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Britain’s labor market is a den of Dickensian exploitation that will be dragged into the 21st century by the Labor government’s new Employment Rights Act, according to one article. According to the second, it is a modern flexible economy held back by the same set of rights as in the 1970s. Amidst such rhetoric from both sides, you could be forgiven for not paying attention to the details of Britain’s bumper new bill, passed into law last week. But in the end it’s the details that will matter. So what’s the good, bad, and ugly about this package?
First, a little context. Despite what both the government and its critics believe, the ERA is not an upheaval on the same scale as the deregulation of the 1980s, nor the upgrading of rights of the late 1990s and early 2000s under Tony Blair’s government. James Davis, a very experienced lawyer who co-founded the employment practice at law firm Lewis Silkin in 1992, told me that there were so many new laws in the Blair years that “employment lawyers and businesses were saying, ‘Wait, we can’t cope!'” In contrast, he sees the ERA as “an amendment rather than a dramatic change.”
In my view, the best elements of the package are those that seek to improve low-paid, insecure work. As someone who has reported on the bottomless conditions of the UK labor market for more than a decade, it is striking how far from the working life experience it is of middle-class professionals.
Take sick pay, for example, where many better-paid workers take it as if their employer will continue to pay them their full salary if they are out sick for a few days. In contrast, workers relying on statutory sick pay receive no pay for the first three days of illness. This is one of the lowest sick-pay regimes in the OECD, and the ERA improves upon it appropriately, so workers will receive SSP from the first day of illness (but still at a much lower rate than European countries like Germany and Sweden).
This is also better for public health. Britain’s sick-pay rules had to be temporarily reformed during the pandemic because it became clear – even to the Conservative government – that they encouraged people to go to work when unwell. An official study found that care homes that offered sick pay to their staff were less likely to have Covid-19 cases than homes that did not.
In contrast to this incremental improvement, which brings the UK somewhat closer to European norms, the last-minute decision to remove the cap on compensation for unfair dismissal (currently 52 weeks’ gross pay or £118,223, whichever is lower) makes the UK realist. Internationally externalThe cap is the norm in most countries, including those with strong employment protection such as France and Spain, Employment lawyer Jonathan Chamberlain of Gowling WLG told me that some compensation awards for ordinary workers “are way over the limit” anyway,
“If you remove the cap the primary beneficiaries will be highly paid executives, and particularly those who have discretionary remuneration, or equity-based incentives that require them to remain in post beyond a certain number of years,” he said. Furthermore, the employment tribunal system is already overloaded, with cases taking years to hear. Chamberlain said, “This would put a whole load of well-funded senior officials into the dock and make the situation even worse, and delay justice for those who really need it.”
But the ugly thing about the new law – the aspect that concerns me most – is the timing. Whenever you increase employment protection, the risk is that “insiders” who already have jobs benefit, while “outsiders” such as young job seekers suffer. So, in an ideal world, you would upgrade employment rights at a time of rapid growth and increased demand for workers. In the absence of that, you would at least try to give employers something in return: yes, we are increasing the complexity of employing people, but at the same time we are also cutting employment taxes, for example.
In Britain, however, employment taxes have soared, youth unemployment is already in double digits and – in a real target – the government has made hiring young people even less attractive by deciding that it will raise the minimum wage for 18 to 20-year-olds by 8.5 per cent.
Britain’s new reforms, although mixed, will make some good and needed improvements for those at the bottom of the labor market. But for those who haven’t yet managed to climb the ladder, I’m afraid times could hardly be worse.
sarah.oconnor@ft.com
