What if all Employment Law were abolished?

I’m sometimes told that business life would be much easier if “employment laws were abolished”. But would that be the case? I’ve worked in an industry in which all regulation was abolished and the consequences for business were mixed, to say the least.

In late 1986, the bus industry outside London was completely deregulated. Prior to this, buses were controlled and run by the public sector, and operated as localised monopolies. Routes, fares and all other aspects were set by local authorities or other similar regulatory bodies, the industry was heavily unionised with various national and local agreements governing terms and conditions. Unprofitable routes could be, and were, subsidised either through profitable ones or from more general taxes (usually local authority rates).

Overnight (literally) this changed.  Anyone who satisfied very minimal safety standards could set up their own company, run on routes and frequencies they decided, and set pay and conditions as they wished. With only a few exceptions, the public sector could not subsidise unprofitable routes – and where they could, this was subject to a competitive tendering process.

So what happened? There were short-term and long term effects.  In the first couple of years, the existing large public sector owned companies stopped unprofitable routes and made many staff redundant. They sought ways of reducing wages and becoming more competitive – and in consequence suffered a good deal of industrial relations problems. At the same time, there was a glut of new entrants to the market – usually offering wages significantly below the existing rates – and a resulting increase in competition especially on profitable routes (something which became known as “bus wars”).

In the longer term however the situation changed and the market nationally became dominated by 4-5 big players who grew in the main by buying out competitors.  Very small companies, who could survive by being specialists, also thrived but usually on the fringes of the market.

What does this mean in the wider employment context? Well, it shows that in the absence of legislation economic factors would take an even greater role than they do now.

In a market like public transport, where there are low barriers to entry, and a plentiful source of labour, wages will fall. The market will, in this case, set a new “minimum wage” which will vary across industries and sectors.

Interestingly though, again based on the bus experience, existing employees are less likely to be affected – even though their employment rights have been abolished. Employers in the majority of cases will want to avoid the disruption to their existing workforce, especially if they are suddenly being faced by new competitors. Unless it makes them completely unviable financially, they are likely to want to retain staff to fight off competition, and facing internal “battles” over terms and conditions won’t do this. Most of the ex-public sector bus companies eventually concluded deals which retained existing staff conditions and only provided worse terms for new entrants.

Employers wouldn’t have it all their own way though – one of the other characteristics of the bus wars period was a high turnover of staff among the new entrant companies. Drivers had no loyalty to their employer and would often leave for a new employer for a small increase (say 50p an hour) in wages. In fact one of the ways the bigger companies reasserted their dominance was to pay at a rate that was higher than competitors (though lower than pre-deregulation levels).

Of course, not every industry is like the bus industry, where it is easy to recruit and train new employees. Where it is more difficult to recruit or more expensive to train people, the economic balance of power will shift. If I’m a whizz at coding or programming and sought after by several hi-tech companies, then I may well be able to name my price (this already happens in sport, most particularly football, where star players can and do receive extremely high salaries).  The economic power moves towards the employee.

And with the end of employment law, enforcing things like notice periods or restrictive clauses will become impossible for employers. An employee can, and will walk off the job, if they are unhappy with the way you manage them – and while in a recession you may be able to find an easy replacement it may be more difficult when times are good.

Moreover, for more mobile employees, leaving to work in other countries that offer better job security or protection may become an attractive option – potentially weakening the UK overall. (Indeed, a general reduction in wages as a consequence of the abolition of employment legislation would have a very negative effect on the UK economy as spending power would decrease)

Employees who are economically weak may also try to strengthen their bargaining power by forming unions. It’s worth remembering that unions originally came into existence at a time where there was virtually no employment law, in the early/mid 19th century, and there’s no reason to suppose this wouldn’t happen again.

The impact of social or cultural “norms” shouldn’t be underestimated. The fact that an employer could now sack a pregnant woman or refuse to employ anyone black doesn’t mean that this sort of behaviour would be considered acceptable by customers, suppliers or other stakeholders. It’s very easy to damage the reputation of a company, sometimes fatally, in these days of social media.

So, in the end, it all comes down to economic power. Employment legislation will be replaced by the rules of the market – which will vary from industry to industry and region to region. Existing workers may not see many immediate changes but the world would change – but not always to employers’ benefit.

One thought on “What if all Employment Law were abolished?

  1. So interestingly in France where we know they have more employment law, eg it’s allegedly harder to dismiss, they also have 20% higher productivity. Talking to someone with a French subsidiary they believed that this was because it gave them more focus on managing and developing performance, workers responded better in a more stable relationship with their employer and to some degree lower turnover seemed to provide a better sense of community.

    At our recent conference the oft quoted “the French can finish work Thursday evening and take Friday off to produce the same as the British” received more comment and incredulity than anything else!

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