Extending the right to request flexible working will impose additional costs on employers

This week Nick Clegg has announced the government’s intention to extend to all employees the right to request flexible working. This proposal seems not to have excited much concern amongst employers and economists. I must say, however, that I am a bit bothered by it.

Since 2003, employees with 26 weeks’ continuous service have a statutory right to request a change in their working arrangements in order to care for dependent children. In 2007 this right was extended to those caring for an adult (for example a disabled adult child or elderly parent). Changes might include a switch to part-time work, job sharing, ‘flexitime’ rather than fixed hours, compressed hours (for example four ten-hour days instead of five eight-hour days), working from home, adjusted annual hours, termtime-only working and so on.

The applicant must put his or her proposal in writing, with suggestions about how the employer could adapt work procedures to cover for the change proposed. The employer must respond by arranging a meeting within 28 days to consider the proposal: at this meeting the employee can be accompanied by a fellow worker. In many cases, particularly in the public sector, this will be a union official. Following the meeting, the employer must give an answer within 14 days. If the request is refused, explanation must be given in writing. Refusal can be on grounds such as the burden of additional costs, detrimental effect on consumer service, difficulties in reorganising other staff, or effects on work performance. The employee can appeal, and the appeal must be heard within 14 days, with the final verdict being announced within another 14 days after the appeal. If changes are agreed, they must be incorporated in a new contract which cannot be changed back without going through the whole procedure again.

Advocates of increased flexibility claim that revised arrangements increase employee loyalty and motivation, and enable employers to retain key workers who might otherwise have left. I have, however, seen no serious evidence on this – only the odd case study. As I suggested in my contribution to the IEA’s …and the Pursuit of Happiness, assertions without evidence are common in the literature on wellbeing at work.

Much is made of the fact that 90% of applications are being accepted. This is taken as evidence that employers can make adjustments at little cost. This is not altogether clear, however. It seems likely that there are additional costs from, for example, recruiting an extra part-timer to cover for someone who wishes to reduce or stagger working hours. These costs may be absorbed in the short run by larger employers, but could be significant for small firms and may affect longer-term employment levels.

To the extent that there are costs, of course, the economic theory of mandated benefits suggests that these costs will ultimately borne by employees in terms of lower pay. Free lunches not available here.

Digging around, it is possible to see more immediate problems which advocates of flexibility ignore. A small but significant number (in the low hundreds) of cases reach Employment Tribunals each year. Compensation up to £3400 can be awarded if the various procedural stages are not correctly followed. This is a particular problem for small firms, where the independence of appeal panels may be difficult to ensure. And although Tribunals cannot require flexible working be implemented, they can send back for further consideration proposals which they believe have not been properly considered by employers, challenging their grounds for rejection.

In some cases, constructive dismissal appears to be an option for Tribunals to consider: if somebody feels so bad about the way that their application has been treated, they may walk off the job and seek redress. Ominously, too, many of the cases before Tribunals also bring in claims of sex discrimination, where of course there are no limits on compensation. Interestingly, these claims often involve men who claim that their caring responsibilities have not been treated as seriously as those of women.

And even if cases do not come to tribunals, they can lead to unpleasant confrontations at work. Despite my professional doubts about anecdotes, I can’t resist describing briefly a case in a large public sector institution where I served on an appeal panel. The applicant was employed in an important supervisory role on Mondays to Fridays in normal working hours. The proposal was to shift to four ten-hour days, of which one would be spent at home. Thus the employee would be off-site for two out of the five normal working days. The manager was unable to agree to this as it would, he argued, require other staff to act up during the employee’s absence and this would be costly and disruptive.

Both sides had a case, to be fair, but the points I would emphasise are first, the huge amount of time involved for the manager, the HR department and three external panel members (who had to produce lengthy written appraisals) and second, the extraordinarily unpleasant atmosphere, with the union representative constantly casting aspersions on the good faith of the manager, who was extremely unhappy and embarrassed, and the emotional appeals of the applicant leading to tears and breaks in the meeting. Quite what the future working relationship between the two would be I dread to think.

So I do not think that we should be lightly extending the right to request flexible working to those members of the workforce (with no more than half a year’s employment record, remember) who have no obvious reason for changing contractual obligations they freely took on. At best this will create a lot of extra work for employers in considering claims and trying to make complicated rearrangements to suit different tastes. At worst it will create more confrontations, with claims of unfairness linked to different protected statuses under equality law.

Just because this is ‘soft-touch’ regulation does not mean that it is harmless. At this difficult time we should be doing all we can to reduce the burden on employers rather than adding to it.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.