(Bloomberg) -- UK plans to protect employees against unfair dismissal from their first day in a new job threatens to reduce the number of candidates hired from underrepresented backgrounds, employment experts said, as the government estimated the policy could cost businesses tens of millions of pounds a year.
The measure is one of 28 changes to employment rights outlined in a government bill placed before Parliament earlier this month and debated in the House of Commons on Monday. Even though it’s not yet law, employers are already considering changing their recruitment practices, according to leading employment lawyers.
There are concerns that the policy “will have a depressing effect on attempts to improve diversity and inclusion,” said Richard Miskella, a joint managing partner and leader of the employment, immigration and reward department at Lewis Silkin LLP, citing conversations with large employers.
Stefan Martin, a partner in the employment practice at Hogan Lovells, said employers were likely to choose “safer” hiring options going forward.
The comments underscore the potential for unintended consequences of a bill that the new Labour government says is vital to establishing a healthier relationship between employers and their workers, helping spur growth in the UK economy after years of under-performance.
The government’s own analysis of its legislation appeared to back up the verdict by Miskella and Martin.
The bill “could damage the employment prospects of people who are trying to re-enter the labor market, especially if they are observed to be riskier to hire,” the government said in a cost analysis of the legislation published on Monday. This includes younger workers or candidates with less experience, it said.
UK employers have already started scaling back recruitment from candidates without a university degree. As vacancies dry up in the face of slow growth, companies are becoming pickier about who they hire, using degree requirements as a way to filter through growing piles of applicants.
Labour’s proposal would replace the two-year rule with a shorter probationary period, the length of which will be confirmed after a consultation period with employers. Although the new laws would come into place in 2026 at the earliest, employers are already starting to rethink their recruitment playbooks.
The new unfair dismissal policy is estimated to cost businesses upwards of £40 million pounds every year, according to an impact assessment published by the government. That makes it one of the most expensive changes out of Labour’s 28 workers’ rights reforms, which could cost firms as much as £4.5 billion a year.
The government proposed the rule change however because it believes workers will benefit from better job security as well as higher wages.
Yet the change to unfair dismissal rules won’t remove governmental pressure for making workforces more representative of the population. What it could do, according to Deborah Margolis, a senior counsel at GQ Littler, is move diversity lower down on the list of priorities for employers.
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