(Bloomberg) -- UK businesses have warned the Labour opposition that its plans to shake up employment rights could leave workers with less secure jobs.

Senior industry figures said the party’s proposal to overhaul employment rights may result in longer probation periods for new hires, more fixed term contracts and a switch to agency staff if Labour wins the general election.

The reaction would undermine the “new deal” Labour leader Keir Starmer has promised. The party plans to give employees the right to claim unfair dismissal from their first day on the job, end zero-hour contracts, strengthen sick pay and improve conditions in the gig economy. 

Rachel Reeves, shadow chancellor, will say at her Mais lecture Tuesday evening that labor market reform is a key pillar of the party’s growth strategy. 

The proposals have raised concerns that the response from business could end up driving more people in precarious jobs, according to people close to the discussions who asked not to be named to avoid destabilizing talks.

Business groups are working with Labour to help deliver its goals while maintaining the flexible labor markets that are considered a UK competitive advantage. Party officials are engaging constructively and appear prepared to make changes, the individuals said. 

They added that Labour has signaled it will consult business plans before making changes rather than act unilaterally. Small and medium sized companies are most at risk. 

“A lot of businesses are looking for ways around the proposals, like the use of fixed-term contracts, looking into using contractors,” said Adam Marshall, a former director general of the British Chambers of Commerce who now works as an adviser. “I’ve heard about probation periods. People are concerned about the risk to their business.”

The discussions are important to the economy because Britain is short of the workers companies need to keep growing. While unemployment has picked up in recent months, thousands of people left the workforce during the pandemic, forcing executives to pay higher wages to draw in staff.

Unions have been pushing for the reforms, which are being driven by Labour’s Deputy Leader Angela Rayner, but there are fears the party is about to water down the plans, as it did with the £28 billion green investment pledge earlier this year. The Trades Union Congress last month said the plans were “extremely popular” with voters and good for the economy.

Business groups have been in negotiations with Labour for weeks. The Financial Times reported last Friday that Starmer is seeking to reassure employers. A party spokesman declined to comment.

Labour’s “new deal for workers” would provide unfair dismissal rights from day-one. Currently, staff need two years’ employment. Labour has indicated that unfair dismissal rights will only apply after probation periods end. Discussions on the topic are ongoing, though.

UK companies generally hire people on probation periods that last three to six months, during which time the staff can be let go without cause. Companies are looking to extend those beyond six months, the people familiar with companies’ plans said. 

Executives are also considering greater use of rolling fixed-term contracts, renewed annually, which would give employers the opportunity to let staff go at little cost. Firms could also turn to agency work to maintain flexibility, people familiar said. 

Employers are also proposing changes to the way zero-hour contracts operate rather than a full ban. Staff should be allowed to request zero-hours contracts where it suits them, so long as companies always offer the alternative of predictable hours.

“Being able to use a probation period for new hires gives employers the confidence to create more jobs and is particularly important to small and medium sized businesses,” said Matthew Percival, future of work & skills director at the CBI employers group. “Businesses want to work with Labour to ensure their New Deal enables this important aspect of employment practice to be retained.” 

Jane Gratton, deputy director of public policy at the BCC, said, “Over-tightening legislation to tackle problems created by a few firms risks doing harm to the majority of businesses — and jeopardizing jobs for the people they employ. Creating fairer and more equitable workplaces is an important part of raising the UK’s productivity and Labour are right to focus on this.”  

“To protect jobs, and the economy, any changes to legislation must be proportionate, affordable, allowing time for business to prepare and be accompanied by robust guidance and support.”

--With assistance from Andrew Atkinson.

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