A Labour supermajority: what does this mean for senior executives in the workplace?

Sir Keir Starmer’s Labour Party has won the UK general election with an unprecedented landslide victory of 412 seats.

With a new Labour government in power, we expect there to be significant reforms in employment law. In this blog, we examine ways in which a Labour government could impact the employment rights of senior executives and equity partners.

The following are examples of policy commitments from the Labour Party which we expect to be of significance for senior executives and equity partners:

• ‘Day one rights’: the Labour Party has confirmed in their policy paper ‘Make Work Pay’ that it intends to legislate for “basic individual rights from day one for all workers”, which includes the protection against unfair dismissal. Under the current state of the law, an employee may only bring an ordinary unfair dismissal claim after two years’ of continuous service. It should be noted, however, that the ability to bring an ordinary unfair dismissal claim from “day one” will not be as straightforward as assumed. The Labour Party stated that “[w]e will ensure employers can operate probationary periods to assess new hires”, provided that the probationary periods have “fair and transparent rules and processes”. Whilst it is likely that the Labour government will remove the qualifying period for bringing unfair dismissal claims, it is expected that employers will be able to argue the failure to pass a probationary period constitutes a fair reason for dismissal (provided that their probationary policy is considered by the Tribunal to be fair and transparent).  We have noticed in the past few months that employers in the finance sector have taken steps to impose lengthier probationary periods for new employees (e.g., 6 months or longer). It is assumed that such practices are being implemented in response to the Labour government’s proposal for “day one rights”. Whilst the introduction of “day one rights” will be of benefit to senior executives with less than two years’ qualifying service, assuming that the Labour government does not implement reforms on unfair dismissal compensation, senior executives will still have the incentive to argue that their termination was an act of discrimination or whistleblowing detriment to try and obtain compensation which goes above and beyond the current cap for compensatory awards in ordinary unfair dismissal claims of £115,115.
• Carried interest: Carried interest is a form of remuneration typically seen in the private equity industry which attracts capital gains tax, as opposed to income tax. Rachel Reeves, the new Chancellor, has vowed to ensure that “private equity bonuses are taxed properly” by ensuring that it matches the marginal income tax rate of 45% (as opposed to the current tax rate of 28%). Such measure, if implemented, will make the UK private equity industry fiscally unattractive when compared to European jurisdictions such as France, Italy and Germany, which currently taxes carried interest between 26 to 34% (see further here: Carried interest: Labour sticks by plans to up private equity bonus tax (cityam.com) and Can private equity push Labour to ditch its carried interest reforms? (cityam.com)).
• Whistleblowing: Labour stated in their ‘Make Work Pay’ document that it “will strengthen protections for whistleblowers, including by updating protections for women who report sexual harassment at work”. Whilst it is unclear how a new Labour government will strengthen whistleblowing rights,  the new government may look at the EU Whistleblowing Directive as a source for inspiration. The Directive goes above and beyond UK law through a variety of means, such as by prescribing how employers should operate whistleblowing procedures and handle whistleblowing reports. In addition, the Directive protects a wide range of persons, including job applicants, which is currently not the case in British employment law.
• Redundancy rights: the Labour Party intends to strengthen redundancy rights and protections by ensuring that the right to redundancy consultation is determined by the number of people impacted across the business rather than in one workplace. This is likely to expand the scope for collective consultations and will no doubt be of benefit to employees in sectors which have experienced large scale redundancies, such as in the banking and tech sectors. Under the current law, employers can assess the need for collective consultation by the number of proposed redundancies at each site. This means that employers with multi-site businesses are able to avoid the need for collective redundancies in certain situations. This practice is likely to come to an end under a Labour government and will make it more difficult for employers with multi-site businesses to avoid collective consultations, which imposes onerous notification and information requirements and punitive financial penalties on the employer where they fail to comply. Therefore, if Company A operates offices across London, Leeds and Manchester and they intend to make a combined total of 200 employees redundant across the three offices, Company A will be required to comply with collective consultation requirements under a new Labour Government since the focus would be on the number of people impacted across the business as a whole, instead of each individual workplace.

Whether some of these policy commitments will translate into legislative reforms will depend on the contents of the King’s Speech, which is expected to take place on July 17. In addition, whether carried interest will become subject to the higher rate of income tax will largely depend on the contents of the new government’s budget, which is expected to take place later this year.

Farore Law is a boutique law firm that specialises in complex and high value employment disputes. We have a wealth of experience in advising senior executives from sectors such as banking, private equity, hedge funds, listed companies and the health sector. Please contact us if you require legal advice or representation.