Employment relations in the UK stands at an inflection point.

As we exit the pandemic,  the impact of Brexit bites and factors outside the UK’s control such as energy prices come into play – the UK labour market has been shaken and stirred. It is almost unrecognisable from even three years ago.

The balance of bargaining power is shifting. For now, at least some employees have the upper hand in a way not seen for many years. Today’s reality could not be more challenging for employers.

Firstly, recruiting and retaining staff has rarely been more difficult. There are serious staff shortages in many sectors, increasing the bargaining power of those who remain. This includes traditionally non-unionised sectors such as hospitality and social care. Wages are growing at their fastest rate in years. Signing on bonuses for transport drivers are just one sign of employers now fishing in a shrunken pool.

Secondly, the number of job vacancies is now at a record high of 1.2 million. The ratio of vacancies to every 100 employee jobs reached a record high 4.1 in October to December 2021. No wonder the CBI says most of its members are most worried about labour shortages.

Thirdly, there is a substantial mismatch between the skills required for many jobs, not just in the new industries requiring advanced IT skills such as AI, but in more traditional sectors such as care,  and the skills available in the UK population.

This has been true for years, but these chickens have now come home to roost with no overarching government plan to understand the scale of the problem, just a series of short term emergency measures. Even government attempts to address the problem such as the apprenticeship levy, are failing.

Fourthly, a much discussed rise in wages is being more than offset by the recent substantial rise in inflation. A few stories some time ago suggesting large pay rises in extreme shortage occupations such as logistics have died away. In recent weeks the scale of the cost of living crisis has become clear, with astronomical increases in energy costs for households and in the price of fuel, food and consumer goods.  The current rate of inflation is at its highest for 30 years.  In the 12 months leading up to December 2021 the ONS calculated the CPI rate stood at 5.4 per cent; the RPI which union use to benchmark pay, stood at 7.1 per cent.

Employee confidence

Nor is this simply about pay. Employees are becoming more confident in their demands about how, when and where they want to work. Demands for remote and flexible working are no longer the exception. The crunch is going to come for many employers as they navigate a return to the office for those who worked from home during the pandemic, some of whom will be eager to return, others for whom working from home has become essential.  Government efforts to castigate those public servants wanting to continue working from home at least partially, will exacerbate a crisis in morale.

At the same time those millions of employees who kept our healthcare, logistics and other essential sinews of our country going for nearly two years, have been stretched often to breaking point and are burnt out. Figures for understaffing in the NHS, and social care for example, are alarming.  So are figures for people completely exiting the labour market, a phenomenon we don’t fully understand but which may well be related to chronic ill health among older workers in particular.

Great resignation

The extent of the so-called Great Resignation – employees leaving and/or changing jobs in droves – is becoming clear. In the UK over 1 million people – equivalent to 3.1 per cent of the workforce – moved jobs in the third quarter of 2021 – the rate fastest since 2008.

It looks as if while early in the pandemic people felt insecure and keen to hang on to their jobs, they are now looking to explore their options. The volume of Google searches for ‘leave job’ are 50 per cent higher than they were in early 2020. It seems that many employees are taking a far more transactional approach; sentiment and loyalty may be in short supply. The evidence also suggests that many employees are more explicitly concerned about meaning, purpose and fairness at work and are increasingly willing to walk away from toxic cultures.

Although many organisations did their best to engage staff through the challenge of the pandemic, there is clearly a significant proportion of the workforce that feels let down, whether through ‘furlough’ that wasn’t, poor management of health and wellbeing, managers not taking individual circumstances into account, and so on. In the words of PG Wodehouse, we can see that, if not actually disgruntled, many are far from being gruntled…

Trade Unions

No wonder that across the trade union movement there’s a sense that the time has come for a serious flexing of the muscles. If not now, when bargaining conditions favour labour, then when?  We read that UNITE are polling members in the Financial Conduct Authority in an indicative ballot for industrial action over performance related pay, just one of many such stories, affecting for example Tesco, the National Institute for Economic and Social Research,  Wincanton, Natural England and many universities in recent weeks.

The government’s slogan to move the UK to a high wage, high skilled economy – although we hear less about it recently - plays strongly into the union movement’s hands. Indeed, it would not be surprising to the see the Prime Minister quoted on placards as union members take action to improve their pay and working conditions.

After decades of decline, we have seen trade union membership beginning to rise again over the past five years. And while we are now seeing increasing, sporadic industrial action; we may well see more action, or willingness to threaten action, if inflation does continue to spiral and personal borrowing becomes much more expensive though increases in interest rates. Across the Atlantic, the USA has seen a wave of strikes and walkouts – last October being dubbed ‘Striketober’, with over 100,000 workers on or threatening industrial action.

So in the face of increasingly challenging industrial relations, how should employers respond, given that for some, market pressures, repaying COVID loans and collapsing customer demand – especially in Europe – represent a very real threat to their survival?

Employer's response

First – spend as much time on getting their internal house in order as on meeting external pressures. Good HR and positive employment practices are not a luxury: they are an essential tool to recruit and retain staff. Now more than ever, employees really are your only asset. Take real and observable steps to detoxify a culture that your employees are telling you has gone wrong. Learn from the COVID experience: what went well, what could have been done better. Above all address the capacity of your line managers at every level.  After all we know people join organisations but leave managers.

Second - listen to and engage with employees systematically and on an on-going basis – through surveys, cascades, town halls, staff councils and unions. Ensure there’s mutual understanding and real dialogue about future plans. Be honest about the finances, about challenges facing the business or the sector. Tell the story. If you can’t afford to meet a demand – explain why.

Third - have a proactive employment relations strategy. Be generous with pay if you can, but if substantial pay rises are not possible given current conditions, look at other ways to retain staff – better training and development opportunities, reduced hours, truly flexible working and other initiatives that will improve employee wellbeing.

Fourth – get your relations with your recognised trade unions onto the most positive footing.  Revive or revise your negotiating and partnership arrangements, build up relationships of trust with key union personnel.  Have a proactive strategy to engage with your unions – not just responding to demands.

Fifth - unnecessarily resisting requests for union recognition is counterproductive and will backfire. Far better to invite unions in to make their case to employees. In a recognition agreement employers can set out how they intend to engage with unions, preferably on partnership terms. That way when recognition comes you start off with mutual understanding and engagement, and on the front foot.

This is a challenging moment for employment relations. But those organisations which take employees seriously, and try and identify the sweet spot of mutual interest, stand a good chance of coming through strengthened and not weakened.

It is all to play for.

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