Are stronger employment rights really a barrier to growth?
Just over three years ago, P&O stunned the country by dismissing en masse nearly 800 workers without consultation only to replace them with lower-paid staff.
In a move that met fierce disapproval from MPs, trade unionists and local people in Dover, the ferry operator acted with impunity towards its employees, many of whom only heard of their fate via a pre-recorded video message.
Mick Lynch, the former leader of the RMT, which represented the workers, said it was “one of the most shameful acts in the history of British industrial relations”.
But, despite the outrage, P&O didn’t suffer any sanctions for failing to reinstate the workers and the previous government didn’t close the legal loopholes the company had exploited.
Now, however, the ruthless practice of ‘fire and rehire’ is set to be addressed in the current government’s Employment Rights Bill, which is making its way through parliament.
Heralded as the “biggest upgrade to rights at work for a generation”, the Bill is not only looking to prevent ‘fire and rehire’ but also at giving employees a ‘new deal’ in a host of different areas including flexible working, zero-hour contracts, statutory sick pay, family leave and trade union recognition.
While the Bill has been welcomed by unions, it has met vociferous opposition from business organisations, who claim expanding employee rights will cost jobs and be a barrier to growth.
Tina McKenzie of the Federation of Small Businesses has, for example, called on the government to “ditch” what she calls “reckless changes” to giving employees protection against unfair dismissal from day one. “If taking on staff becomes a legal minefield, businesses will simply stop,” she claims. [1]
But economists and legal experts who support the Bill have rejected this argument in an open letter to the government. Speaking for the group, Professor Ozlem Onaran, says that “stronger employment rights contribute to economic stability rather than hinder it” and insists that “the notion that protecting workers harms growth is not supported by serious economic research.” [2]
The only evidence produced by the FSB to support their claim is a poll of small business owners which found the majority of them expressing ‘concern’ about the changes. But this is not of itself proof that they would actually forego recruitment if they really needed staff to fill vacancies or expand their business.
Of course, most employers will say they prefer to be unfettered in how they treat staff. And they would, no doubt, do so without any intention of behaving unfairly. But the law has to provide protection for the worst cases. The likes of P&O, by acting so badly, have made legislation essential, as have employers who have used zero hours contracts to artificially deny staff any security.
But will the Bill achieve its goal of ending bad practices? The Institute of Employment Rights (IER) – a think-tank backed by unions and labour law specialists – fears that it is “riddled with loopholes, that could render it meaningless”. On ‘fire and rehire’, IER says it allows dismissals if companies face ‘likely financial difficulties’ without clearly defining what this means or requiring it to be confirmed by an independent financial auditor.
IER’s director, James Harrison, argues that the Bill would not stop a company like P&O from replacing workers with agency staff on lower pay and worse conditions. He says that “without meaningful penalties, tighter legal definitions, and properly resourced enforcement, we are back to square one.” [3]
Media coverage of the Bill has so far been dominated mainly by the business lobby. But are they really speaking for all businesses? Do all employers really want to align themselves with a lowest common denominator approach – or even a race to the bottom?
As well as being unethical, the evidence of the last 15 years suggests that the drive for economic growth is not aided by a lack of worker rights. Britain’s employment laws fall well short of international standards, including those of major European competitor countries, but we have still lagged behind them in terms of economic performance.
It’s surely time to try something new. It might just be that giving workers a more secure stake in the economy is one of the keys to growing it.
This article was written by our executive director, John Underwood and featured in the Western Mail on 24 March 2025.