Employers could sidestep upgrade of workers’ rights, government warned

Many businesses could sidestep Labour’s upgrade of workers’ rights by hiring staff as contractors or casual workers, if the government delays a key reform of employment status, experts have warned. 

Government officials are racing against time to finalise a draft bill Labour has promised to introduce within 100 days of taking office, paving the way for sweeping reforms to give workers more security and bolster the role of trade unions.

The package of some 75 measures, billed as “The Plan to Make Work Pay”, will include restrictions on the use of zero hour contracts, protection against unfair dismissal from day one, wider coverage of statutory sick pay, a default right to flexible working and tougher rules on the use of controversial “fire and rehire” tactics, among many other changes. 

Many of those measures will need further, secondary legislation which will require consultation with employers and unions that could drag well into next year, according to ministers.

Lawyers, union officials and business representatives have warned that workers will not necessarily benefit from the reforms, if employers remain able to exploit grey areas in law over their employment status. 

This is because companies will have new incentives to take people on as self-employed contractors, temps or agency workers, who have fewer rights, rather than as employees. 

“A reform that plugs a gap in one leaky pipe produces a gushing geyser elsewhere, because [employers’] strategy to remedy it is to take people out of protection altogether,” argues Michael Ford, a barrister and expert in labour law. 

“If you don’t address worker status and how intermediaries and other methods are used to take people outside the protection . . . you risk undermining the whole edifice,” he added. 

The UK is unusual in having three types of employment status: employees, self-employment and an intermediate category known as limb (b) workers.

This third group has some employee rights — including the minimum wage, holiday pay and pension auto-enrolment. But it is not covered by some key employee rights Labour plans to strengthen — such as statutory sick pay, redundancy rights and protection against unfair dismissal. 

Crucially, limb (b) workers are also treated as self-employed for tax purposes, meaning employers do not have to pay national insurance contributions on their earnings. 

In practice, it is often difficult to establish which category people fall into, especially in parts of the gig economy where atypical working arrangements are prevalent. Despite a landmark Supreme Court ruling in 2021, which determined that Uber’s drivers were workers, unions are still fighting legal challenges against many other employers. 

Labour has promised to stop employers exploiting this ambiguity by switching to a simpler, two-part framework, with a single status of worker and a clear distinction between workers and the self-employed. But because of the complexity of the reform, it does not plan to address it in October’s draft bill, instead flagging it as a measure “that will take longer to review and implement” and promising a “full and detailed consultation”. 

Both unions and business groups worry that pressing ahead with other reforms, without resolving the fundamental issue, could backfire. 

“Across the package there is a really important question on employment status . . . The ambition to end the most malign practices has to be tied up with finding a way to simplify the system,” said one union official. 

“It’s important that consultation on employment status is not an additional afterthought,” the official said.

“Logically, you would start with employment status, if you had the luxury of doing things in a logical and sequential way,” said Ben Willmott, head of public policy at the CIPD body for HR managers.

The CIPD, although worried that some of Labour’s reforms will be costly for business, supports the ambition to put “clear blue water” between the self-employed and a new, single category of workers. 

Rewriting employment status will be controversial and fraught with difficulty, however — especially given the potential tax implications. 

“If you are going to look at employment rights and status, you have to look at everything and look at tax as well,” Ford notes. 

Recruitment agencies say a distinction between employment and self-employment does not match the reality of a modern labour market where both businesses and individuals want flexibility. 

Even some unions are wary. Mike Clancy, general secretary of Prospect, says workers’ status has “rightly” been left for later consultation, because enforcing a model of direct employment would not work in sectors such as TV and film where he represents freelancers. 

Some lawyers also warn that any attempt to impose boundaries could simply lead unscrupulous employers to evade their obligations by slipping new clauses into contracts. 

“People don’t work in ways that are easy to categorise,” said Jonathan Chamberlain of the Employment Lawyers’ Association. “If you have clear statutory rules . . . actors in the system will game it.”