Government announces employment law reforms

On 10 May 2023, the government announced its policy to reform employment law as part of its strategy to grow the economy. This is largely driven by the 'Brexit freedoms' agenda, as enshrined in the Retained EU Law (Revocation and Reform) Bill, but independent of that, the government has stated all domestic laws which create an unnecessary burden on business will be reviewed and reformed where necessary. In general, there will be a move away from reliance on regulation in favour of guidance. Guidance is seen as more nimble and capable of being adapted to changing business needs.

Working Time

The government has stated that it will:

• Remove the burdensome requirement on business to record working time for almost all employees. This will involve legislating to override the effect of EU case law, which creates this obligation.
• Remove the distinction between 4 weeks' annual leave (known as 'WTR' leave), and 1.6 weeks' leave, (known as 'additional leave'). This will be consolidated into one 'statutory pot'. This change will be more than notional. Although the government has not explicitly said so, the government is likely to use this as the starting point for revisiting what counts as pay for holiday pay purposes. In particular the EU case law which requires commission, bonus, and other payments normally received to be included in WTR leave, may well be overhauled.
• Allow for rolled-up holiday pay. This would mean employees receiving holiday pay in each monthly payslip, effectively avoiding a complex calculation based on patterns of work. Currently, rolled-up holiday pay is unlawful as a result of EU case law, which makes it burdensome for employers to calculate holiday pay for atypical workers in particular. Since the current position in UK law is that the right to paid holiday is a composite right, in other words payment for holiday cannot be separated from the taking of holiday, this reform would go against this principle. It represents a significant departure from the EU approach to date that holiday is primarily a health and safety measure. 

The government has indicated that it intends to change the rules on holiday pay this year. It has already launched a consultation on holiday pay and how it might be simplified. We can expect the core entitlement (5.6 weeks) to remain the same but rules on rolled-up holiday pay and how holiday pay is calculated to be reformed.

Employers should prepare to review holiday pay policies and systems used to calculate holiday pay. Depending on what the changes are, care will be needed to make sure there is no clash between the effect of the new statutory rules and any contractual rights in respect of holiday.

Non-competition clauses in employment contracts

In a surprising move, the government has indicated that when Parliamentary time allows, it will:

• Limit the length of post-termination non-compete clauses in employment contracts to 3 months. This is an attempt to promote healthy competition and create job mobility within the economy.
• It does not intend to interfere with an employer's right to use non-solicitation clauses, confidentiality and other clauses in order to protect a business.

Employers should now be reviewing their entire approach to preventing employees from competing after employment. This will involve reviewing contracts where reliance is placed on lengthy non-compete clauses. More than ever, a holistic approach will be required, in terms of how various provisions in the employment contract work together to protect the business. Employers should move away from a blunt reliance on a lengthy non-compete covenant. In particular, employers should:

• Assume that, in future, non-competes which exceed 3 months will not be upheld.
• Consider using longer notice periods and/or gardening leave provisions where it is necessary to keep an employee from competing for a period longer than 3 months.
• Tighten the scope of others restrictions, such as non-solicitation and non-dealing clauses.

• Ensure confidentiality policies and processes are more robust than ever.

TUPE

The government intends to reduce the consultation burden on businesses where there is a TUPE transfer involving an employer with fewer than 50 employees and fewer than 10 employees are affected by the transfer. Where this is the case, an employer will not have to elect employee representatives but may consult with employees directly.