Employment Rights Bill (First sitting)

Steve Darling Excerpts

Committee stage
Tuesday 26th November 2024 Public Bill Committees

[Justin Madders]

Q Jane, you have said quite a lot in the past about the link between good employment protections and productivity, and the CBI has also said there is a case to be made for better security at work increasing productivity. Do you agree that the Bill has the potential to deliver on the idea that an increase in protections at work can help to increase productivity for employers?

Jane Gratton: Employers know that a happy and engaged workforce is more productive. It is in their interest to make sure that they look after their workforces, and most businesses are good, caring employers. 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. These are huge changes, and one concern is that they have been brought in at such pace—although we are very grateful to the Minister and the Department for the time they have been able to give us in terms of consultation—that there are things written into the Bill that our members do not feel they have had sufficient time to be consulted on, because of the pace of change.

I think we need further engagement on some of these key aspects, including the reference period for offering guaranteed hours and extending those things to agency workers. There is a lot of disquiet around how that would work, particularly for companies that offer seasonal work, such as Christmas and holiday periods. How does a 12-week reference period equate to that? It does not seem to work. It would be better to have a 26-week period, for example. There are a lot of things.

The other thing that has come up often is a real nervousness around removing all the waiting days for statutory sick pay. Again, employers are really on board with supporting people who have a long period of illness, but some of the feedback from members has been that it is the single day of sickness absenteeism that causes the most disruption and impact. Rather than its being day one, a lot of employers have said, “Could it be from day two? Can we pay from day two, so the Government meets us halfway?” The overwhelming response from businesses has been, “Can Government please minimise the additional cost of these regulations on all businesses, but particularly on small and medium-sized companies?”

Matthew Percival: Yes, there is a lot of confidence in the idea that employee engagement helps to boost productivity; that is why businesses make it a priority. I am not sure they believe that much in this Bill is going to increase productivity, though, because they are not convinced that much in this Bill is going to improve employee engagement.

To take a couple of practical examples, I already mentioned in the industrial relations space the importance of the recognition process, where there is a great deal of concern that, if you recognise a trade union that does not speak for much more than a tiny proportion of your workforce, and you elevate that voice ahead of the voice of the actual workforce, that is not going to boost employee engagement. Employers are happy to work with trade unions who are the representatives of their workforces, and it is right that they should do that, and it is right that, if there are any employers who will not do that voluntarily, there is a statutory process that can force them and bring them to the table. But in the same way that we have employment law not because every employer has negative intentions, but because there are a small minority who have the potential to abuse their power, it is also appropriate to regulate the actions of trade unions in the industrial relations space.

Another quick practical example within the zero-hours contract aspect of this regulation is that crafting the requirement for accessing guaranteed hours as something that employers need to be constantly calculating for all employees whenever they work beyond their fixed hours, and then making offers to people, some of whom would want to receive those offers and some of whom would not, seems to us the most administratively complex and costly way of delivering on the proposal. We think there could be two other constructions worthy of consideration.

One of those constructions could be a right to request framework, where there are good tests on when an employer needs to accept a request versus not, just as we have around flexible working currently. Or you could call it a right to have, if you like, but at the moment I have not seen a difference between a right to request that an employer has to accept other than in limited circumstances, and a right to have that you do not have the right to have if an employer meets the same test for limited circumstances. What really matters is not whether you call it a right to request or a right to have, but what the test is for when an employer accepts the request. That would minimise significantly the administrative burden, rather than calculating lots of offers for people who will not want to accept them.

A number of individual businesses have told us that, if the Bill is to go with the grain of the good practice that already exists within industry, they will monitor people’s hours where they already have mechanisms to do so, and there will be a trigger for a conversation between the individual and their line manager in the event that their hours regularly exceed the hours guaranteed in their contract. Those who have that policy in place tell us that, most often, that leads to no change in contract. The hours are picked up as extra hours, and the individual does not want to guarantee them in their contract. There will be occasions when the individual does change contract, but those businesses say that the majority of people in that situation do not want to change their contractual arrangements, so we are hoping to minimise the admin burden.

Alex Hall-Chen: I just want to emphasise that employers absolutely recognise the link between the two. That is why, in many cases, they are ahead of the legislation. A good example of that is flexible working: 90% of IOD members’ organisations already offer at least one form of flexible working to their employees.

The concern is about the scale of the changes and the costs associated with them. We know from the Government’s impact assessment that that may be as high as £5 billion a year, with the cost disproportionately falling on small and medium-sized enterprises. A frequent piece of feedback that we get from members is that they feel that the Government do not understand how difficult it is to run an SME at the moment and just how tight profit margins are. That is primarily where we are coming from. These changes are huge—to an extent, they are unprecedented—and will impact on those already very fine profit margins.

[Steve Darling (Torbay) (LD)]

Q I have a series of short questions. First, if the panellists were to put a stake in the ground on probationary periods, what timescale would you choose? What is a reasonable approach?

Jane Gratton: It is really important that there is a probationary period, and it should be at least nine months. Businesses ideally want a 12-month probationary period, not least because some individuals are required to undertake mandatory training, which takes 12 months or more. We could live with a nine-month probationary period.

The key thing is that there should be a light-touch approach during that period so that businesses are not discouraged from taking a risk on employees. Employers should not have to introduce very stringent performance monitoring from day one, which helps neither the employee nor the business. Having structure during the probation period is good, but businesses need to be able to end the relationship on the basis of ability or performance, as we do now. There should be no greater risk to an employer of an employment tribunal than there is currently during the probation period.

Matthew Percival: Typically, a business’s standard probation period is no longer than six months. However, that does not mean that it is appropriate to set in regulation a limit on probation periods of six months. That is important for us, because a common response of an employer who sees that an individual is not performing quite to the level that they would want to be able to confirm them in post is to say, “Okay, we have gone through our standard probationary period, but we are willing to continue to invest in you, offer you more support and training, and extend that probation period, rather than rush to a firm yes or no decision for confirming employment.”

It is important that the regulations do not prevent the employer good practice of being willing to extend someone’s probation and give them more time to adapt to work, particularly if we are thinking about the challenge of getting people back into work who have had a period out of work. That is a big public policy and economic priority at the moment. We are in the same camp: certainly no less than nine months, so that there is that extra time before an employer is forced to make a firm yes or no decision on confirming employment, but preferably 12 months.

Alex Hall-Chen: Similarly, the feedback we have had from members is that their probation periods tend to be between three and six months, but as the other panellists have said, given exemptions around training and the potential to extend probation periods, nine months would be the minimum and 12 months would be preferable. As to the specific process, the lighter-touch dismissal process is better. We have done research that suggests that even a light-touch dismissal process, as defined by Government at the moment, would not solve the issue. A third of our members said that it would not mitigate their concerns around this policy at all, and half said that it would only partially mitigate their concerns, so we remain worried about the impact that this policy will have.

[Steve Darling]

Q It has been said a number of times that this is almost a big bang approach around employment rights, where suddenly there are all these new rights appearing that people are having to deal with. What reflections might you have on a more staged approach to this, where it is implemented over a period of time so that employers are able to manage the new legislation?

Matthew Percival: If we were talking about staggering things, the way I would do it would be to start with areas where there is already cross-industry support and where workers, trade unions and businesses can already agree that there are areas where the Bill can be a helpful step in the right direction. To give a few examples, we have previously supported the idea that it is wrong that you should turn up for work expecting an eight-hour shift, be sent home after two hours and only be paid for two hours. There should be a right for compensation there. We have supported fixing that through legislation for years now. A Bill to bring that forward would be something we welcome and support.

We have previously supported removing the lower earnings limit within the statutory sick pay system. It feels like a hangover from when it was a publicly funded benefit rather than an employment right in a relationship between an employer and their employee. We have supported the extension around third-party harassment. We have supported what the previous Government were calling a single enforcement body and in this Bill is a fair work agency. Outside the Bill but within the wider “Make Work Pay” package, we have supported the introduction of mandatory ethnicity pay gap reporting and action plans to go alongside reports on gender pay gap reporting.

There are a number of areas where you can bring forward things in a way that can achieve consensus across social partners. But if we were staggering things, in a number of the other areas I would take more time to think how it actually will land. Beyond just staggering things, there are some aspects in the Bill—we have each touched on a number of them already so I will not repeat them—that feel like they are just a step in the wrong direction, and when the step in the wrong direction is made is less important than the direction of the step.

Jane Gratton: As I said earlier, there is lots in the Bill that we support, and there is lots that good employers are doing already. As Matthew said on the compensation of shifts, we certainly support that, and we would be very happy about the fair work agency to create a level playing field and measures around workplace equity. For us, it is about the difficulty that the SMEs will have in getting to grips with this. If you think about it, most will not have access to HR and legal support. They are going to need a lot of time to get to grips with this and to understand what is required of them. To get those processes in place, they are going to need a lot of guidance and support. We think ACAS and the tribunals system would need to be significantly boosted in their resources to cope with what we anticipate will be a lot of additional demands on them. On that very much phased approach, I would agree with Matthew about starting with the things we agree on and looking at the detail of some of the things in the Bill where we think more consultation is required.

Alex Hall-Chen: I would emphasise two factors for consideration in staggering, the first being cost. As we are all well aware, the additional costs that are coming up very shortly, particularly related to employers’ national insurance contributions, are substantial, so the more that increases to employment-related costs can be staggered, the better, such as around statutory sick pay. The other, to support what Jane said, would be around tribunal capacity. There is a particular concern that these changes, particularly around protection against unfair dismissal from day one of employment, will be introduced before the tribunal system has been sufficiently reformed to be able to deal with the influx of cases that will come with them.

[Chris Law (Dundee Central) (SNP)]

Q A number of parts of the legislation have been removed, and some are obviously there for consultation. I wanted to ask you as a panel where you would like to see the Bill go further. What more ambition would you like to see in the Bill? Matthew, maybe we could start with you. I can see you have a bit of a blank stare at the moment.

Matthew Percival: No; it is that I think there is so much in the Bill that it is not a question of where we could do more. What is already on the table is far too much for businesses to be able to engage with in its entirety. And bearing in mind that the Bill is only one aspect of the Government’s agenda, I am already finding that it is very hard for our members to engage on the breadth of topics at the pace at which the Government hope to get engagement. To squeeze anything more in at this time would just mean another issue that cannot be properly considered before we would get to legislation.

That is not say that there cannot be other conversations about other topics at other times. There are aspects of “Make Work Pay” that are not in the Bill because they are being developed; a number of them are being discussed and consulted on outside of this Bill process to support the development of those issues. But I would not be suggesting there is a lack of urgency in any way for any of these things.

The best legislation will come from having a process that stakeholders have the capacity and engagement to contribute to, rather than feeling that they have to choose one or two things to engage with and ignore the rest, which then does not get proper attention.

Jane Gratton: I would agree. The reflection from members is that they are overwhelmed with all the changes that are being put in front of them through the Bill and the wider plan to make work pay. We have said from the outset, “Please take your time with this, consult carefully and make sure we get it right.”

The biggest concern we have with all this is the cost and complexity for SMEs. They are very much behind the Government in wanting to get 80% employment. They want to help tackle economic inactivity and bring people back into work. It is good for all of us to be able to utilise those skills and resources that are under-utilised at the moment, and to help people, and to go further to support people who may be on the margins of the workforce and need additional help. But SMEs cannot do that if they are faced with additional complexity and more restrictions on what they can do, and more risk of getting it wrong. It is the risk of getting it wrong that is the problem. Someone said to me, in respect of the harassment and the inclusion of the word “or” in terms of the reasonable steps that employers have to take, “I want to comply, but as drafted, I don’t know how I could guarantee that I am compliant.” It is that complexity that is the problem. I would say, “Let’s not go further right now; let’s do this at the right pace and bring employers with us.”

Alex Hall-Chen: I would agree with what others have said. I would add that if there are areas where more ambition is needed, it is around how we can make sure that the policies that will be implemented via the Bill are sustainable and can actually be implemented on the ground in business. That partly returns to the point I made earlier around the already creaking tribunal system, but also a recognition of the costs that this will have, particularly for SMEs. That is why, for instance, we have been calling for the reinstatement of the statutory sick pay rebate scheme for SMEs. That is where we would like to see more ambition.

--- Later in debate ---

[The Chair]

Dom, do you have anything to add?

Dom Hallas: Just on the process point. People sit here on our side of the table and say, “Things aren’t being communicated well,” when the problem—let us be honest—is with the policy.

One of the broad challenges here, especially for small businesses, which David and I work with, is that, with an impactful piece of legislation, even communicating to them what is going on is difficult. They are a disparate group; we certainly cannot sit here and claim to represent the entirety of the tech start-up community, even if we work with a big community of businesses.

I am mindful of two things: the length of the implementation period is absolutely important, but the way the Government go about it and choose to operate in that period is also important. What does it mean, frankly, to explain to employers what their obligations are? How are we going to go through that process? We need to think about that coherently now, so that we do not get to that period later and, suddenly, it is panic stations. That will be really important.

[Steve Darling]

Q In my constituency, there are a lot of small and medium-sized businesses. Will the two witnesses be kind enough to share whether they have seen any sectors that are particularly hard hit by the proposals, or any ameliorations to take account of that?

David Hale: That is a slightly difficult question. You could think of Torbay and pick out hospitality, which might well have particular issues with the proposal. But you could also pick out larger businesses that recruit people when they are young and allow them to gain worthwhile skills in hospitality; they will miss out from the proposal. So it is a difficult question.

It is easier to identify the workers, or potential workers, who are most likely to miss out—that is, people who will present as a risk in a recruitment scenario. Certain businesses are more likely to recruit people who will present as a risk in a recruitment scenario. Such businesses tend to be smaller and will probably—more than usual, if not overwhelmingly—include sectors like hospitality.

The other businesses that will struggle are those that are mainly paid by the Government—the Government set their prices, in effect—such as social care and childcare. Those businesses will struggle because other businesses can put up costs, but they can only put up costs if the Government and Parliament agree to put up how much they pay and, in particular, the way they pay it—the way in which social care tariffs work very much encourages a zero-hours model. As a consequence, that would probably have to be changed to make the proposal work. But this is across the board for recruiters—there are different impacts for different businesses.

Dom Hallas: Speaking as a tech start-up and scale-up ecosystem organisation, in practice this proposal does not disproportionately affect any individual part of the ecosystem. Broadly speaking, it has the same impact.

[Michael Wheeler]

Q So far, we have heard an awful lot about flexibility and risk, from you and from previous panels. Would the panel accept that, currently, flexibility is too far in favour of the employer, that the risk is borne by the employee and that this Bill seeks to rebalance that? In which areas do you believe that the measures in the Bill do not work towards that?

Dom Hallas: I think that cuts to the question that Steve asked, which was about the different sectors and impacts. I can only speak for the tech start-ups and scale-ups that we work with. In practice, as I said, you have a very highly paid and mostly highly skilled sector, where the benefits and rights afforded to employees way outweigh any current statutory requirements. It is a highly competitive labour market, but that comes with the trade-off of flexibility. These businesses scale and they fail very frequently; that is part of the nature of the business. I think that, in truth, both employers and employees go into that relationship in our particular space with their eyes pretty open to that. So in our particular part of the world, I would challenge that assertion a little bit.

What I would say more broadly though—I think this is important and cuts to an area where we think the Bill could be improved for our space from both an employer perspective and an employee perspective—is that one area where we see potential further progress is banning non-compete agreements. In California, where really successful technology ecosystems have been built in silicon valley, one of the cornerstones of that has been that there are no non-compete agreements allowed in law. That offers more flexibility from a labour market perspective in many cases, but it also benefits employees significantly, because that flexibility comes to their benefit as well.

From our point of view, employers are, frankly, scrambling like hell to try and find the employees to fill these tech jobs, and the employees are very highly paid. If those businesses fail, or their needs change, that is, in our view, part of the trade-off with those kinds of businesses. I appreciate that that might not be the case across every sector, but providing that flexibility is a core part of that trade-off.

David Hale: Typically, flexibility is a demand from employees rather than a demand from employers. Most employers would love the same people to turn up each week for the same shift; most employees would like to be able to work their shifts around their day-to-day lives. Most workplaces come to an accommodation on that, with things like shift-swapping.

What I am not clear on is where there is gain. Take zero hours and the scenario where this Bill ends up meaning that somebody who has worked the same hours for 12 weeks in a row is offered a contract. Somebody who an employer has employed for the same hours for 12 weeks in a row is likely to be either somebody they would like to give a contract to or somebody who has worked in a seasonal role. Those are the two scenarios. That employee is unlikely to be the employee who wants more hours or regular hours, because the employer is already giving them that. So there is not really a gain that is very obvious. What there is, is a lack of flexibility, because the response to the legal risk will be for employers to say to employees, “Actually, I need to keep an eye on precisely how many hours you are working each week for a reference period. So, no, you are not allowed to swap shifts.” That is a damage to flexibility, with no obvious gain for people who have been working 12 weeks in a row, who, frankly, the employer probably wants to agree a permanent contract for, but does not.

--- Later in debate ---

[Justin Madders]

Q Thank you. I have a specific question for Cathryn, and the other two witnesses could also respond to it. First, though, I should say that the right to disconnect is not in the Bill.

Cathryn, you spoke about surveys with your managers and about the strong support for the Bill, and you said that there is nothing in the proposals that should alarm a responsible business. Given what you also said about the pace of implementation and the need to continue dialogue, if we get that right, would you still say there is nothing in the proposals that should alarm a responsible employer?

Cathryn Moses-Stone: First, the right to disconnect was just a useful example of the sort of concerns we hear.

We are not saying there is nothing for businesses to be alarmed about. One of the challenges that managers and leaders face is implementing and managing change across their organisations, and that is a complex thing. That comes back to our point that we have a whole suite of data on the impact that highly skilled managers have on managing change in their organisations, and the knock-on impact that has on recruitment, retention, productivity and the success of a business. It does not mean it is easy and straightforward; I do not think many things that managers and leaders do are easy and straightforward. Again, it comes back to the core principle of having the right amount of time and being able to support managers to skill up. That at least gives them the tools to be able to tackle these complicated things head on, because they will be complicated.

Ben Willmott: I absolutely agree that there is a significant role for well-designed, effectively enforced employment regulation to support overall improvement in employment standards and to support efforts to improve employee engagement and productivity. The key is that it has to be well-designed regulation. If it is excessive or too complex to implement on the ground, it will lead to increased costs, and that will undermine the ability of businesses to improve job quality, invest in recruitment and skills, and support technology adoption and things that will drive productivity. That is why, as we move forward, the consultation is so important.

An example of a measure in the Bill is around the reference period for workers to have the right to guaranteed hours. It is not set out in the Bill, but in “Next Steps” it is set at 12 weeks. In our view it is crucial that there should be consultation on the 12-week reference period. The Government have set out their principles for a modern industrial relations framework: accountability, proportionality, collaboration and balancing the interests of business and workers. Those principles need to apply as we roll out and implement the proposals, so 12 weeks is a test that should be subject to consultation, because it is so important to the functioning of that right. That is the sort of thing where we want to see consultation—where it would help to decide that the ultimate regulation is effectively designed and can work.

[Steve Darling]

Q From Torbay to Tyneside, productivity in the British economy is the biggest challenge that we face. Cathryn has alluded to productivity a number of times during evidence. What opportunities do you see in the Bill for driving productivity and the culture change needed to drive that agenda through our workforce?

Ben Willmott: The Bill is focusing businesses’ minds on how they recruit, manage and develop their people. I will refer to comments I made earlier. If the measures in the Bill are designed the right way, they can support improvements in overall employment standards. But if consultation is not effective and measures are introduced that are not workable, it will have the opposite effect. It is about finding the right balance.

Cathryn Moses-Stone: Similarly, we have a lot of data that shows that policies like flexible working, enhanced family-friendly rights and day one rights make employees feel valued and supported, which in turn drives better performance.

We did a study last year looking at the impact of trained managers in effectively delivering hybrid working. By way of example, 68% of our managers said that hybrid working made it easier to increase their work productivity, and that was a result of managers being trained to manage teams that work in a hybrid way. We know that where managers trust their direct reports—this is what our evidence shows—they find that productivity rises. As I have already said, poorly managed teams face lower motivation, satisfaction and retention, and ultimately impact on business delivery. So really good management in designing work that allows employees to thrive is important.

We must remember that managers are employees themselves. Managers want it to work for themselves as much as they want it to work for employees. That in turn will boost productivity at the higher levels of the organisation as well. We have lots of data that backs that up. Again, it is all about how the legislation is implemented and all about the time and space that is given to support managers to do that.

Ben Willmott: The other thing I would add is that our members are certainly supportive of the ambition behind the Bill. Our member survey shows that there is significant support for changes to improve statutory sick pay and to improve parental leave.

There are definitely areas of the Bill that have support, but I will give an example of an issue. When talking to members in sectors that might bear more cost from changes to statutory sick pay, we found they were much more sanguine in September than they were after the Budget, because they are now thinking about it in the context of broader changes. The cumulative effect of changes and increases in employment costs needs to be taken into account when we think about individual measures.

Carly Cannings: On the point about productivity, if you look at what makes a workforce productive, there are lots of things that go in the mix, such as feeling engaged in the work you are doing and valued by your managers, as well as having an environment around you that offers things such as flexibility. The factors that lead to productivity are broad. We need to be realistic about the measures in this Bill and how far they will go to support productivity, given that lots of employers are probably already meeting lots of these minimum thresholds.

It is a step in the right direction. It raises the profile of things such as flexible working, so hopefully more businesses will adopt it—it is now a day one right anyway. It definitely moves in the right direction in terms of creating that happy, engaged workforce who feel valued and able to work in a way that works for them and their employer. Again, it is back to that point about raising minimum standards. There is more to this element about workplace culture and productivity than just minimum standards of employment legislation.

Cathryn Moses-Stone: Echoing that, it is important to acknowledge that lots of forward-thinking employers are already doing a lot of this stuff anyway. They are doing it for a reason, because they are seeing the impact on their business. That must not be forgotten.

[Chris Law]

Q This is a question for the whole panel but, Carly, you mentioned that regulations here set the minimum standards. Does this Bill go far enough, and which bits would you like to see go further?

Carly Cannings: It was not a criticism when I said that it was about minimum standards. As I said, creating a happy, thriving, engaged workforce is more than just legislation. It is not to be misunderstood as a criticism of those minimum levels, but equally, you do not want to tie the hands of good employers by making them jump through too many hoops around legislation.

For me, this Bill is about raising the standards of those employers who are not necessarily doing, and need a bit of encouragement to do, the right things. We need to be mindful of the balance. The previous panel mentioned the impact on small businesses and the importance of not going too far the other way in over-legislating that ties the hands of small businesses. It is very much not a criticism; it is a realistic statement of the Bill being part of the package.

Ben Willmott: We have done a lot of research over the last few years looking at the level of HR capability and people management capability in small firms, and what sort of support they need. The research has involved more than 500 small firms, and shows the very low level of HR knowledge and capability within them. They do not have in-house access to professional HR practitioners; most of them do not use any sort of external professional HR consultancy support either.

There are a lot of issues that you probably would not imagine. A lot of small firms may not even have written employment contracts or written terms and conditions of employment. There is a lot of informality still in that part of the economy. That is the point I was making earlier. We really do need to find ways of providing better quality, more accessible advice and support to help these small firms meet their obligations and improve the overall level of employment standards in the economy.

Cathryn Moses-Stone: From our perspective, we would hope that this is a broader catalyst and a driver to see better-led and managed organisations across the board. We want to see more investment in management and leadership in general. We have lots of evidence looking at the impact of better-trained managers in the public sector and how that can support public service reform. We have evidence for what that looks like in healthcare education settings. We have evidence for what that looks like for delivering green skills and AI, and for how that is a driver of more investment in management and leadership across the board, given the evidence we have and what it does for workplace growth, productivity, our economy and people’s happiness.

Again, I emphasise the point that 82% of people are accidental managers. We have all heard—I am sure everyone in this room has, in their time—about a bad manager and the impact that that can have on an organisation. We see this, hopefully, as a bit of a catalyst for further investment and the thought given to M&L in general.