What small businesses can expect from employment law reforms

Deputy Prime Minister Angela Rayner visits a Holiday Inn Express

(Image credit: Christopher Furlong/Getty Images)

published 24 September 2024

Should small business owners be worried about the Labour government’s plans to beef up workers’ rights? Not according to ministers, who have launched a charm offensive to soothe entrepreneurs’ fears. September saw Deputy Prime Minister Angela Rayner and Business Secretary Jonathan Reynolds meet small business groups to discuss potential changes to the law.

We won’t know exactly what Labour is planning until it publishes its detailed proposals on how to “make work pay” – as it branded the reforms in the election campaign. An employment rights bill is expected in October. In the meantime, some likely changes are worrying employers more than others.

Small businesses: employment laws to watch

Unfair dismissal: prior to the election, Labour said it wanted to give employees the right to claim for unfair dismissal from their first day of employment – currently, they have no such rights for two years. Employers worry they will be stuck with employees who turn out to be unsuitable for roles they have been hired for. That could prove particularly difficult for small businesses with fewer members of staff.
Zero-hours contracts: a likely ban on zero-hours contracts is also a cause for concern. While such arrangements have undoubtedly been exploited by unscrupulous employers, small businesses argue they can provide agility that is especially useful to growing companies; they also point out that some employees are also looking for flexibility in their working hours.
Sick pay rules: small businesses might also find new sick pay rules challenging. Currently, they don’t have to pay statutory sick pay to staff until they have been off work for more than three days. Labour has previously proposed changing the rules so that workers are eligible for sick pay from day one. This would cover many more absences than the current regime. Other rumoured changes to the law look set to require employers to work harder on consultations with staff, rather than introducing onerous or expensive new rights.
Redundancy: an overhaul of the rules on redundancy consultations is expected, with employers required to launch formal consultation processes in much more wide-ranging situations. Similar rules are possible on consultations related to the TUPE regulations, which govern how employees must be treated if they are transferred from one employer to another (when a business is sold, for instance).
Similarly, a ban on “fire and rehire” – whereby an employer makes staff redundant and then rehires them with inferior pay and conditions – would force companies to negotiate with staff in order to make changes to their contracts.

Inevitably, employment lawyers point out, the devil will be in the details of all these proposals. Labour’s efforts to keep employers, including small businesses, onside in recent weeks suggests ministers are at least prepared to listen to concerns about the reforms. Changes to the law may be accompanied by flexibilities that leave employers with room for manoeuvre.

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Nevertheless, small businesses need to be mindful of what is coming. It makes sense to review your current practices in light of the reforms to identify areas where there is potential conflict. Some employers already go further than the law requires – on sick-pay entitlement, for example – and will be less affected by new rules. For others, changes to the system may come as more of a shock.

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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.