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Labour to introduce sector ‘fair pay agreements’ – major change for employers

‘Fair pay agreements’ – what do employers need to know?

Traditionally Labour is the union-friendly party, unions being Labour’s main funders, and so we would expect a Labour government to take steps to provide additional opportunities for unions to develop their influence, aiding unions to organise more easily in the UK.

Fair pay agreements, announced by Labour as a central policy if they are elected, will be a powerful step towards this goal.

Fair pay agreements

Deputy Labour leader Angela Rayner has championed “fair pay agreements”, “starting with” the social care sector. Under fair pay agreements representatives of workers and employers would negotiate minimum standards for pay and terms and conditions for their particular sector.

While the devil will be in the detail, this sounds like a replication of European ‘Social Plans’ which determine pay levels and termination compensation payments for each sector within an economy. This would be a major change for UK employers, who are currently used to setting their own pay and basing termination payments on national statutory standards, such as for the Living Wage and redundancy pay.

For employers, fair pay agreements would represent a significant devolvement of control and autonomy to the government and the unions, and many will fear rising costs from fair pay agreements.

Union resurgence  

The negotiation of fair pay agreements would undoubtedly involve a bigger role for trade unions, who would expect to be the employee representatives for the formulation of the agreements within each sector of the economy. Increasing prominence presents an opportunity for unions to begin to reverse membership declines. It would also help unions gain a foothold in sectors they’ve previously struggled to influence, like the UK’s strong service sector.

Angela Rayner told the TUC in a speech in September 23:

“Work will finally pay. Rights will be properly enforced. And crucially, it will strengthen the role of trade unions in our society.”

In response TUC leader Frances O’Grady welcomed the proposals (unsurprisingly) saying:

“Giving workers and their unions more power to bargain collectively is the best way to improve pay and working conditions across Britain.”

Fair pay agreements – implications for employers

If fair pay agreements mirror European social plans (some resemblance is highly likely) employers can expect:

  • Minimum terms and conditions set by sector (starting with the care sector, other sectors could include engineering, print, financial services, manufacturing, higher educations etc. Minimum terms may be set by occupation, job title etc.)

Fair pay agreements are likely to increase the costs of employing staff, either through higher hourly pay or the requirement to provide additional minimum benefits – holiday and sick pay for example. Whilst employers could presumably choose to pay above minimum rates, employers in high labour availability areas will no longer be able to make use of lower pay as a competitive advantage.

  • Predetermined termination arrangements could feature in fair pay agreements (as they do in European social plans). Trade unions will want to ensure that termination is a last resort for employers (a central thrust of most socialist governments) and so redundancies, for example, could be subject to minimum termination compensation calculations – it would be safe to assume that these would be in excess of the cost of existing statutory redundancy pay requirements.
  • Easier access for enforcement & union organisation purposes – other associated changes include easing access for trades unions and measures to promote the organisation of traditionally harder to reach workers. As unions will be central to the formation of fair pay agreements, employers can reasonably expect to have increased exposure to unions wishing to recruit members in their organisations, and to union officials who are likely to have an enforcement role in the new agreements.

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