Brexit and the employment contract

Gudrun Limbrick looks at the often contradictory effects that Brexit is having on the nature of the employment contract and more widely on the future of employment.

There is little avoiding the fact that we are currently functioning in a period of significant uncertainty. In political terms, the climate is dominated by Brexit and the far-reaching uncertainty about what Brexit will look like and how this will impact, or not, on our economic health, our jobs market and our markets for the goods and services we produce and buy in from elsewhere in the world. It is, in fact, hard to imagine a time outside of the World Wars, where there has been such a high level of uncertainty in so many aspects of business.

In times of uncertainty, companies classically respond in three key ways in the attempt to protect their position.

  1. Investment is reduced for both current and future spending commitments.

  2. Recruitment falls to reduce pay commitments.

  3. Salaries are frozen or fall to reduce outgoings.

The eyes of the world’s economists have, since the vote about whether to leave the EU was announced, been watching for signs of these responses in the UK economy and the data has been scoured for Brexit-induced fluctuations.

The signs of Brexit in employment trends

Salaries

Regardless of Brexit, public sector pay was, of course, frozen in 2010 and a cap of 1% placed on rises in 2013. As this cap was below the rate of inflation, this has resulted in salaries falling. And it is of no surprise that this has meant that the private sector has generally followed suit. Office for National Statistics (ONS) data suggest that 2017, over 2016, saw a fall in average weekly earnings of 0.4% (adjusted for inflation and excluding bonuses).

Unemployment

The numbers of jobless people, however, do not suggest a marked uncertainty response. There was a significant spike in the unemployment data in the last quarter of 2017. The ONS found that unemployment rose to 4.4% which was the fastest rise in five years. However, the latest figures indicate a fall to 4.2%. In contrast to this, there continue to be polls which suggest that the global unemployment figures are not telling the full story. For example, a recent Manpower poll found that employers are very pessimistic about future recruitment. Of the 2102 employers asked, just 4% said that they were planning to increase staff levels in the near future.

Changes in the nature of employment

Of course, “employment” looks very different to people. Employment, which we traditionally think of as a full-time, permanent job, also includes a large range of temporary contracts, seasonal contracts, part-time contracts, self-employed contracts and zero-hours contracts. If companies were responding to uncertainty in the manner we expect, we would be looking at more of these temporary arrangements which warrant less commitment from employers and fewer permanent contracts which are more difficult for employers to escape from in times of economic downturn. This does not, however, seem to be the current picture.

A survey by the Association of Professional Staffing Companies found a very significant change in the types of contracts that employers are now offering. But it is a change that indicates increased confidence rather than reduced, uncertainty-induced confidence. The survey reported that there was a 10% increase in permanent placements offered from 2017 over 2016, while there was a corresponding fall in contractor assignments of 16%. This represents a very significant shift towards permanent arrangements which we understand are preferred by most employees, particularly in times of economic uncertainty or downturn. This would seem to be good news both in terms of the economy as employers must be feeling confident, and for those employees who have moved from temporary posts to permanent ones. The survey also found an increase of permanent vacancies of 0.3% and a decrease of contractor vacancies of 9%.

The rise of zero hours

Again, however, as with all statistics, the picture may not be as clear cut as it first seems. The global figures are thought to contain a rise in zero-hours contracts.

Zero-hours contracts — any sort of contract or arrangement, permanent or temporary, which does not commit to a guaranteed number of hours of work — have attracted significant controversy in recent years. The most high-profile case was that of Sports Direct whose admission that 80% of its workers were on zero-hours contracts led to a parliamentary enquiry. The media coverage, which was almost primarily against the use of such contracts, tends to suggest that zero-hours arrangements are largely unpopular with employees. However, the number of people on these contracts is on the rise, with an increase of 100,000 in 2017 over 2016. The ONS found that there are now 1.8 million people on zero-hours contracts.

Also on the increase is the number of self-employed people. Similarly, to zero-hours people, some individuals find that being self-employed and the flexibility of the arrangement suits their lifestyle. However, in some circumstances, a rise in the number of people who are self-employed can suggest that employers are preferring to reduce their liabilities and commitments and put the risk onto their employees. The number of self-employed people, according to the ONS, rose from 4.6 million in 2015 to 4.8 million in 2017. This is equivalent to 15% of the workforce.

Uncertainty about uncertainty

One thing is very clear: both predicting and understanding responses to Brexit is not easy. There are a number of reasons for this.

  1. We do not yet know what Brexit will look like.

  2. The likely changes are unprecedented so there is little past learning to go on.

  3. Impacts are directly contradictory. For example, we anticipate unemployment to increase, but we also know that there will be an outgoing of workers from the rest of Europe, particularly Eastern Europe .

  4. There are many other significant factors at work, not least of which is the impact of recent austerity measures, including the pay freeze, a trend which may help increase recruitment.

The trends in this post-Brexit era in terms of employment are not clear and seem to allow for as many different interpretations as there are items of data. The global trends do not appear to have been as responsive to Brexit uncertainty as it was feared they might be: unemployment has remained largely low despite slight fluctuations, youth unemployment has not risen, recruitment levels appear to be steady, and there has not been a sharp move to temporary contracts. However, there are some trends which remain of interest to those with a primary focus on employment rights of workers. Both self-employment and zero-hours contracts are increasing which does serve to take some of the pressure off concerned employers, both in terms of the employment law they have to follow and the need to commit to future salary bills. These trends have been in existence for some time and so it seems likely that the increases will continue. Whether changes in short-term contracts follow suit as Brexit develops, it seems it is just a matter of waiting to see.