, may be passed on in the form of lower salaries, says think-tank the Institute for Fiscal Studies. But Labour, backed by unions and many economists, argues that the costs of new rules will be modest, and offset by benefits to workers and the economy.

Nicola Smith, head of economics at the Trades Union Congress, says it is time to scrap the “orthodox assumption” that a flexible labour market is a goal to aim for. “There is an opportunity to rethink what good looks like,” she said at a recent event. “If you have better employment protection, you make it easier for people to take the chance of moving jobs. If you have stronger and more secure incomes you boost demand . . . It’s easier to move back into work . . . if you have patterns of work that reflect your own needs.”

Charlotte Wootton, a 38-year-old mother in Staffordshire, agrees. She juggles two zero-hours jobs in the kitchen and bar at a golf club, working longer hours than she wants in summer to offset winter months when bad weather leads to cancelled shifts. Childcare is too expensive to justify commuting to a better job in Birmingham.

“A lot of mums get backed into a corner because it’s the only way to get the flexibility,” she says. A contract with even a few guaranteed hours would allow her to budget and plan her time, and offer clarity on maternity pay. “That does worry me, because part of me would like a second child — I’ve no idea how that would work.”

Some argue that giving workers more security would also help overcome one of the biggest problems facing the UK economy: the steep rise in the share of the population who are economically inactive because ill health prevents them working.

Alice Martin at Lancaster University’s Work Foundation says a right to flexible working and guaranteed hours could help people who are inactive because they cannot find a stable job that fits around childcare or fluctuating health. “People at the sharp end of the labour market are the ones who can’t access good flexible working,” she says. “They have to opt into highly insecure forms of work . . . where you don’t know what life will be like week on week.”

But others argue the new government’s reforms will not transform workers’ lives unless it addresses bigger issues, by boosting productivity to underpin higher wages and investment to drive economic growth. “I don’t think even [day one rights] would make that much difference,” Manning adds, comparing Labour’s plans with “much bigger” past changes, such as the minimum wage and equal pay rules. “Growth should be front and centre”.

Jonathan Wadsworth, a member of the Low Pay Commission body advising ministers, says there are strong arguments to improve working conditions for people in low-paid work. But change would be “a lot easier to accomplish when the economy is doing well,” he notes. “The best bargaining power low wage workers have is a tight labour market.”

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