After 14 years of Conservative rule, the Labour Party swept into power on 4 July 2024, setting the stage for transformative changes in UK employment law. Labour’s Plan to Make Work Pay promises a bold agenda of reforms aimed at boosting worker protection, ensuring fair pay, and modernising workplace practices. These sweeping changes will have significant implications for employers across various sectors. But what do these reforms mean for employers and their in-house lawyers, and how can they stay ahead of the curve?
Single worker status
Labour’s reforms propose a radical shift to a single worker status for all but the genuinely self-employed, merging together the existing ‘employee’ and ‘worker’ categories. This sweeping change aims to extend vital rights – including paid holidays, statutory sick pay, and anti-discrimination protections – to a broader spectrum of workers. The objective is to streamline employment classifications and eliminate legal ambiguities, especially in the gig economy. However, questions already loom over the practicality of implementing this change. With a complex web of existing laws distinguishing employees from workers, partners are sceptical about how the government will navigate the creation of this unified category.
Kathleen Healy, Freshfields’ London head of employment and co-chair of the Employment Lawyers Association, says: ‘there will need to be a pretty comprehensive review of the different categories of worker employers might currently have to work out what the impact of the reclassification proposals may be.’
According to employment partners, in-house legal teams need to start evaluating their workforce composition now, gaining a clear overview of all of their different types of workers, including agency and zero-hour contractors. They can then use this insight to help advise stakeholders on the strategic impact of changing worker statuses and better prepare for adjustments.
Once the composition of the workforce is known, employers will need to grapple with the potential implications of transitioning the different worker types into Labour’s new unified status.
With limited details so far on how the change could be implemented in practice, it is vital for legal teams to stay on top of any consultations ahead of the proposed reform coming into effect.
Colin Leckey, an employment partner at Lewis Silkin highlights just one of the potential issues: ‘How exactly is this harmonisation going to happen and what does it mean from a tax perspective?’
If unifying the different rights currently afforded to workers and employees and reconciling the tax implications of the shift will be challenging, the potential for some workers to retain self-employed tax status while gaining employment rights adds further complexity.
Leckey elaborates: ‘It is going to be very difficult to have some people with worker rights being classified as self-employed for tax purposes and some people classified in a different way.’
The speed with which the proposed changes may come into effect is also expected to create further challenges for in-house teams.
Labour has committed to consulting on the reforms within the first 100 days of its new government. Leading Healy to stress that: ‘In-house lawyers need to be very closely following these consultations as they will be fundamental in shaping the way in which employment law will change.’
Key factors for organisations to assess include how many workers they have, how many are agency workers and whether they employ any zero-hour contractors, as well as how reliant they are on these workers.
As Healy underscores: ‘The most important thing for in-house lawyers to do is to make sure that they are aware of the composition of their current workforce, as that will allow them to advise their stakeholders as to the extent to which the classification proposals might have a big impact on their workforce.’
But while there will be challenges around the implementation, the proposed unification isn’t all doom and gloom for employers. The single worker status is intended to simplify a notoriously confusing and litigious system. By eliminating distinctions between workers and employees, it could usher in greater clarity and stability and create a more predictable legal environment.
As Hina Belitz, an employment partner at Excello Law’s points out: ‘The lack of clarity is unhelpful to an employer, so creating a single worker status might well help employers understand the level of risk they need to be aware of because presently unless someone is very clearly an employee or very clearly self-employed, the middle ground can be very confusing.’
Rights from day one
Labour’s proposed reforms also signal a major shift in employee rights, potentially bringing in immediate protections from day one of employment. The abolition of the traditional two-year qualifying period for rights such as unfair dismissal claims and parental leave means all employees would gain access to these protections regardless of tenure.
‘By extending the time for bringing a claim, employers will need to be very mindful as well as keep careful records and contemporaneous notes.’
Hina Belitz, Excello Law
Healy notes: ‘If day one unfair dismissal rights are introduced, employers will need to get much better at managing both probation periods and the performance more generally of their new hires. [Employers] will still be able to dismiss someone during their probation, but the way in which it is done and the paper trail that employers will wish to ensure is in place to demonstrate dismissals were done fairly will become much more important.’
Belitz echoes this, saying: ‘By extending the time for bringing a claim, employers will need to be very mindful as well as keep careful records and contemporaneous notes… you need to have a pretty good recording system to ensure that you can look back to see what the reasons for your decisions were.’
In light of these sweeping reforms, in-house lawyers should advise their organisations to revise dismissal and disciplinary procedures, as ensuring that all termination processes are meticulously documented and legally justified will be critical to withstanding potential challenges.
‘You can’t be complacent now about probation periods, you’ll have to use them effectively to make sure you’re keeping your best talent but taking decisive action where someone is unsuitable, because all workers will have day one rights,’ warns Healy.
Training for managers around recruitment and performance management should be prioritised to ensure compliance. As Leckey adds: ‘Recruitment processes may need to become more rigorous if it is going to be a lot harder than it is at the moment to dismiss new hires which haven’t worked out.’
For multinational corporations, navigating these reforms will require aligning global policies with local legal frameworks. Variations in employment laws across jurisdictions will require careful consideration of how global decisions may impact local operations and workforce relations.
‘For global employers, there needs to be a good understanding that rolling out changes in a particular way in one jurisdiction can give rise to knock-on consequences in other jurisdictions (eg if local consultation processes are not followed),’ stresses Healy. ‘In-house lawyers need to make sure their stakeholders have understood that there is likely to be a more concerted push towards employee protection with a Labour government and as a global employer if you’re not aware of the way in which certain global workplace initiatives can land in the UK and other jurisdictions, it could potentially be more difficult.’ Healy goes on to add that this will require educating stakeholders in Asia or the US about the impact of global decisions.
She adds: ‘This is going to significantly increase the workload for employers because more employees will have the legal right to challenge their dismissal. This is a very hot topic for employment lawyers.’ Leckey adds: ‘We will be spending a lot more time advising at tribunals from people bringing unfair dismissal claims when they have only been [employed] for six months.’
Recognising unions in the workplace
Labour’s proposals also include a comprehensive overhaul of union recognition processes, aimed at streamlining union access to workplaces and undoing legislation that has historically restricted union activities. Expected to invigorate union activities and potentially increase industrial action, these changes will mark a significant shift towards sectoral collective bargaining, diverging from previous norms. Employers will face the task of re-evaluating their approaches to union engagement and ensuring compliance with evolving regulations.
‘This government is on a mission, and they have been very clear that labour law is one of the areas here they want to move quickly.’
Kathleen Healy, Freshfields
The introduction of these reforms means that employers and their in-house lawyers need to stay on top of any changes that give trade unions more rights. This urgency is underscored by the recent union recognition vote at Amazon, which signals a mounting trend towards unionisation efforts. As Leckey comments: ‘Lots of employers have no experience with [unionisation] and it is going to be a new thing for them; especially for those with headquarters in the US. It is going to be really countercultural, the idea that unions may have access to the workplace.’
This shift towards granting unions access to workplaces could reverse the general decline in unionisation rates that has been seen since the 1970s.
Healy says: ‘In-house lawyers for employers who have trade unions within their workforce or think there might be interest from the workforce, definitely need to watch this space and understand the proposals for trade union law reforms, because I think that is something we will see more of in the coming years.’
Understanding the practical implications and preparing accordingly to manage potential disruptions will be crucial for the legal team – doing so will help reduce risk and better support the organisation as it navigates the evolving landscape of union rights and collective bargaining in the UK workplace.
Despite the early timing of the election, Labour’s broad package of employment proposals have not come as a total surprise to partners, many of whom had anticipated changes on the horizon for some time.
What has come as more of a surprise is the speed with which Labour want to push ahead with reform. As Healy concludes: ‘This government is on a mission, and they have been very clear that labour law is one of the areas where they want to move quickly – so I think it is going to be a busy summer for in-house employment lawyers keeping track of the various consultations and outcomes.’ LB