Earlier this week (17 December), a wealth of employer bodies raised concerns about elements of the Employment Rights Bill during a House of Commons select committee evidence session.
Experts from the Confederation of British Industry (CBI), British Chambers of Commerce (BCC), and the CIPD, among others, highlighted the cumulative impact of the 28 proposed reforms.
MPs heard that the bill, coupled with other recent changes such as the rise in national insurance, has the potential to drive up costs and complexity for businesses and increase legal risks. This is particularly worrying for small and medium-sized enterprises (SMEs), which may lack resources to navigate these changes.
There is a lot in the bill that represents what good businesses are doing already, Jane Gratton, deputy director for policy at the BCC, told MPs. However, she said there are areas where members had voiced concerns.
She highlighted the changes that will give trade unions more access to workplaces and lower ballot thresholds for industrial action, which she said would make it easier and quicker for unions to call strike action. The bill outlines a trigger threshold of between 10 percent and 2 percent.
Gratton said: “[That] does not mean that the union is representative of the workforce, and does not improve the relationship with employers. From our members’ point of view, it simply makes it easier to reach an end point that nobody wants.”
Matthew Percival, future of work director at CBI, emphasised that the “significant change” in this area of the bill is the removal of a requirement for a sufficient level of support in the result of the ballot. “There is a risk that it could, in the extreme, become a simple majority vote in which hardly anyone votes in a large workforce but it leads to recognition.”
Percival said CBI members, like those of the BCC, supported a number of the measures in the bill, but said he also had further concerns.
For example, he highlighted the regulation of zero-hours contracts, which he said “has less to do with zero-hours contracts and more to do with the issue of guaranteed hours within contracts—it is low-hours contracts as well.”
Percival flagged changes to statutory sick pay (SSP) that would mean employers start paying it from the first day of an employee’s sickness. Currently, employees are not paid for the first three days they are off sick, while close to two million workers receive no sick pay because they earn below the earnings threshold of £123 per week with their employer.
Cost of demonstrating compliance
Changes to probation periods, which come under the introduction of day one protections against unfair dismissal, were another area highlighted in front of the committee.
CBI’s Percival said employers were worried “more about the tribunal risk than the sorts of processes that employers might put in place,” adding: “It is the cost of demonstrating compliance, rather than having a good process, that is more of a concern.
In the bill’s ‘fire and rehire’ proposals, he pointed out there is a risk that it might make it easier to make people redundant than to change contracts, adding, “so we might go too far and not find that landing zone where it is a last resort short of redundancy”.
Alex Hall-Chen, principal policy adviser, sustainability, skills, and employment at Institute of Directors, said: “Taken as a whole, the measures make hiring someone riskier and more expensive for businesses. Our research shows that businesses will hire fewer people as a result. “
IOD polled more than 700 business leaders on this topic in August and 57% said that the reforms would make them less likely to hire.
Hall-Chen added: “I would say that the situation has actually worsened since then, given recent announcements around employers’ national insurance contributions, so the cumulative impact cannot be overstated. “For the first time since October 2020 our data is now showing that more business leaders expect to reduce their headcount in the coming year than increase it. The bill is a key reason for that change.”
Asked for his assessment of the bill’s impact on job numbers, Percival said: “It is very difficult to put a number to it, because there are so many unanswered questions in areas where details are intended to be put into the bill at a later stage.”
Gratton said BCC members were concerned about increased cost, complexity and lack of flexibility to manage the workforce in the way that a business needs to.
“Members say that there would be a reduced hiring appetite were this legislation to come in, and that they would be less likely to recruit new employees due to the risk and difficulty, particularly under the day one rights, unless there were at least a nine-month probation period with a light-touch approach.”
She added that employers would show a preference for contractors and temporary staff to reduce the risk and avoid legal complications.
“To give some figures, 38 percent said that there would be a hiring freeze, 25 percent said that the bill would result in less pay, and 30 percent spoke of less investment in their business. There would be significant risks and costs, particularly to small and medium-sized enterprises.”
She reiterated that employers know that a happy and engaged workforce is more productive, so it is in their interest to make sure that they look after their workforces. “Most businesses are good, caring employers,” she said.
“The worry with the legislation is that in trying to address bad behaviour by a tiny minority of businesses—of bad actors—the cumulative impact and cost of all this will have a negative impact on the majority of very good businesses. Again, it comes down to the proportionality.”
Rise in tribunal applications
Commenting on the direct impact for HR, Ben Willmott, head of public policy at the CIPD, said: “We know that there will be a likely increase in the number of tribunal applications, which our members will have to respond to. That has not just potential compensation costs; there are HR and management costs to responding to tribunal claims, even those that do not actually make it to tribunal in the end and those that do not have any merit. Without a doubt, there will be a significant impact on workload.”
Willmott added that this increase in work for HR means that employers will not have the time to invest in addressing the skills gap, upskilling staff and supporting technology adoption.
He said: “That is the other challenge, which may undermine the other productive activities that you want HR and people management specialists to engage in. So phasing these measures and really thinking about how they will be implementable is really important.”
With the huge changes ahead, the consensus was that government consultation with employers would be critical to ensuring the best outcome for the UK economy.
