Next phase of workers rights overhaul risks hammering ‘labour market’

The latest phase of the government’s workers rights overhaul may have “an adverse impact on the labour market”, experts have warned, as businesses deal with the costly implications of taking on new staff.

Taking effect on Friday, the next stage of the overhaul comes as part of the government’s sweeping employment reforms in its landmark Employment Rights Act (ERA), bringing tighter workplace protections for employees.

Businesses are set to be required legally grant trade unions greater access, be directly liable for staff harassment from third parties, such as clients or customers, as well as being required to take all the reasonable steps set out in the law to prevent against sexual harassment.

The new laws are due to be rolled out over the next two years, which have so far already reduced the qualifying period for unfair dismissal to six months, removed the compensation cap, and strengthened trade union rights.

However, Tania Goodman, partner and head of employment at Collyer Bristow, told City AM that although the laws “may be well-meaning”, they could negatively impact the labour market as employing staff could become more expensive and complex.

“Laws designed to enhance workers’ entitlements may be well-meaning, but if employing staff is perceived as becoming more costly, complex or uncertain, there is a risk this will have an adverse impact on the labour market,” Goodman said.

Goodman said employers are starting to “assess the implications of forthcoming reforms, including the move towards unfair dismissal protection arising at a much earlier stage of employment.”

She added: “As a result, some are reviewing their current workforce and future staffing requirements.

“The challenge for Government is ensuring that measures intended to support workers do not inadvertently discourage hiring or investment,” Goodman added. “The real test will be whether it can strike the right balance between supporting employees and maintaining the confidence employers need to invest, recruit and grow the economy.”

As of 30 October, independent trade unions will given new legal rights to be able to access workplaces both physically or digitally to support, meet, and recruit workers.

Richard Harvey, partner at Fisher Phillips, said businesses “should get their procedures in order now, including deciding who handles requests, how workplace access would operate and how confidentiality and data protection will be protected”.

“But they should also look at the underlying relationship with their workforce. Employers who communicate openly and deal with concerns early will be better placed to navigate these changes than those who only start thinking about employee relations when a union comes knocking,” Harvey added.

OBR warns reforms may have ‘negative impact’ on economy

Britain’s fiscal watchdog, the Office for Budget Responsibility (OBR), said the changes are expected to hit growth in the economy as the cost to businesses will outstrip any boost to workers’ productivity.

In its economic and fiscal outlook, which was published alongside the Budget on 28 October, the OBR said Labour’s workers rights overhaul “will likely have a negative economic impact from negative impacts on businesses.”

Commenting on the OBR’s assessment, employment and recruitment body, the Recruitment and Employment Confederation (REC), said this comes as a “fresh blow to UK growth.”

“The verdict from the Office for Budget Responsibility (OBR) is in, and it is clear they think NIC increases and the Employment Rights Act (ERA) changes are bad for jobs and bad for the economy,” Shazia Ejaz, director of campaigns at the REC, said.

Ejaz said the OBR’s analysis “adds weight to concerns that employers are being asked to shoulder too many additional costs at once.”

“The government must listen and change tack on taxation and workers’ rights, to create better conditions for getting more people into work and delivering on their growth promise,” Ejaz added.