Radical or Bureaucratic? Why Labour’s HR proposals may be both

With the current political turmoil in the UK, and the possibility that we may see a change in Government in the near future, this post looks briefly at the HR and employment related announcements made this month by the opposition and consider their effects on the profession. I should stress that I’m not looking at this from a political view – HR professionals (and businesses more widely) have a responsibility to ensure our organisations work within the law, whatever our personal views of a particular piece of legislation.

Five key announcements have been made by Labour’s John McDonnell in recent weeks, in a series of speeches.

1.       Ban ‘zero hours contracts’. I’ve written before that this probably wouldn’t solve the underlying problem – since employers would either go down the route of full casualisation, or offer ‘1 hour per week with the option to do more’ contracts. But from an HR perspective, other than the admin time caused by changing existing contractual arrangements, it might cause businesses to rethink their reason why they use these types of contracts.

2.       Raise the minimum wage to £10 per hour. Not really an issue from an HR perspective, as the current Government have previously said they want to raise the level to £9 per hour, this is more a political argument as to what level the minimum wage should be.

3.       Sectoral Collective Bargaining. Collective agreements still exist on an industry wide basis – not just in the public sector – in some sectors. (I still need to dig out my ‘pink book’ – below – occasionally). But given that union membership is at a low level, doesn’t exist in certain sectors and employers aren’t currently obliged to participate in sectoral bargaining even if they do recognise unions, this seems to be more of a long-term aim than a change that will have an immediate impact on the way companies interact with their staff.

4.       Right to paid leave for victims of domestic abuse. I don’t think anyone would disagree with the principle behind this (and we will shortly have to implement paid leave for child bereavement, so it’s not really an extra administrative task). But I can see a whole host of practical difficulties. Will individuals have to pre-declare to their employer that they are in an abusive relationship? At what point will the right kick in (physical abuse? Mental cruelty?)? What evidence will be needed? This isn’t to make light of a very serious issue, but it is a subject that requires sensitive handling from HR and simply setting it up a ‘procedure’ doesn’t seem to be the way forward. (I haven’t seen a policy document, simply the announcement, so if there is more detail on how this would work I’m happy to link to it).

5.       Compulsory Share Ownership for Employees. This issue attracted the most media attention, primarily because employers with over 250 staff would be ‘forced’ to give employees a percentage of shares (up to 10% over a period of time), allowing them to earn dividends on top of their wages. Employee shareholding is not a new concept, there are many companies that operate schemes that allow some or all employees to be given shares in the organisation. Nor are ‘compulsory’ schemes anything unusual – companies are already required to enrol employees in a pension scheme and to make financial contributions to it, while a chunk of profits is already taken from larger companies in the form of the apprenticeship levy. In one sense the idea is simply a different approach to that taken by the Cameron government, but with the same aim – to allow workers a greater stake in their employer. From an HR perspective –  having spent several years working in an employee owned business – the major immediate challenges will be for learning and development professionals who will need to devise training on the different roles and responsibilities of an employee and a shareholder, and responding to the argument “you can’t sack me, I’m a shareholder” in disciplinary hearings.

And while we shouldn’t undersestimate the possible cultural effects of these proposals, the devil will be in the detail for most of them. Will they go the way of the ill-fated “Statutory Dismissal and Grievance Procedures” introduced – and quickly abolished – in the early 2000s? Or will they become just part of the regulatory environment for HR, like maternity leave or compulsory redundancy consultation? Only time (and the result of the next general election) will tell.

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No Deal – no pay?

The Government’s recent decision to publish a series of papers outlining what organisations should do in the event of a “no deal” Brexit has attracted a good deal of publicity and comment. But one that didn’t get much media attention was on “Workplace rights”.

The reason it didn’t is that there will be almost no change to employment law as a result of the UK leaving the European Union. Existing EU laws and regulations are now all incorporated into UK law (if they weren’t already) as a result of the EU Withdrawal Act 2018.

The only two slight changes – which will only affect a very small number of employers and employees – are that if there is no deal, UK based workers will no longer have the right to request that their employer sets up a European Works Council (something which only applies if the employer operates in two or more EU countries); and that UK employees who work in an EU country will no longer be protected by the EU’s Insolvency Directive if their employer becomes insolvent.

However, one area of employment law that may become important in the event of “No Deal” – particularly if there are problems in certain sectors – is the right to lay off staff temporarily. As an employer, you can request staff not to attend work at any point, but you can only do so without paying them* if you have an explicit clause in your employment contract.

Only a minority of companies include such a clause these days, since they are rarely if ever needed, and also because those that do have fluctuating demands tend to use “zero hour” contracts or other types of contingent arrangement.

But consider this scenario. Your company makes machines. Currently, you use widgets manufactured in Germany and imported by truck. In the event of a No Deal Brexit, widget imports are delayed, perhaps for a matter of weeks, while new customs arrangements are resolved. You’ve got nothing for your workforce to do but without a lay off clause you’ll need to continue paying them. Could your business survive?

So, you may want to change your employment contracts to incorporate an appropriately worded clause – contact us if you wish to do this.

But before you do, think about these three points

  • Changing contracts – even by agreement – is a time-consuming process.
  • If some or all of your staff won’t accept the change, do you really want to go through the whole process of dismissing them and re-engaging them for something that might not happen?
  • Even if staff do accept the change, it’s likely to affect their morale and commitment. Do the benefits of a lay-off clause outweigh the possible loss of productivity, increased absence or higher turnover?

The right to impose an unpaid lay-off may be a necessary step for your business – but think about it holistically, not simply financially.

(*you may have to pay a small “guarantee payment” for the first 5 days of any lay-off period)

Burying our head in the sand

There’s been a lot of reaction to the concept of ‘best practice’ in HR over the last few years –  the idea being rejected primarily because no-one can identify what these best practices are, nor is there much (if any) evidence that they work. As a result, the alternative ‘best fit’ model has gained in popularity.

Superficially, best fit has much to commend it. Our HR practices are adapted to the size, sector and most importantly the strategy of our organisation. The approach that might be taken in a large corporate services business is not the same as an SME in a manufacturing sector. But we need to take care.

One of the most well-known best-fit theories  (Schuler and Jackson 1987) suggests that when a business is cost-sensitive, HR’s approach should be to control and reduce costs. This means not just keeping wages at the lowest level to attract qualified staff, but also using very tightly defined job roles (so there is no scope for ambiguity or employee discretion), using ‘precarious’ labour (what we now tend to refer to as the gig economy), little or no training and development, and short-term performance goals. Ryanair is often cited as the ‘classic’ example of this approach in the UK.

The dangers of this approach should be obvious – and if they aren’t then yesterday’s article in the Financial Times, which exposed the working practices in the garment industry in Leicester should be top of your reading list. Taken to its extreme, it leads to unsafe working conditions, below minimum wage levels and exploitation on a large scale.

“But what can we do?” I can hear many HR professionals saying. After all these businesses won’t have HR.  But our ‘just legal but arguably unethical’ HR practices do lead to other companies taking the next step across that line. And with little current enforcement of regulations it’s all too easy to get away with ignoring basic employment law.

It is, as Canadian HR writer Jane Watson describes it, a “Wicked Problem” – and demands the same approach she suggests to tackling it. HR can’t solve the issue on its own, but neither can we pretend that we are not partly responsible for this state of affairs.

Plumbing the depths of Employment Law

Post updated 13 June 2018 to reflect the Supreme Court decision

The case of Pimlico Plumbers v Smith  – which has been decided today by the Supreme Court – has attracted a lot of publicity for the hitherto obscure and anoraky topic of Employment Status. As is always the case, much of the media coverage is misinformed and the case is being ‘spun’ by the various parties. Since small businesses need to be clear about their employment responsibilities, it may be helpful to explain the differences.

An employee is someone who works for you under a contract of employment. Most people in most companies are employees, which is why the issue of status doesn’t arise in most organisations. Employees have a number of legal rights (e.g. unfair dismissal, notice periods, right to a redundancy payment etc). Employers pay them through a payroll after deducting tax and national insurance
Self-employed individuals are those who work on their own account – they may do work for a variety of clients (both individuals and companies). They invoice their clients and are responsible for their own tax affairs, and they can make a  profit or a loss. They have very few rights (mainly around health and safety and some limited discrimination rights).

All employees are ‘workers’. But there are also others who can be classified as “workers”. They are those who work for you under some form of agreement where they are required to undertake the work personally. Workers are entitled to fewer rights than an employee but they do still qualify for things like paid holidays, sick pay, and minimum wage. It is this group that form the basis of both the Pimlico Plumbers case and the current debate about Uber taxi drivers, Deliveroo cyclists, couriers for City Sprint etc.

To establish employment status, there are a set of legal tests that have been established. For example, who controls where and how the work is done? Can the work be passed to a ‘substitute’? Is the person ‘integrated’ into the business? Is there an expectation that work is provided and if so that the person will do it? And most importantly, even if there is a written agreement saying one thing, if what actually happens is different then this needs to be taken into account.
And because of an oddity of law, it’s perfectly possible to be a worker for the purpose of employment rights and be self-employed for tax purposes. This is what causes many of the disputes.

In Pimlico Plumbers case, the Company and Mr Smith signed an agreement that he was a self-employed plumber. It saved the company money in Employers’ National insurance and administration time, and Mr Smith paid less tax. Mr Smith however was expected to wear a Pimlico Plumbers uniform, drove to his jobs in a Pimlico van and was required to undertake a certain number of hours per week for the company. Nor could he advertise his own personal plumbing services to Pimlico’s clients. Everyone seemed happy with this arrangement until Mr Smith had a heart attack, had his agreement with Pimlico terminated and received no sick pay.
The courts so far have applied the tests based on the facts presented to them, and concluded that Mr Smith was not an employee, but that he was a worker. The Supreme Court has now confirmed this.

But the real lessons for small businesses are that:
• Trying to fiddle or fudge employment status can come back to bite you
• If the reality of the situation changes over time you need to review your agreements
• Think about why you want someone to work for you and be clear about the intended nature of your working relationship before you start the selection process.

If you want to know more about how employment law affects small businesses, in a simple, easy to read book, just click here

ET Fees – what should small organisations do?

You’ve probably seen today’s news that the Supreme Court has ruled that the current Employment Tribunal fees system is unlawful, primarily because it denies individuals the ability to exercise the rights granted to them by Parliament. If you run a small business or charity, you may wonder what this means for you. Here are some key tips

  1. Don’t panic – today’s ruling simply restores the legal situation to what it was in 2013.
  2. Treat Employees legally and fairly – you should be doing this anyway, most employers already do. If you’re not sure exactly what you should be doing, my posts here and here may help
  3. If you do get a claim from someone relating to a past dismissal (or other issue), alleging they were unable to make a claim at the time due to the fees, seek advice immediately. 
  4. Don’t believe the hysterical nonsense in the Daily Mail (actually, that’s true of most employment law issues)
  5. See point 2