U.K. Government Announces Proposed Employment Law Changes

The U.K. government has announced a number of measures intended to reform employment laws post-Brexit. These are potentially important changes that would impact the law relating to non-competition clauses, holiday time and Transfer of Undertakings (Protection of Employment) Regulations (TUPE), as well as the whole employment law landscape.

Reduced regulatory burden on employers

In its policy paper entitled ‘Smarter Regulation to Grow the Economy’ published 10 May 2023, the government confirmed the following changes that are intended to reduce the regulatory burden on employers:

Restriction on non-competition clauses

• The government intends to introduce legislation to limit the length of non-competition clauses in employment contracts to a maximum of three months.
• No changes are proposed to restrict other protections available to employers to protect themselves in respect of against departing employees (e.g., notice, garden leave and nonsolicitation post-termination restrictions).

Key takeaways: No timescale has been given as to when the government will introduce the legislation, just ‘when Parliamentary time allows’. It therefore remains to be seen how quickly employers will need to grapple with these proposed changes. However, reviewing (and limiting) the use of restrictive covenants in this way has been on the government’s radar for quite some time, so we suspect may be seen as a priority. 

If/when the legislation is passed, it will have a significant impact on employers’ ability to protect their commercial interests after employees leave. Employers would therefore be advised to revisit restrictive covenants and other protections contained in employment contracts, particularly for key/senior employees.

Holiday entitlements / Rolled-up holiday pay

• The government intends to consult on proposals to:
• allow ‘rolled-up holiday pay’, so that ‘workers can receive their holiday pay with every payslip’; and
• merge the ‘basic’ and ‘additional’ annual leave allowances under the Working Time Regulations into one pot of statutory annual leave. However, the amount of overall statutory holiday entitlement (5.6 weeks for a full-time worker) is to remain the same.

Key takeaways: ‘Rolled-up holiday pay’ refers to a practice of paying workers an additional amount on top of their normal hourly rates of pay, with the additional amount intended to represent holiday pay, instead of them taking the time off at the time they receive the payment. The practice is currently unlawful (as Courts have taken the view that it could act as a deterrent to employees actually taking their holiday).

Limited information has been provided as to the scope and implementation of the above proposals.

This proposal comes hot on the heels of the government’s announced consultation (January 2023) proposing to make holidays under the Working Time Regulations 1998 proportionate to hours worked (following the case of Harpur Trust v Brazel). See: Calculating holiday entitlement for part-year and irregular hours workers: consultation (publishing.service.gov.uk)

Working Time Regulations 1998 – no requirement to record working time

• The government intends to consult on a proposal to remove retained EU case law that requires employers to record working hours for almost all members of the workforce.

Key takeaways: Employers should still be wary (and take advice) before changing working-hours records and practices, as recording them may continue to be good practice and necessary.

Minor reforms to TUPE

• The government intends to consult on proposals to allow employers to inform and consult employees directly about TUPE transfers where they do not have appropriate representatives in place.
• The change would apply to businesses with fewer than 50 people and transfers affecting less than 10 employees, allowing them to consult directly with the affected employees. Currently under TUPE, except in certain circumstances, employers must inform and consult with employee representatives about a TUPE transfer.

Key takeaways: This is a relatively minor procedural change to TUPE information and consultation processes, but is arguably a sensible one making the process more personal in the context of smaller-scale employers and transfers. 

Notably, no other TUPE-related proposals have been made, though others might have been expected. In the paper, the government stated its commitment to TUPE: ‘The regulations provide important protections for employees and provide a legal framework for transfers of staff’.

‘Sunset clause’ disappears into the night

In an announced ‘update’ on 10 May 2023, the government backtracked on the controversial ‘sunset clause’ contained in the proposed Retained EU Law (Revocation and Reform) Bill.

Such a clause would have meant thousands of EU-derived laws simply expiring (and therefore not applying) if not kept or replaced before December 2023. In theory, that could have affected (amongst others) obligations relating to holiday leave/pay, TUPE, part-time workers and agency worker rights. The employment law implications of the sunset clause were potentially seismic.

It remains to be seen though, whether the government announces any further proposed employment law changes in the coming months, in addition to those it announced on 10 May (set out above).  

If you require advice on any of the above or have questions specific to your organisation, please contact your regular AT lawyer or the author listed below.