Newly announced upcoming changes to employment legislation

Legislative changes to the employment law landscape tend not to happen too often in the UK, but like buses, this week a few seem to have arrived at once with the publication of the UK Government’s policy paper “Smarter regulation to grow the economy”, which sets out various proposals for changes to existing legislation and the introduction of new legislation.

This announcement comes against the background of the government’s (in the writer’s view, very welcome) abandonment of the sunset clause in the Retained EU Law (Revocation and Reform) Bill. There has been much comment in the legal and non-legal press about the uncertainty this clause would create for businesses and individuals alike, given the prospect of a swathe of employment and other protections and regulations ceasing to apply overnight.

Under the new proposals, rather than all EU legislation ceasing to apply in the UK from 31 December 2023, all such legislation will remain in force unless expressly repealed or amended, and this week’s policy paper is the first indication of which pieces of employment legislation the government will be seeking to amend or repeal.

Working Time Regulations 1998

1. The requirement for employers to keep records of the working hours of their workforce will be removed, with a view to reducing the administrative burden on business.
2. Rolled-up holiday pay arrangements will be made lawful. Such arrangements provide that a percentage of an individual’s holiday annual entitlement is added to their wages/salary each time they are paid, with the result that they receive still their statutory or contractual holiday pay entitlement for the year, but are not actually paid for annual leave at the point at which it is taken. This approach is technically unlawful under EU law, although the consequences for employers taking a rolled-up approach to holiday pay are in practice relatively limited.
3. The concepts of “normal” and “additional” holiday pay (which taken together result in the total annual statutory entitlement to 5.6 week’s leave, or 28 days for a full-time worker) will be merged so that there will be only one form of statutory holiday pay. The total annual entitlement will remain the same. Normal and additional holiday pay are based on different methods of calculation, and it is not yet clear which method the government will apply to the new singular holiday pay entitlement.

Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”)

The requirement for an employer whose workforce is transferring (either in part or whole) to a new employer pursuant to TUPE to consult with appointed employee representatives, rather than consulting directly with each individual employee about their transfer, will be removed for businesses with fewer than 50 people and fewer than 10 proposed transferring employees. The government has said it is consulting on this change rather than announcing it as a firm commitment right now, but its stated intention is to remove undesirable administration and facilitate direct engagement between businesses and their workers. In practice, this change may have limited impact for small businesses, because those with fewer than 10 employees are already exempt from collective consultation obligations.

Restrictive covenants – new legislation

Non-competition clauses, which in broad terms seek to prevent departing employees from working for one of their employer’s competitors during their employment and for a fixed period following termination, will be restricted to a maximum lawful term of 3 months. The intention behind this proposal is to give employees more flexibility to work where they choose or set up in competition with their former employer.

At present, all restrictive covenants in employment contracts (including “non-compete” clauses) are enforceable only if they go no further than is reasonably necessary to protect the employer’s legitimate business interests. Where this line is drawn in practice depends on various factors, including the employee’s seniority and their ability to harm the business by working in competition with it. Restrictive covenants usually range in length from 3 to 12 months (depending on the circumstances), although the courts are often more reluctant to enforce longer-term non-compete clauses than other types of restrictive covenant with lengthier terms.

Under the new proposal, non-solicitation clauses (which prevent employees from soliciting the clients/customers of their employer/former employer) will remain subject to the above test and confidentiality obligations will remain unaffected. The policy paper is silent on non-dealing clauses (which prevent employees from doing business with their employer/former employer’s clients/customers in competition with it) or non-poaching clauses (which prevent the poaching by the employee of their colleagues/former colleagues).

When will these changes take effect?

No timetable has been announced for any of the above changes, although the non-compete changes are said to be coming “when parliamentary time allows” and given the need for primary legislation, this could take longer than the other changes, which could be achieved by way of secondary legislation.