Written evidence from The Investment Association (ERB0089)
About the Investment Association
The Investment Association (IA) champions UK investment management, a world-leading industry which helps millions of households save for the future while supporting businesses and economic growth in the UK and abroad. Our 250 members range from smaller, specialist UK firms to European and global investment managers with a UK base. Collectively, they manage £9.1 trillion for savers and institutions, such as pension schemes and insurance companies, in the UK and beyond. 49% of this is for overseas clients. The UK asset management industry is the largest in Europe and the second largest globally.
Introduction
The IA and its members are largely supportive of the broader objectives of the Employment Rights Bill, recognising the government's commitment to strengthening worker protections, improving job security and promoting a fairer and more equitable workplace that benefits both employees and employers. However, while we support these overarching goals, we urge caution against excessive legislation that could have unintended consequencess. Striking the right balance between robust worker protections and the operational needs of businesses is vital to the successs of firms. We believe that an overly prescriptive legislative approach could impede the hiring of entry-level talent, diminish competitiveness, and adversely affect company culture.
A collaborative approach, involving insight from both employers and employees, can offer more effective solutions than additional legislation. By ensuring that the legislation is both fair and practical, we can foster a dynamic and resilient labour market that supports economic growth and enhances employee well-being.
Protecting Workers
Are there weaknesses or loopholes in the Bill that could be exploited or have unintended consequences?
The Investment Association and its members are broadly supportive of the Bills aims to improve job security and to foster a fair and level playing field. However, we believe that certain provisions of the Bill may have the unintended consequences of negatively impacting company culture and discouraging the hiring of entry-level talent.
Protection from Harassment
The introduction of protections against sexual harassment introduced in October this year, are a welcome step in ensuring healthy workplace cultures and support employee well-being and psychological safety. However, the Bill’s addition of ‘all reasonable steps’ versus the current standard of ‘reasonable steps’ is both overly burdensome and unattainable.
The requirement for employers to take ‘all reasonable steps’ to prevent sexual harassment imposes an unrealistic burden on employers as it is nearly impossible for any organisation to foresee and mitigate every potential instance of harassment. The anticipatory element of this requirement makes it unachievable, as no employer can guarantee absolute prevention. This standard is not only impractical but also places an undue burden on employers, who may struggle to demonstrate compliance in tribunal cases resulting in inconsistency in the interpretation of the standard. The threshold of ‘reasonable steps’ that currently exists is sufficient to achieving the Bill’s outcomes.
Additionally, the increased threshold for employers could negatively impact workplace culture. The overly burdensome requirements may lead to overly cautious behaviour, potentially preventing social interactions that are vital for a healthy workplace environment. The fear of non-compliance might discourage informal and positive social activities, which are essential for team cohesion and morale. It is within these social interactions, both formal and informal, that culture is developed, and values are reinforced.
Dismissal
The removal of the qualifying period and introduction of day one rights against unfair dismissal is a positive step towards enhancing workers’ rights and increasing job security. The Bill proposes to remove the current two-year qualifying period for unfair dismissal claims and allows these claims to be brought from day one. While we support the intent behind day one rights, we are concerned about the potential impact that this may have on organisational cultures which have been working hard to widen the talent pool and create a more inclusive workforce through hiring for potential.
This shift could result in several unintended consequences. Organisations might avoid diversifying their talent pools due to a reluctance to hire based on potential. There is a risk that firms will prefer more experienced, and often more costly hires, leading to uninspired and unimaginative recruitment practices. This trend could place additional burdens on HR and shift the focus from people to processes, viewing individuals as risks rather than assets.
Such cautious hiring practices could limit opportunities for younger talent, favouring experienced candidates instead. This would negatively impact the development of a diverse workforce. It could also slow down hiring, negatively impact the UK labour market, as organisations would be reluctant to hire as the process would become for stringent and formulaic.
While the IA and its members support the Bill's aim to enhance workers' rights and promote fair workplaces, we have concerns about potential unintended consequences. The proposals introduced by the Bill could negatively impact company culture and discourage the hiring of entry-level talent. We recommend reconsidering the heightened requirements for harassment prevention to ensure they are practical and achievable as well as implementing a nine-month probationary period where rights would vest after that point. By addressing these issues, we can better align the Bill with the government's broader skills and growth initiatives, fostering a more inclusive and dynamic workforce.
What impact will these measures have on staff retention, hiring practices, probationary periods and wages?
As discussed in section 1, the Bill’s introduction of day one right against unfair dismissal as proposed, is likely to have a significant impact on hiring practices particularly for entry-level talent. Without the implementation of an adequate probationary period, this Bill could inadvertently undermine the government's broader skills and growth initiatives.
Without the existence of a time period for assessment of candidates whilst on the job, firms may begin to take a more risk-averse approach to hiring resulting in playing it safe and focussing on hiring more experienced candidates rather than hiring for potential.
Additionally, a more risk averse approacht to entry-level hiring could have significant repercussions for the Skills England initiative. One of the primary goals of this initiative is to increase apprenticeship opportunities for young people, providing them with practical, on-the-job training. However, if entry-level hiring is deemed to risky and decreases, there will be fewer entry-level apprenticeships and similar programmes available, which could hinder the opportunities for young people to access meaningful work.
Furthermore, entry-level positions are crucial for building foundational skills within the workforce. A reduction in hiring at this level could widen the existing skills gap, making it more challenging for employers to find qualified candidates in the future. This could also impact the diversity of the workforce, as entry-level roles often serve as a gateway for a wide range of candidates, including those from underrepresented groups.
The long-term economic impact of a slowdown in hiring for potential could be substantial. The Skills England initiative aims to boost productivity and economic growth by ensuring a skilled workforce. A slowdown in entry-level hiring could undermine these goals, leading to economic challenges down the line. Additionally, the success of Skills England relies on collaboration between employers, education providers and the government. A hiring slowdown could disrupt this collaboration, making it harder to achieve the initiative's strategic objectives.
To mitigate the potential deteimental impact on hiring practices, it will be essential to estabish a probationary period of at least nine months rather than implementing day one rights. This would support employers in maintaining or increasing entry-level hiring and ensure that alternative pathways for skill development are remain available.
In conclusion, while the Employment Rights Bill seeks to modernise and enhance the legislative framework governing employment rights in the UK, it is imperative to strike the right balance between robust worker protections and operational needs of businesses. Overly prescriptive regulations could inadvertently undermine workplace culture and negatively impact entry-level hiring. A collaborative approach, incorporating insights from both employers and employees, will be essential to achieving the desired outcomes. By ensuring that the legislation is both equitable and practical, we can foster a strong and resilient labour market that supports economic growth, increased UK competitiveness and enhances employee well-being and psychological safety.
The Investment Association | Response to the Business and Trade Committee Call for Evidence on the Make Work Pay: Employment Rights Bill | 3 |