Written submission from The Federation of Small Businesses (FSB) (ERB0085)

FSB submission for Business and Trade Committee inquiry: Make Work Pay: Employment Rights Bill

1. The Federation of Small Businesses (FSB) welcomes the opportunity to submit evidence to this inquiry. This bill is likely to be one of the most consequential pieces of legislation this Parliament and FSB appreciates the Committee prioritising this inquiry.
2. FSB has deep concerns about the bill as it stands. These include:

• The policy making and legislative process up to date– including:
• The lack of clear articulation of what problems the Government is seeking to solve
• The lack of a clear case for the provisions in the bill resolving any such problems.
• The lack of consideration of other options for resolving any of these issues in a way that lessons the scale of predictable adverse impacts
• The rushed nature of the legislative process to date
• Poorly executed engagement with business by the Department
• Inadequate consideration and presentation to Parliament as to the likely economic, social and fiscal costs associated with the bill.
• The adverse impacts of this bill on small businesses – including:
• The increase in litigation risk, especially concerning the introduction of tribunal risk from day 1 formal dismissal.
• The increase in compliance costs in order to cope with increased legal risk, indirect costs such as increased monitoring requirements to comply with current plans in relation to sickness absence, and direct costs such as through the removal of the waiting period and other extensions of Statutory Sick Pay.
• The sheer increase in complexity faced by employers, both through the individual measures in the bill and the cumulative impact of these measures.
• The consequential economy-wide negative impacts that would result from the above – including the:
• Participation harms: Small businesses play a disproportionate role within the private sector in recruiting those who are inactive, out of work, or otherwise close to the edges of the labour market. Additional risk from day 1 is likely to weigh most heavily against recruitment from this group. This is in addition to more general negative impacts on hours, earnings and employments. The Bill’s disproportionate impact on small businesses is also almost certain to have the highest negative impact on the workers that small businesses disproportionately employ. This in turn risks the availability of workers for firms who subsequently employ from these firms.
• Workplace environment harms: Much of the bill introduces significant points of friction between a worker and their most important relationships for the quality of their workplace experience, especially the manager. This risks significant increases in formal disciplinary and performance management procedures in cases where these would be out of line with contemporary best practice in line management and/or where they would be disadvantageous to the continuation of that worker in the employment, as well as their experience in the workplace. Other likely consequential impacts of the bill include significant disruption to established informal flexible working practices, such as the negative impact the measures relating to zero hours contracts are likely to have on shift swapping and similar common practices.
• Harms to individuals: In addition to the scarring effects of longer periods outside of work for those who suffer from the consequential participation harms outlined above, there is significant potential harms to individuals through, for example, employments being terminated earlier than otherwise would be the case. The fiscal cost of fewer people in work, and those in work earning less, will be paid across society through reductions in Government services or higher taxes.

3. While the measures outlined in the bill are highly likely to have a disproportionately negative impact on small employers compared to other employers, FSB is also conscious that many of these negative impacts are likely to be present in other sizes of employer. FSB is also conscious that the risks of this bill will impact not just on small businesses, but their employees, those who are out of work, the economy as a whole, the taxpayer, and users of public services. The lack of accounting for the interests of those who are currently out of work is of particular concern in the development of the bill to date.
4. FSB believes there is a pressing need for intense Parliamentary scrutiny of this bill, and that this bill is not fit for purpose in its current form. FSB has been collecting further information from small businesses, including representative surveys of small employers. FSB would be keen to give further evidence to the Committee, including the chilling findings of this work, in due course, and would welcome the chance to give oral evidence to the Committee.