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According to one account, Britain’s labour market is a Dickensian den of exploitation that will be dragged into the 21st century by the Labour government’s new Employment Rights Act. According to another, it is a modern flexible economy set to be dragged back to the 1970s by the same set of rights. Amid this sort of rhetoric on both sides, you could be forgiven for losing track of the details of Britain’s bumper new bill, which passed into law last week. But the details are what will matter in the end. So what’s the good, the bad and the ugly in this package?
First, a bit of context. In spite of what both the government and its critics would have you believe, the ERA is not an upheaval on the same scale as the deregulation of the 1980s, nor the rights upgrades of the late 1990s and early 2000s under Tony Blair’s government. James Davies, a very experienced lawyer who co-founded the employment practice at law firm Lewis Silkin in 1992, told me there were so many new laws in the Blair years that “employment lawyers and businesses were saying, ‘Hang on, we can’t cope!’” In contrast, he views the ERA as “a modification rather than a dramatic shift”.
In my view, the best elements of the package are those that seek to improve low-paid, insecure work. As someone who has reported on conditions at the bottom of Britain’s labour market for more than a decade, it is striking how far removed it is from the experience of working life for middle-class professionals.
Take sick pay, for example, where many better-paid workers take it as given that their employers will continue to pay their full salary when they are sick for a few days. Workers reliant on statutory sick pay, in contrast, receive no pay at all for the first three days of illness. This is one of the most meagre sick-pay regimes in the OECD, and the ERA rightly improves upon it, so workers will get SSP from the first day of illness (but still at a much lower rate than in European countries such as Germany and Sweden).
This is also better for public health. The UK’s threadbare sick-pay rules had to be temporarily improved in the pandemic because it was obvious — even to the Conservative government — that they encouraged people to go to work when unwell. One official study found care homes that offered their staff sick pay were less likely to have Covid-19 cases than those that didn’t.
In contrast to this incremental improvement which brings the UK somewhat closer to European norms, a last-minute decision to remove the cap on compensation for unfair dismissal (currently set at 52 weeks’ gross pay or £118,223, whichever is lower) makes the UK a real outlier internationally. Caps are the norm in most countries, including those with strong employment protections such as France and Spain. Jonathan Chamberlain, an employment lawyer at Gowling WLG, told me that few compensation awards for ordinary workers “bump up against the cap” anyway.
“If you lift the cap the primary beneficiaries will be highly paid executives, and in particular those who have discretionary remuneration, or equity-based incentives which require them to be in post a certain number of years later,” he said. On top of that, the employment tribunal system is already overloaded, with cases taking years to be heard. “Shove a whole load of well-funded senior executives into this and the position is going to get even worse, and justice will be delayed for people who really need it,” Chamberlain said.
But the ugly thing about the new law — the aspect that worries me most — is the timing. Whenever you increase employment protections, the risk is that “insiders” who already have jobs benefit while “outsiders” such as young jobseekers suffer. In an ideal world, therefore, you would upgrade employment rights at a time of buoyant growth and rising demand for workers. Absent that, you would at least try to offer employers a quid pro quo: yes, we’re adding to the complexity of employing people, but we’re simultaneously cutting employment taxes, for example.
In the UK, though, employment taxes have gone up, youth unemployment is already at double digits and — in a real own goal — the government has just made hiring young people even less attractive by deciding it will raise the minimum wage for 18- to 20-year-olds by 8.5 per cent.
Britain’s new reforms, although a mixed bag, will make some good and necessary improvements for those on the labour market’s bottom rungs. But for those who haven’t managed to climb on the ladder at all yet, I’m afraid the timing could hardly be worse.