Workers’ rights fines will harm growth and jobs, small businesses warn

The government risks “reversing economic growth” and disincentivising hiring if it pursues plans to issue “punitive” fines to businesses that breach its workers’ rights plan, industry leaders have warned.

Businesses face paying thousands of pounds in fines if they fall foul of the new protections that Labour are hoping to introduce, it was revealed on Monday.

The expansive overhaul, which includes controversial reforms like a ban on “exploitative” zero hours contracts and giving workers the “right to switch off”, is currently being fine tuned by ministers.

And as part of the overhaul’s latest incarnation, the government also plans to set up a new regulator – the Fair Work Agency (FWA) – that will be given expansive powers including the right to issue fines “in the low thousands” and bring prosecutions.

But several small business groups have balked at the proposals, arguing that “punitive fines” risk damaging the sector just as it is getting back on its feet after twin blows of the pandemic and the ensuing period of high rates and inflation.

Emma Jones CBE, the founder and CEO of Enterprise Nation, told City A.M.: “Small businesses are the backbone of our economy, but they are already facing unprecedented pressures… Imposing punitive fines on these firms, just as many of them are getting back on their feet and starting to employ people, perhaps for the first time, would reverse, not encourage, economic growth.

“If new workers’ rights regulations are introduced, small businesses must be exempt from proposed fines for failure to comply.”

Meanwhile Alexadra Hall-Chen, principle policy director at the Institute of Directors, stressed the importance of any enforcement mechanisms being “proportionate so as to avoid increasing the risk and cost of employment” for for small businesses.

The reforms to workers’ rights were a core part of the Labour manifesto in the recent general election, and are being overseen by new Deputy Prime Minister Angela Rayner.

The party was accused of “watering down” the overhaul in the run-up to the election, angering unions. But despite the concessions, much of the business community remains sceptical of certain elements, including making flexible working “the default” for all workers who want it and mandating firms with more than 250 staff to publish ethnicity and disability pay gaps.

Tina McKenzie, policy chair for the Federation of Small Businesses, said fears around flexible working are particularly profound among small businesses, some of which operate more like a “family unit” than a major corporate.

“There are valid reasons an employer might not be able to offer flexibility… and small shops or seasonal businesses often can’t predict their staffing needs far in advance, so they need the ability to adjust as circumstances change,” she said.

“If the rules become too rigid, small firms could be forced into formalised corporate HR paperwork for managers that simply doesn’t suit them or their staff.”

And Michelle Ovens CBE, founder of Small Business Britain, commented: “Small business owners benefit hugely from flexibility, for both themselves and their staff. But that flexibility looks totally different for different people and different sectors.”

A Department for Business and Trade spokesman said: “The Fair Work Agency… will be bringing together existing bodies into a single agency to better support businesses and individuals.

“We are working in close partnership with business and trade unions to find the balance between improving workers’ rights while supporting the brilliant businesses that pay people’s wages.”