‘It’s just not right’: Businesses brace for Labour’s worker revolution

For Amy Stubbs, 2026 is starting off on the wrong foot. The managing director of British Garden Centres employs 3,500 staff across the country but fears Labour’s workers’ rights overhaul is about to add significant costs to her business.

“We have got concerns about the extra financial burden it’s going to cause us,” Stubbs says. “Statutory sick pay is without a doubt going to add increased costs.”

Labour’s reforms will usher in statutory sick pay from day one of being ill, rather than day four. While the adjustment may sound small, it is just one of a blizzard of changes ushered in by the Employment Rights Act, which received Royal Assent just before Christmas.

To cope with the changes, Stubbs is increasing probation periods from three to six months, the four-person HR team will get two extra staff members and regional managers will receive more training in how to deal with staff issues.

“In the challenging climate at the moment, that is a worry for us of how we carry on a profitable business with those cost increases,” Stubbs warns.

She is among the many business owners up and down the country bracing themselves for Labour’s reforms, billed as the biggest change to employment rights in a generation.

Ministers say the reforms will hand much-needed job security to workers and rebalance power more fairly towards employees. But bosses like Stubbs fear the changes will burden them with yet more costs at a time when businesses are already reeling from tax raids.

Fear of being sued

“If we don’t manage people properly within their probation period, things could become a lot more complicated for us further down the line,” Stubbs says. “Ultimately, the cost could spiral if we didn’t have a robust absence system in place as well.”

“It’s definitely highlighting the importance of us keeping our costs under control, particularly labour, with the wage costs going up again.”

She is fortunate that her business has the scale and spending power to bolster its HR team. Many smaller business owners aren’t so lucky, says Craig Beaumont, at the Federation for Small Businesses.

“Every small business owner’s number one fear is being sued, making a mistake on the employment side and being taken to a tribunal where there’s a two-year delay before you have your hearing,” Beaumont says.

The Employment Rights Act affects everything from sick pay and paternity leave to the ability to sue your employer. Reforms will start to be gradually phased in from April next year but bosses must prepare now to ensure they are not caught flat-footed.

The Government’s own assessment shows businesses face a £5bn cost as a result of the reforms. That adds to the pre-existing costs from big minimum wage increases and Rachel Reeves’s £26bn tax raid on employers.

“You do have a cumulative impact,” says Kate Shoesmith, from the British Chambers of Commerce.

Different businesses worry about different parts of the legislation. While Stubbs is most concerned about changes to sick pay, Glyn, who runs a care service with 25 employees in London, is worried about changes to zero-hour contracts. The reforms will enshrine in law the right for almost all staff to get guaranteed hours and compensation for shifts cancelled with little notice, starting from 2027.

“Most of our employees are on zero-hour contracts,” he says. “As much we would like to give them guaranteed hours, obviously if we lose a client who needs a lot of hours, then we don’t necessarily have other clients we can reassign those staff to. If we have to guarantee them hours that [cost] would be passed on to clients.”

Glyn, who wants to keep his second name private, adds: “Any legislation that increases costs on us as a provider, a big chunk of that needs to be passed on to people using our services. As we become more expensive, we potentially lose clients.”

Ministers have repeatedly rejected claims that the overhauls will make an already weak economy worse. Instead, the Government insists the reforms are “pro-growth, pro-business and pro-worker”. It is a gamble at a time when redundancies are at their highest since Covid.

In a key concession, the Government abandoned plans to allow staff to sue their employer for unfair dismissal from day one. Instead, employees will have to wait until six months after they are hired to qualify for the right.

But as part of this compromise, Starmer removed a cap on compensation, which is currently limited to £118,223 or 52 weeks of full pay – whichever is lower. This move took employers by surprise and has only heightened anxiety. The removal of the cap is expected to come into force from 2027.

‘Eye-wateringly expensive’

Despite many changes only taking effect in a year, the reforms are already prompting bosses to act.

“We have seen more clients getting in touch recently and saying, ‘We’ve got somebody. They’ve only been with us a year or less. We want to let them go. What are the risks?’” says Nick Hurley, a partner focused on employment law at City firm Charles Russell Speechlys.

“Some employers have been doing a little bit of pre-emptive gardening in terms of weeding out weaker-performing employees. One client even said to me that they know [the changes are] potentially far off, but it’s already starting to concentrate minds a bit more in relation to whether employees are keepers, or whether they are people they should get rid of.”

Much of the focus has been on the impact of the changes on industries like hospitality, retail and leisure. But the reforms will also make it more difficult for high earners in sectors like banking and the law to change jobs, Hurley says.

“Employers have become a lot more circumspect and cautious about the bigger hires. The whole recruitment process around more senior people is going to tighten. That is a very foreseeable effect,” Hurley says.

“If people are on very big remuneration packages, it becomes eye-wateringly expensive to have to deal with claims where the losses are not capped but could be unlimited. [External] hires are going to be more costly and risky.”

Part of the reason why companies are acting now is that any mistake or challenges once the rules take effect could drag on for years. The tribunal system is already facing huge backlogs and is “simply overwhelmed”, says Libby Payne, a partner at Withers, a City law firm.

“Anything that increases the possibility and likelihood of claims is going to be problematic unless the tribunals are able to deal with that additional workload. It would just mean that everything just completely grinds to a halt.”

Phil Thorley employs 350 people across 18 pubs in Kent under the brand Thorley Taverns, in towns like Margate, Ramsgate and Broadstairs.

His biggest concern is the changes to statutory sick pay and parental leave. New staff will qualify for parental leave rights immediately when starting a job and the reforms will also make it more difficult to make pregnant women and recent mothers redundant.

“It’s just not right to have rights from day one,” he says. “If you’ve only interviewed somebody and they come to work for you, you don’t know whether they could be pregnant before they start. You don’t know what their sickness record is before they start.

“Our team who work with us are extremely valuable to us. We can’t run our business without our people. We need to look after them, but we cannot be in a situation where people could possibly join us and possibly take advantage of day one rights, which would not be fair.”

Such concerns about unaffordable costs, litigation and complex rules will inevitably make Britain’s employers more risk-averse and reluctant to hire. For a Government that claims growth is its number one priority, it has a funny way of going about it.

[Source: Daily Telegraph]