Many employers will have been concerned about the uncertainty caused by the Government's proposed Retained EU Law Bill, which could have seen important employment regulations such as TUPE and the Working Time Regulations 1998 being repealed at the end of the year unless the Government took active steps to preserve them.
On 10 May 2023, we learned that the Government has changed its approach and will now only be repealing a specific list of around 600 pieces of legislation and leaving most key employment legislation intact. This is welcome news as, although businesses may have appreciated some reforms, it gives short term certainty as to the employment regulatory landscape.
Alongside that announcement, the Department for Business and Trade (DBT) has published a policy paper entitled "Smarter Regulation to Grow the Economy" (the Policy Paper). This sets out a number of changes the Government is proposing to make to employment law:
- To limit non-compete restrictive covenants to a duration of three months
- Reforms to the Working Time Regulations, and
- Minor changes to the information and consultation requirements in relation to a TUPE transfer.
The Government has described the proposals in the Policy Paper as an initial package and we may therefore see future proposals to amend or rewrite other EU derived employment laws. We have commented on what we know about the current proposals below.
Non-compete restrictive covenants can be an important tool for employers to try to protect themselves from competition by ex-employees. However, they can be difficult to enforce and will be unenforceable unless they protect a "legitimate business interest" and are no wider than necessary to achieve that protection.
The Government has previously consulted on limiting non-compete clauses and the Policy Paper confirms that they intend to legislate to limit non-compete clauses to a maximum period of three months. The Government's hope is that this will provide more flexibility for employees to join competitors or start up their own rival business, subsequently benefitting the economy from a widened talent pool.
On 12 May, the DBT published the Government's response to the consultation, in which it made it clear that the statutory limit will apply to non-compete clauses only; furthermore, it will only affect contracts of employment and limb (b) worker contracts. (A "limb (b) worker" is an individual who has entered into or works under a contract under which they undertake to do work personally for the other party to the contract and the other person is not their client or customer.) This means that it will not apply to non-employment contracts such as partnership agreements or sale and purchase agreements.
We do not yet have any details on when, if at all, the legislation is likely to come into force or whether it will have retrospective effect in relation to existing contracts. The Government has said only that it will bring forward legislation when Parliamentary time allows and we will need to look at the detail when it is published. However, if these proposals do become law they will have a significant impact on businesses that seek to protect themselves through the use of six or 12 month non-compete restrictions. Such employers may need to look at increased use of garden leave clauses, potentially combined with longer notice periods, to provide some protection. It would also be sensible to review and tighten up confidentiality clauses.
Ultimately, whether you view this as a positive or negative development is likely to depend on your business. Growing businesses may see a significant benefit in terms of their ability to bring in new talent. However, established businesses may be concerned that important protections are being diluted and will want to consider the best way to ensure adequate protection from competition in future. It will also impact on international businesses, which may be keen to apply a consistent set of restrictions across jurisdictions but may be unable to.
Working Time Regulations
In relation to the Working Time Regulations, the Policy Paper provides that the Government will consult on removing requirements to record working hours for almost all members of the workforce, which it believes will cut red tape for businesses and save £1 billion per year. This does not, however, mean that employers can cease record keeping altogether, as other legislation, particularly relating to the national minimum wage, will still require record-keeping in most cases.
Additionally, the Government will consult on allowing employers to pay "rolled up holiday pay". Rolled up holiday pay describes an approach in which employers include an amount in employees' overall pay to reflect pay for their holiday entitlement, rather than allocating holiday pay specifically to the days on which an employee takes their annual leave. It is technically unlawful under EU case law, although a number of employers have continued with the practice. We await detail of how the Government proposes this would work in practice but their view is it would reduce the burden and complexity of calculating an employee's entitlement.
Finally, the Working Time Regulations currently distinguish between two separate annual leave entitlements – one for four weeks’ leave based on EU law and a further 1.6 week's leave, which is a UK law entitlement beyond the EU minimum. The Government has said it will consult on plans to combine these entitlements into one pot of statutory annual leave, maintaining the same amount of total holiday entitlement. The intention is that this will simplify the approach to employees' holiday, although it could create complications as, at present, the requirements introduced by EU case law to include amounts in holiday pay in respect of commission, bonuses and overtime only apply to the first four weeks' leave. It is unclear as to whether the Government intends to expand those rights through these proposals and we will need to wait to see the detail.
Finally, in relation to TUPE, the Government will consult on removing the requirement for employers to inform and consult employee representatives “for businesses with fewer than 50 people and transfers affecting less than 10 employees”. Instead, those businesses will be allowed to consult directly with the affected employees. There is already an exception, in some circumstances, that allows businesses with fewer than 10 employees to liaise with employees directly and it appears that the Government intends to expand that.
Whether or not this proposal will actually assist employers is debatable. One advantage of providing the information to employee representatives is that it can help limit the number of questions that employers have to respond to, as the questions are channelled through the representatives. While small employers may welcome not having to carry out an election process to appoint representatives, liaising with employees directly could lead to employers having more questions to reply to overall.
The Government published a consultation on 12 May, which seeks views on the proposed changes to the Working Time Regulations and TUPE that we have set out above. The consultation will close on 7 July: Retained EU employment law reforms - GOV.UK (www.gov.uk) We will monitor these developments as they progress and provide further updates once more detail is available.