Employment Rights Bill

Lord Goddard of Stockport Excerpts

Committee stage
Wednesday 21st May 2025 Lords Chamber

[Lord Goddard of Stockport (LD)]

My Lords, there are two things that I can safely say. One is that I am unanimous in my comments tonight, and the other is that you cannot accuse the Liberal Democrats of extending the debate past a reasonable hour; we have done just over an hour on this debate. The debate has been quite sensible and both sides have ventured into the usual jousting, but the comments from the noble Baroness who just spoke were a bit disingenuous in saying, or intimating, that the real reason behind this measure is to increase union membership and generate money for the Labour Party. That could not be farther from the truth of what this Government are trying to do, whichever way you look at the Bill.

[Baroness Coffey (Con)]

Has the noble Lord read the later parts of the Bill that specifically say that? In the human rights assessment, there is a qualified comment from the Government that, basically, cites in particular the element about postponing any refunds until January. That is exactly what part of the Bill is designed to do.

[Lord Goddard of Stockport (LD)]

I will reply to that. Yes, it is a technical question, and perhaps that wording sits there, but any person with an ounce of common sense who sees the Bill can see what the Government are trying to do. I do not think that the Bill, with over 300 amendments to it, is geared to do what the noble Baroness is intimating. That is cheap political point-scoring, and I think it is beneath her.

I have carefully considered the amendments put forward by noble Lords in this group, particularly those seeking to remove Clause 23 and Schedule 3, including Amendments 23 and 334 from the noble Lord, Lord Vaux, the series of amendments from the noble Baroness, Lady Neville-Rolfe, and others relating to probationary periods, including Amendments 105 to 112. While I am not persuaded by those amendments or the case for removing the provisions or fundamentally changing the Bill, I recognise the need for greater clarity on probationary periods. Given the Bill’s current drafting, which relies heavily on future regulation, it is essential that the Government provide clear and firm guidance on how the provisions will operate in practice, especially for small businesses, which will find ambiguity challenging in difficult times.

Amendment 107A from the noble Lord, Lord Lucas, which proposes a default initial employment period but would allow the Secretary of State flexibility to amend that through regulation, offers a balanced concept that could be helpful in providing certainty while retaining adaptability. Likewise, Amendment 334 from the noble Lord, Lord Vaux, which calls for a retention of the current qualifying period until suitable regulations are in place, reflects concerns about the smooth transition, and that deserves attention. However, I am less convinced by the calls for further impact assessments or reviews of the proposals in Amendments 103 and 123, which I believe risk delaying the necessary reforms without providing clarity.

In light of those amendments, I urge the Government to seize this opportunity to give definition and definite practical guidance on the provisions that the Bill will implement. It would be better if the Minister could say in absolute terms the length of time for which probationary periods will be set in future regulation after the passage of the Bill. That would be particularly important for smaller employers that need certainty to comply. Providing that clarity would help to ensure that the reform worked as intended, and it would help to strike the right balance between protecting employees’ rights and allowing employers the flexibility to manage probationary employments effectively. On that basis, I look forward to the Minister’s response.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank the noble Lord, Lord Vaux of Harrowden, and my noble friends Lady Neville-Rolfe and Lord Lucas for their amendments and their thoughtful contributions in this group. It has been a most interesting debate. I will speak to my Amendments 103, 113 and 123.

I completely agree with the noble Lord, Lord Vaux, that it would be much better to get this right now rather than pursuing Amendment 103 in particular, which returns to the Government’s insufficient impact assessment. The assessment that has been produced states that this provision will have one of the highest impacts, yet, as we have mentioned before, the Regulatory Policy Committee has given the Government’s analysis in this section a red rating. The RPC’s critique is not a matter of minor technicalities because it identifies serious deficiencies in the Government’s case for intervention in the options that they have considered and in the justification for the policy that they propose. The Government’s impact assessment admits that it lacks robust data on dismissal rates for employees with under two years’ service. To answer the question from the noble Lord, Lord Vaux, there is no evidence for that. It proceeds regardless, however, with only superficial reference to “asymmetric information” and without any substantive analysis of any market failure.

The RPC highlights the impact assessment’s failure to consider how long-serving employees might view the equalisation of rights for new joiners—an issue of fairness and workplace cohesion that the Government have ignored. The impact assessment itself mentions that options such as reducing the qualifying period to 18 months or one year were considered and rejected without detailed assessment. No real exploration of probation periods was provided. That is not a balanced appraisal of possible alternatives; it is a justification for a predetermined decision.

On the justification of the preferred option, the impact assessment is again found lacking. The RPC calls for clarity on the costs to businesses—the costs of managing performance, handling disputes and the increased settlements to avoid tribunal risks. It also questions whether the Government have considered evidence from existing unfair dismissal claims and how risks might vary across sectors or job types, particularly in roles where reputational damage from a claim might deter employers from hiring at all.

More significantly, the Government have not addressed indirect and dynamic labour impacts, such as whether day-one rights might lead to more cautious hiring, greater use of temporary contracts or weaker overall job security. These are not abstract concerns as they go to the heart of how this policy might reshape employment relationships across the country. Noble Lords might be interested in a real example. I was talking this morning to a senior executive at a FTSE 100 company. It is an exemplary employer in every way; for example, offering many day-one rights. But this year—partly as a result of the jobs tax but also in anticipation of the Bill—it has reduced its hiring by 84%. I repeat that for the record: 84%. This is not abstract or theoretical. This is real, this is now.

It is important to note that these likely labour market impacts are not accounted for in the £5 billion cost to businesses, so the real cost is likely to be significantly higher. The result is a policy with high ambition but little practical clarity, as the noble Lord, Lord Goddard, has just noted. How will unfair dismissal rights interact with a statutory probationary period? Will employers still have access to the same set of fair reasons for dismissal? Will there be a different threshold for acting reasonably during probation? Can probation be extended if needed? None of those questions has been clearly answered.

The noble Lord, Lord Leong, reminded us of the light-touch, nine-month proposal, but what does that mean in practice? My noble friend Lady Meyer asked that. At the same time, the Government’s own analysis predicts that granting day-one rights for unfair dismissal alone will result in a 15% increase in employment tribunal claims. Using the statistics given by the noble Lord, Lord Barber, that is an additional 750 claims per year, on top of the 50,000 backlog already waiting 18 months to two years. The noble Lord argued that this is, in effect, a statistical irrelevance, but it is not to the 750 business owners who are being dragged through courts. That is a substantial impact. It represents direct costs to businesses in terms of time, legal risk and, of course, the chilling effect on recruitment.

The tribunal system itself needs to be looked at. Without significant new investment it is hard to see how the system will cope with this 15% increase. The result could be longer delays, greater costs and justice deferred for all parties. In an earlier group we heard about a case that is going to take more than two years to come before a tribunal. Yet the Government intend to bring these changes into force in 2026. On what basis? There is nothing in the impact assessment that explains why 2026 has been chosen or how the system will be ready by then. Businesses will need time to revise contracts, restructure probation processes and train managers on the new rules. What assessment has been made of whether 2026 is realistic, with all those things in mind? What engagement has been carried out with employers, particularly SMEs, about what implementation will require?

It is not unreasonable to ask the Government to explain how the timeline was determined and whether it is genuinely achievable, given the lack of clarity in both the policy detail and the supporting evidence. We all agree that employees deserve fair treatment, particularly in the vulnerable early stages of employment, but employers must also have a reasonable opportunity to assess performance, capability and suitability without the immediate threat of litigation.

We have established that there is no evidence for any of this clause. In fact, when the noble Lord, Lord Hendy, was arguing his point, he said that it is very difficult anyway for employees to take a case to an employment tribunal. The noble Lord, Lord Barber, as I just mentioned, said it is, in effect, a statistical irrelevance. If there is no evidence, it is too difficult and it is a statistical irrelevance, why are we bothering at all?

I want to raise a final point that others, particularly my noble friends Lady Neville-Rolfe and Lady Noakes, have referred to. It is not just about the policy itself; it is a more troubling concern. The policy will create unintended incentives, but for whom? It is not just about employers scaling back hiring overall but about who they stop hiring. If we remove the qualifying period for unfair dismissal and provide no workable probationary mechanism, we tilt the hiring incentives away from risk-taking, as we have heard. It will, in effect, stop employers taking a punt.

Right now, a small business owner might be willing to take that chance on someone with no formal qualifications, or from a non-traditional background, or re-entering the workforce after a time away. That chance exists because the employer has a short window to assess their suitability—and vice versa, of course—before facing the full weight of employment litigation risk. If that safety net is removed and exposure begins from day one and the probationary period lacks clarity or legal protection, that same employer will think twice. They will play it safe.

Noble Lords opposite should pay attention to those of us who have employed people. It is a simple fact. Who is going to suffer? It is not the already advantaged candidate with a polished CV. It is the young person with gaps in education, the career switcher with no references, the working parent returning after years out of the labour market, or the person coming back to work after a long period of illness. Noble Lords opposite should reread the speech given by my noble friend Lord Elliott, with his experience of the Jobs Foundation. He explained this much more eloquently than I just have. Those are the people who benefit from flexibility and second chances and who may now find those doors quietly closed.

This goes to the heart of social mobility and genuine workplace diversity. I would like to ask the Government a rhetorical question: have they considered the incentives this policy creates? If they have not—both common-sense experience of real working life in the private sector and, indeed, the RPC suggest that they have not—we risk designing a policy that sounds progressive but, in practice, reduces opportunity for the very groups that we should be helping the most. We need a decent impact assessment, and my amendment would allow for it.

--- Later in debate ---

This Employment Rights Bill is an important update to employment law. Employees need employers to create jobs, so this Bill needs to find that difficult balance in protecting employees and giving them job security, protection of conditions and decent wages, while employers need to feel that, when things are not working perhaps for different reasons and circumstances, there is a fair and reasonable process to follow for both parties to either change or end a contract.

[Lord Goddard of Stockport (LD)]

My Lords, I wish to speak in support of the amendments put forward by my noble friend Lord Fox, who is unfortunately away today, on NATO business I believe. Tomorrow, no doubt, he will pore over today’s Hansard. I hope that the noble Lord, Lord Hunt of Wirral, will be available then. I cannot unsee the picture of him in a four-poster bed with the trade union man climbing aboard, and will have to try to explain down the telephone to my noble friend Lord Fox, “It was quite humorous”. We will see what happens with that tomorrow.

My noble friend Lord Fox’s concerns include his Amendments 116 and 121, which offer much-needed clarity and balance to the protections around contract variations and unfair dismissals. The issue of predatory fire and rehire, as seen in the widely condemned P&O Ferries case highlighted by the noble Lord, Lord de Clifford, is an unacceptable, serious and pressing concern that employment legislation rightly needs to address now. No worker should be threatened with dismissal simply to impose worse terms and conditions on that person.

My noble friend Lord Fox’s proposals to exclude routine non-detrimental contract changes from triggering automatic unfair dismissal protections, as in Amendment 116, and to safeguard reasonable flexibility clauses expressly agreed in contracts, as in Amendment 121, would help ensure that protection against abuse is balanced with the practical realities that employees face. His further clarification in Amendments 117 and 122—that dismissals linked to redundancy with offers of suitable alternative employment and the lawful use of fixed-term contracts should not be unfairly restricted—rightly recognise that not all contract variations are harmful and that employees must be able to operate flexibly and fairly.

The amendments in the name of the noble Lord, Lord Sharpe, would facilitate contractual changes for financial organisations or workforce-related reasons. Although the intention is understandable, it is crucial that the Government provide clear guidance to ensure fair protection for workers, particularly those in smaller businesses. The approach to seasonal and variable-hour workers also requires careful consideration to safeguard their rights. We will return to that in a later group.

These amendments collectively illustrate the careful line that the Government must tread. Although it is crucial to clamp down on unfair and predatory fire-and-rehire tactics, as addressed by my noble friend Lord Fox’s amendments, we must equally recognise the legitimate need for flexibility and contract review in a changing economic landscape. I commend my noble friend’s amendments for their clarity and fairness in this regard, and encourage the Government to consider how best to incorporate these protections. At the same time, I urge the Committee to approach other proposed changes—as in Amendments 115 and 115A, which seek to clarify reasonable adjustments and productivity improvements—with a measured and practical mindset, to support both workers’ rights and sustainable business operations. I look forward to the Minister’s comments.

[Lord Leong (Lab)]

My Lords, I thank all noble Lords who have spoken in this debate. This Government are absolutely clear that the use of unscrupulous fire-and-rehire practices must end. Employers should not be able to impose contract changes through threats of dismissal, except in the most limited and justified circumstances. We recognise that, at times, businesses may need to restructure to survive and protect jobs. The legislation accounts for such cases where there is genuinely no alternative and a business faces immediate financial difficulty. Fire and rehire may be used, but only following a proper good-faith process, grounded in open dialogue and mutual understanding.

Let me begin by addressing Amendments 113ZA, 113B and 118 from the noble Lords, Lord Sharpe and Lord Hunt, Amendment 115 from the noble Lord, Lord de Clifford, and Amendment 116, spoken to by the noble Lord, Lord Goddard, on behalf of the noble Lord, Lord Fox. These amendments aim to exclude certain types of contract variations from the clause, such as those relating to terms other than pay, benefits, hours or location, or to allow changes made for good or operational reasons. When a change in contract is essential and the employee will otherwise become redundant—for example, due to a move in location—or where the changes are necessary to reflect a change in the law, the employer will still be able to explain to the employee when proposing these changes. However, such changes should always be a result of meaningful consultation. Employers and employees must reach mutual agreement, allowing both sides to understand and assess the impact of the proposed changes. Open dialogue is key.

I turn to Amendment 114 from the noble Lord, Lord Sharpe, and Amendment 115. These propose broadening the permitted use of “fire and rehire” to include changes that are reasonably necessary to improve workforce productivity. The Bill is the first phase of delivering our plan to make work pay. We are supporting employers, workers and unions to get Britain moving forward. Alongside this and a new industrial strategy, the Bill will support the Government’s mission to increase productivity and create the right conditions for long-term, sustainable, inclusive and secure economic growth.

The Government do not support these amendments. We believe this practice should be allowed only where an employer faces no reasonable alternative and is under imminent financial threat. The noble Lord, Lord Hunt, mentioned what happens if a company is facing insolvency. I am sure most noble Lords know that insolvency does not come straight away. There is a whole process, and it is during this that consultation should happen between the employer and employee. When it comes to the last resort, when until and unless something happens the company is going to go belly-up, there may be a practice of “fire and rehire”, but before that, there should be consultation along the way.

These amendments would significantly widen the exemption and make it necessary for employers to use “fire and rehire”. That is not our intention. While businesses can still agree changes to boost productivity, such changes must come through proper negotiation, not coercion, as I just mentioned.

I now turn to Amendment 119, also from the noble Lord, Lord Sharpe, which proposes allowing “fire and rehire” if the changes are reasonable and supported by a majority of affected employees. This issue here is subjective. What is reasonable for one employee may be deeply unreasonable for another. Our goal is to protect individual rights. Clause 26 is designed to reduce the use of “fire and rehire” as a means to push through significant changes without individual consent.

I will address Amendments 117 and 122 from the noble Lord, Lord Fox, and Amendment 120 from the noble Lord, Lord Sharpe. They focus on whether dismissals for redundancy or the end of a fixed-term contract should be considered automatically unfair under Clause 26. The Government’s position is that, where a role is no longer viable under current terms, employers should follow due process, including meaningful consultation to seek agreement to vary contracts. If employees do not agree, and if the employer no longer requires the work to be done, redundancy may still be appropriate. In such cases, redundancy procedures must be followed, including consideration of alternative roles. Where the principal reason for a dismissal is redundancy, the dismissal will not be automatically unfair under Clause 26.

Now I turn to Amendment 121 from the noble Lord, Lord Fox, which concerns variation clauses in employment contracts. I wish to reassure the House that existing case law already governs the enforceability of such clauses. This clause applies only where there has been a dismissal, and so would not apply where a lawful variation clause has been lawfully exercised. Courts and tribunals will not uphold variation clauses if they are oppressive and exercised unreasonably. This amendment is therefore unnecessary as a legal protection already exists.

I now turn to Amendments 120A and 120B, which relate to the factors a tribunal should consider when assessing the fairness of a dismissal under the clause exemption. It is appropriate that tribunals should consider where the employer offered the employee something in exchange for agreed-to changes. Fair contract variation should be built on dialogue, not pressure. It is right that the Secretary of State should have the power to specify additional relevant factors for tribunals to consider in future. These regulations would be subject to affirmative resolution procedure, ensuring full parliamentary scrutiny.

Finally, Amendment 113 from the noble Lord, Lucas, seeks to limit the clause to only substantial contract changes. We reject that. Even minor-seeming changes can have major consequences for individual employees. Individuals must be allowed to consider proposed changes without facing dismissal threats. That principle underpins the clause.

Employment Rights Bill

Lord Goddard of Stockport Excerpts

Committee stage
Tuesday 29th April 2025 Lords Chamber

Bad employers will be bad regardless of what the Government bring in because they will find ways of circumventing the legislation that is being introduced here. There needs to be more thinking around what we want to see as greater flexibility. I firmly believe in flexible working, but I believe that should be a contract between the employer and the employee; it should not be for government to mandate what needs to be done.

[Lord Goddard of Stockport (LD)]

My Lords, I will speak to my Amendment 7 in this group, as well as my Amendment 15. I also apologise for not being able to speak at Second Reading. I am walking somewhat of a tightrope this evening. For 15 years, I was a senior shop steward for the GMB as a national negotiator. I also have my own company with 20 employees. I do not think that I will be able to cope with the ramifications of some of this legislation. Also, I have some guests up in the Public Gallery: they are small business men who employ people. Dinner could get quite difficult if I say the wrong thing in the next 10 minutes, which I hope I will not do.

My first amendment would set the initial reference period for the right to guaranteed hours to 26 weeks, to give flexibility to industries that rely on a seasonal basis for operating and employing people. It would also give greater flexibility to the labour market itself. When Members see this amendment, they automatically think of seasonal workers as fruit and veg pickers harvesting crops, but nothing could be further from the truth. Work has changed. We are now essentially a service-led economy, with no more enormous factories employing thousands of workers every day, producing goods to export across the globe, clocking in and clocking out, as I did back in the 1970s. Flexibility is the key, and work/life balance for many is crucial. The days of the nine to five are well and truly over, in my opinion, especially for small businesses. That flexibility is not only for the agricultural industries but for tourism, retail, hospitality and events—things that bind our country together.

We welcome this Bill. One could argue that it is 30 years too late; that was probably the time when unions were most under attack, when our beloved Margaret was in charge. Perhaps that was when people should have risen up, but we are where we are. However, the Bill should be proportional and reasonable; those are the two things that we would wish to persuade the Government to embrace, through not only some of our amendments but those of other parties. Reasonableness and proportionality are what we are proposing. We will support the Bill, but its architects must accept that the labour market has evolved. Flexibility for workers and protecting workers’ rights go hand in hand.

I will now speak to my Amendment 15. Other amendments in this group have rightly raised challenges regarding the right to be offered guaranteed hours. My Amendment 15 strikes a necessary balance between protecting workers and allowing flexibility for genuine short-term employment situations. This amendment would not undermine the main principles of the Government’s legislation. Instead, it would make a reasonable accommodation for short-term contracts while maintaining safeguards through proper disclosure requirements and strict time limits.

For seasonal workers, this amendment offers significant advantages. It would increase their employability, as businesses could confidently offer work during peak periods without complicated hour guarantees that extend beyond the season. Many seasonal workers prefer concentrated work periods with higher hours, allowing them to earn more money during these limited timeframes. Additionally, this flexibility would enable workers in industries such as tourism, agriculture and entertainment to secure multiple seasonal positions throughout the year, improving their overall financial stability. Many industries in our economy, including agriculture and education, are connected to seasonal events. We need this practical provision.

I urge the Minister to consider this amendment, or at the very least be cognisant of the challenges these seasonally dependent sectors face. If this legislation is designed correctly, we can arrive at a set of provisions that will protect workers while acknowledging the realities of our diverse job markets.

Finally, my noble friend Lord Fox and I met Amazon a couple of weeks ago in Portcullis House. Amazon employs 75,000 people in the UK and is not unionised. It has evolved its own democratic in-house solutions. I am not commenting on that, but it shows that, sometimes, legislation is not the only way to protect people at work, guarantee earnings and pay reasonable rates. That is the kind of bigger picture thinking that this Bill is missing.

[Lord Barber of Ainsdale (Lab)]

My Lords, this group of amendments deals with the hugely important issue of zero-hours and short-hours contracts. As the noble Baroness, Lady Lawlor, said, well over a million people in the UK work on zero-hours contracts. In sectors such as retail, it is also common for workers to have a small number of guaranteed hours but to work the equivalent of full-time hours.

These arrangements are not a win-win for worker and employer. More than eight in 10 zero-hours workers want regular hours of work. Without guaranteed hours, workers do not know whether they will be able to pay their bills or organise their caring responsibilities. The flexibility is invariably on the employer’s side. Research has shown that more than half of zero-hours contract workers have had shifts cancelled at less than 24 hours’ notice. Many experience being sent home mid shift and very few are compensated. The vast majority of those who ask for guaranteed hours are turned down, so I fear a right to request would not resolve that issue.

There is also significant evidence that employers do not use zero-hours contracts just as stopgaps but will often park workers in these insecure arrangements long term. Two-thirds of zero-hours contract workers have been with their employer for more than a year, and one in eight for more than a decade.

As well as causing financial uncertainty and disrupting workers’ private lives, this distorts workplace relations, with workers fearful of challenging inappropriate conduct in case it leads to them losing their work. Recent accounts of poor behaviour at McDonald’s branches, where zero-hours contracts are prevalent, included a 17 year-old reporting that she had been asked for sex in return for shifts. Also, when employers rely on zero-hours contracts, what incentive do they have to invest in skills? The answer is: little or none, with predictable consequences for productivity.

The Bill implements measures first developed by the Low Pay Commission, with the support of both trade union and employer-side representatives. An employer will have to offer a contract based on a worker’s normal hours of work in line with a 12-week reference period. That gives a clear indication of a worker’s usual hours while evening out peaks and troughs. Any period longer than that, such as 26 weeks, would simply allow employers to park workers on a zero-hours contract for a prolonged period.

The Bill contains powers for Ministers to specify the notice period for shifts that employers must give to workers and compensation for cancelled shifts, and these are an essential part of the package. Currently, workers on variable-hours contracts bear all the risk of any changes in demand, and they are usually low-paid workers who can ill afford the sudden changes to income.

In the House of Commons, the Bill was amended to ensure that those rights also apply to agency workers. That is crucial in order to close the loophole that could have led to employers hiring zero-hour staff by agencies and entirely subverting the intent of the legislation. I know the TUC would strongly oppose any amendment that would exempt agency workers or fixed-term contract workers on variable-hours contracts from these provisions.

Employers will still be able to put in place arrangements for coping with fluctuations in seasonal work—for instance, via fixed-term contracts. What will change is that workers will not bear alone the burden, in reduced wages, of sudden changes in demand. The current situation allows manifest injustices to take place. It is time that we level up the labour market.