On Thursday, 10th Oct 2024, the Labour Government introduced their 158-page Employment Rights Bill into Parliament. Labour has said: "Our Employment Rights Bill will ban exploitative zero-hours contracts, end fire and rehire, and introduce basic employment rights from day one." Martyn Valentine of The Law Place writes exclusively for ContractorCalculator about the likely impact of the measures.
"The new measures do not affect contractors who provide their services using limited companies on an Outside IR35," says Valentine. "The Bill is designed to provide better protections for vulnerable workers who suffer from situations politely referred to as 'one-sided flexibility' - or, in other words, where firms can dictate unfavourable terms because the workers have very little bargaining power to negotiate fairer terms." The Bill partially follows EU Directive 2019/1152 and is intended to provide guaranteed hours of work and prevent abuses by employers of workers on a zero-hours basis, which is prevalent in the recruitment industry.
So, what does this Employment Rights Bill mean for contractors and flexible workers?
Where are the Employment Rights Bill documents?
The Bill sits on the Parliamentary website, together with some additional documents:
- Full copy of Employment Rights Bill (as introduced).
- Explanatory notes.
- European Convention on Human Rights Memorandum
- Gov UK News: "What does the Employment Rights Bill mean for you?"
- Next Steps to Make Work Pay.
The measures are drafted in the Bill, with the explanatory notes typically used to provide an easy-to-understand aid for Members of Parliament, ready for the subsequent debates. Given the large Labour majority, one should assume the Bill will make its way through the Parliamentary process without any material changes and reach Royal Assent in due course.
Measures not in the Bill
Some measures originally proposed by Labour did not make it into the Bill, such as the concept of a Single Worker Status.
In employment law, there are currently three types of status: self-employed, Worker, and Employee. In tax law, there are only two: self-employed and employed.
Labour has stated it will launch a consultation on Single Worker Status. There have been many status consultations, which have not resulted in changes due to the complexity of merging worker and employee.
Does the Employment Bill affect IR35 and Off-payroll?
The Employment Rights Bill has nothing to do with tax. It's about employment rights. There have been no changes announced to IR35 or Off-payroll by Labour. The legislation remains unchanged.
How will workers be affected?
First, consider the different models of how workers are engaged:
- (A) Permanent employees: Ongoing or fixed-term.
- (B) Agency workers: Directly with an employment business.
- (C) Umbrella workers (Employees): Either directly via a hirer or through an employment business.
- (D) Limited company contractor (Inside or Outside IR35): Either directly or via an employment business.
Starting with D - limited company contractors are not affected by the Bill.
New rules for employees (A and C) will be introduced, including:
- Protection against unfair dismissal from day one (although probation periods are allowed)
- Statutory sick pay from Day 1
- Parental and bereavement leave from day one
- Ending zero-hour contracts
- Inability to fire and rehire/replace
- Right to flexible working where practical
- Stronger dismissal protections for pregnant women and new mothers
Not all the rules will apply to agency workers (B), where the worker is on an agency payroll with a "temporary work agency." A temporary work agency supplies an agency worker to work temporarily for and under the supervision and direction of a hirer and has a contract with the temporary work agency.
However, scenarios A and C will be affected if the Bill survives in law without substantive amendments.
How will the zero-hours rules work?
The critical provisions around zero hours are contained in the first three clauses of the Bill:
- Right to guaranteed hours
- Shifts: rights to reasonable notice
- Right to payment for cancelled, moved and curtailed shifts
Clause 1 means that a firm that engages an employee must, after a 12-week "reference period, " offer the employee a contract with guaranteed hours based on the previously worked hours. The worker can then either accept or reject the offer. If the firm fails to make the offer, the worker can seek remedy from an employment tribunal, which will award compensation based on the worker's financial loss.
Clause 2 requires firms to give reasonable notice of a shift required to work and reasonable notice for cancellation.This requirement applies to zero-hours contracts and contracts where the employer must make some work available. Further, an employer must provide reasonable notice of cancellation or a change in a shift. Suppose an employer fails to comply with the obligation to provide reasonable notice of cancellation or change in a shift. In that case, a worker can present a complaint to an employment tribunal (subject to the standard 3-month limitation period).
Clause 3 requires an employer to pay a worker each time a "qualifying shift" is cancelled, moved or curtailed at short notice. The qualifying conditions for clause 2 apply to clause 3.
How will the Employment Rights Bill impact contractors?
Clauses 1-3 are likely to affect recruitment arrangements where a worker is required to do work when available, and there is no certainty that such work will be made available to the worker. Whilst the Employment Rights Bill is not intended to apply to agency workers, umbrella employers are likely to fall within the scope of this Bill.
A recent umbrella company judgment, Exchequer Solutions Limited v HMRC, confirms that a sufficient degree of mutuality of obligations arises for a true employment relationship while an assignment is in force. Accordingly, clauses 1-3 of the Bill are likely to apply to any contract between an umbrella company and a worker, and the current drafting is sufficiently wide to capture any conceivable zero-hours arrangement in a recruitment context other than category B workers (as above).
A worker engaged by an umbrella company is an employee of the umbrella company. The umbrella contracts on behalf of the employee with an employment business or directly with a client. The umbrella remits income tax and national insurance contributions to HM Revenue & Customs.
Employment businesses (i.e. temporary work agencies) that continue to use umbrella providers will need to establish processes to cater for the provisions in clauses 1-3 and ensure workers are offered guaranteed hours after each reference period and that the management around offers and cancellations of shifts (where relevant) do not result in statutory breaches. Fortunately, there is ample time before the Bill becomes live for agencies and umbrellas to get sufficient processes in place.
The Bill does not affect limited company contractors operating "outside IR35", so clients engaging contractors outside IR35 do not need to make any changes in anticipation of the Bill coming into effect.
The Employment Rights Bill opens the possibility of further regulations for agency workers, who may gain additional rights.
Future updates via consultation
Some previously proposed provisions were left out of the initial Bill, detailed in Section 3 of the publication "Next Steps to Make Work Pay", titled Wider Reforms.
Labour will publish some consultations after the Bill's introduction, seeking views on the next steps, including matters such as Parental and Carer's Leave, Single Worker Status, TUPE, and Health and Safety Guidance.
The Single Worker Status consultation concerns employment rights only and will not change the current tax statute around IR35 and Off-payroll.
The current timetable for further consultations to begin is 2025, and the majority of the reforms are signalled to take effect after 2026.
Martyn Valentine is director of The Law Place, a legal consultancy specialising in IR35, Off-payroll, Recruitment and Employment Law.