How Labour's 'Plan to Make Work Pay' Could Impact Tribunal Litigation and Termination Practices

The starting gun for the General Election has now been fired, with voters set to go to the polls on 4 July 2024. The Labour Party is currently the clear bookmakers’ favourite to form the next Government and, whilst it is yet to release its manifesto at the time of writing, it has published its “Plan to Make Work Pay” (referred to here for ease as the “Plan”). The Plan is a set of proposals for employment law reform which supersedes and refines the party’s previous proposals contained in its Green Paper, “A New Deal for Working People”.

The proposed reforms, which the Labour Party has said will be the subject of legislation introduced within 100 days of assuming power (and subject to consultation with businesses and workers), aim to address a broad spectrum of employment rights and concepts, from zero hours contracts to “the right to disconnect”, with the overarching goal of providing greater stability and protections to UK workers.

There is much that employers will need to consider should these proposals make their way from paper to the statute book; however, in this article we will specifically consider the potential cumulative effect that some of these proposals will have on the volume and nature of Employment Tribunal litigation, and how employers may have to reevaluate their approach to dismissals in the context of a broader range of protections being available to a larger swathe of their workforces.

There are a number of proposals within the previous Green Paper that the Plan does not address. These include the removal of the statutory cap on compensation for unfair dismissal. We assume that, unless expressly addressed in the Plan, Labour’s previous proposals remain on the table, and we expect further clarity once the party’s manifesto has been launched.

The specific proposals from the Plan considered in this article are:

1. the effective combination of ‘employee’ and ‘worker’ employment statuses into a single ‘worker’ status;
2. the conferral of unfair dismissal protections on all those who fall under the new ‘worker’ status as a ‘day one’ right; and
3. the extension of the time limits to present most claims in the Employment Tribunal from three months to six months.

Combining ‘worker’ and ‘employee’

A Labour Government would reevaluate the existing three-tier employment status system (which distinguishes between employees, workers and the genuinely self-employed), with the aim of creating a single ‘worker’ status that encapsulates all those currently classified as employees and workers. This would create a binary classification system, with individuals either being classified as a worker or self-employed. Workers would, we understand, have the full set of employment rights that employees currently benefit from (together with any further rights granted in new legislation passed under a Labour Government).

It is important to note that the Plan makes clear that this proposal is subject to detailed consultation; however, the level of detail provided on this proposal in the Plan suggests that we can expect to see at least some reform in this area under a Labour Government.

Whilst the UK Government’s labour market statistics do not distinguish between the number of workers and the number of employees currently in work across the UK, thereby making it difficult to provide a precise figure, one of the practical impacts of this reform would clearly be the creation of an employment status that encapsulates a significantly larger number of people than the current number of employees. Think, for example, of the number of Uber drivers (following the decision in Uber BV -v- Aslam) and other gig economy workers who would be included in this expanded classification and benefit from significantly enhanced statutory rights, including rights to maternity, paternity and other family-related leave and unfair dismissal rights.

Unfair dismissal as a ‘day one’ right

The Plan also includes a proposal for the expanded category of worker to acquire statutory protection from unfair dismissal as a ‘day one’ right. This means that, unlike the current regime where employees (not workers) only accrue unfair dismissal protection after two years’ continuous service with their employer, employers will need a ‘potentially fair’ reason for dismissal from the moment any worker joins the business, and then follow a fair procedure in effecting the dismissal.

Without exploring the merits of this proposal from a policy perspective (including the debate between stability and flexibility), it is a widely accepted fact that employers are able to dismiss those with less than two years’ service much more swiftly and easily than those with unfair dismissal protections. For example, a very common scenario is when a new hire is terminated within a year of joining a business on the basis that they don’t meet performance expectations and/or their employer simply considers they are not a ’good fit’ more generally. Under such circumstances, the dismissal can be lawfully effected within a day, if necessary, provided the reason is not otherwise unlawful (e.g. an act of discrimination contrary to the Equality Act). This is contrasted with the procedural requirements where an individual has statutory unfair dismissal protections, in which case a performance improvement process would most likely need to be completed before the dismissal can be ‘fairly’ confirmed; in some circumstances such processes can take upwards of six months. This is a stark contrast in flexibility and a significant change that employers will need to rapidly adapt to.

Whilst the Plan refers to ’probationary periods with fair and transparent rules and processes’, implying that workers within their probationary period may be lawfully dismissed by their employer without the need to first carry out a ‘fair’ process, no further detail has been provided at this stage and therefore the extent to which employers will be able to rely on probationary periods to circumvent potentially lengthy termination processes is unclear.

Compensation for unfair dismissal – removing the cap

One item which was covered in the Green Paper but is not referenced in the Plan is the proposal to remove the statutory cap on compensation for unfair dismissal. It is not clear whether the omission of this proposal from the Plan means that this idea has been abandoned; however, if enacted, this would create a further potential headache for employers who may otherwise use the statutory cap on compensation as a referencing point when assessing the risk of a potential termination and/or putting together proposals for a mutually agreed exit under a settlement agreement.

From an employer’s perspective, the practical effect of this proposal, particularly when considered together with an expanded ‘worker’ status, is that businesses’ approach to the hiring, management, and termination of new employees will have to be carefully re-evaluated to ensure legal compliance and avoid litigation. The careful use of probationary periods will be of particular importance for businesses wanting to retain a degree of flexibility in respect of newer hires, and the Labour Party’s further comments and clarification on this aspect of its proposals will be crucial when evaluating hiring and termination practices and contractual documentation.

Tribunal claims – extension of time limits

Nestled towards the back of the Plan is a proposal to increase the time limit within which employees can make a claim in the Employment Tribunal to six months from the current three months for most claims. This will mean that the time limits for all Employment Tribunal claims will be in line with the current six-month time limit for statutory redundancy and equal pay claims.

Taken together with the proposal to (i) expand the pool of individuals protected from unfair dismissal; and (ii) make unfair dismissal protections a ‘day one’ right, the extension of time limits may well have the (perhaps unintended) consequence of causing a sharp increase in the volume of Employment Tribunal litigation faced by employers.

Faced with more rigid procedural termination requirements, a larger pool of individuals with the ability to seek recourse against their employer by asserting statutory unfair dismissal protections in the Employment Tribunal, and a longer timeframe within which to do so, employers will need to adapt in order to retain flexibility over hiring and termination practices where possible, whilst also mitigating the risk of litigation.

Conclusion

As noted, probationary periods look set to become increasingly important. Employers and employee representative bodies alike will also be concerned about the impact of an increased volume of litigation on an already overworked Employment Tribunal system. Could Labour’s reforms cause even further delays to litigation timeframes and push parties further towards settlement and alternative dispute resolution as a default?

All eyes will be on the Labour Party’s manifesto for further details.