Many businesses could bypass Labour’s proposed improved workers’ rights by hiring staff as contractors or casual workers if the government delays a key reform of employment status, experts have warned.
Government officials are racing against time to finalise a bill that the Labour Party has promised to introduce within 100 days of taking office, paving the way for radical reforms Provide greater security for workers and strengthen the role of unions.
The package of some 75 measures, known as “The Plan to Make Work Pay”, will include restrictions on the use of zero-hours contracts, protection against unfair dismissal from day one, broader coverage of statutory sick pay, a right to flexible working and stricter rules on the use of “controversial” ones.Firing and rehiring” tactics, among many other changes.
Many of these measures will require additional secondary legislation that will require consultation with employers and unions and could extend well into next year, ministers said.
Lawyers, union leaders and business representatives have warned that workers will not necessarily benefit from the reforms if employers continue to be able to exploit grey areas in the law regarding their employment status.
This is because companies will have new incentives to hire people as self-employed contractors, temporary workers or gig workers, who have fewer rights than employees.
“A reform that plugs a hole in a leaky pipe produces a geyser that gushes forth elsewhere, because [employers’] “The strategy to remedy this is to remove people from protection altogether,” argues Michael Ford, a lawyer and expert in labor law.
“If you don’t address the issue of the status of workers and how middlemen and other methods are used to get people out of protection… you risk undermining the whole edifice,” he added.
The UK is unusual in having three types of employment status: employees, self-employed workers and an intermediate category known as segment b workers.
This third group has some employment rights, such as the minimum wage, holiday pay and automatic pension enrolment, but is not covered by some key employment rights that Labour plans to strengthen, such as statutory sick pay, redundancy rights and protection from unfair dismissal.
It is important to note that workers in sector (b) are also treated as self-employed for tax purposes, meaning that employers do not have to pay national insurance contributions on their earnings.
In practice, it is often difficult to establish which category people fall into, especially in sectors of the informal economy where atypical work arrangements prevail. Despite a landmark Supreme Court ruling in 2021, which found that Uber drivers were workers, unions continue to fight against many other employers.
Labour has promised to stop employers taking advantage of this ambiguity by adopting a simpler, two-part framework, with a single status for workers and a clear distinction between employees and the self-employed. But because of the complexity of the reform, it does not plan to address it in the October bill, instead calling it a measure “which will take more time to review and implement” and promising “full and detailed consultation”.
Both unions and business groups fear that pressing ahead with further reforms without addressing the core problem could backfire.
“There is a really important issue in the whole package about the working situation… The ambition to end the most pernicious practices has to be linked to finding a way to simplify the system,” said one union official.
“It is important that the consultation on employment status is not an afterthought,” the official said.
“You would logically start with employment status, if you had the luxury of doing things logically and sequentially,” said Ben Willmott, head of public policy at the CIPD, the body for HR managers.
The CIPD, while concerned that some of Labour’s reforms will be costly for businesses, supports the ambition to put “clear, blue water” between the self-employed and a new, single category of worker.
However, rewriting employment status will be a controversial issue fraught with difficulties, especially given the potential tax implications.
“If we’re going to look at rights and employment status, we have to take everything into account, including taxes,” Ford said.
Recruitment agencies say the distinction between employment and self-employment does not match the reality of a modern labour market in which both businesses and individuals want flexibility.
Even some unions are wary. Mike Clancy, general secretary of Prospect, says the workers’ charter has “rightly” been left for further consultation because applying a direct employment model would not work in sectors such as television and film, where he represents self-employed workers.
Some lawyers also warn that any attempt to impose limits could simply lead unscrupulous employers to evade their obligations by including new clauses in contracts.
“People don’t work in ways that are easy to categorize,” said Jonathan Chamberlain of the Employment Lawyers Association. “If there are clear statutory rules … the actors in the system will manipulate them.”