Government Announces Changes To Employment Law
Government Announces Changes To Employment Law
On 10 May 2023, the government announced that it proposed making three significant changes to employment law.
Non-compete clauses
Non-compete clauses are restrictions in employment contracts limiting the employee’s ability to work for (or establish) a competing business after the termination of their employment. For obvious reasons, they are much disliked by employees trying to move jobs and are frequently litigated. Whether they are enforceable at all depends on the facts of each case, but courts rarely allow restrictions for more than 12 months after termination.
The government has said that it intends to legislate, when parliamentary time allows, to limit the length of non-compete clauses to three months.
In line with developments in other jurisdictions, including the US, some sort of restriction had been expected but it could have been an outright ban or limiting non-competes to certain business sectors (e.g. tech) or certain types of work (e.g. research and development). Our initial thoughts on the proposed three-month limit include:
many employers may consider that three months is not worth going to court over and will take no action when employees breach their non-competition restrictions;
to ensure that they are adequately protected, employers may increase notice periods and the use of garden leave albeit this will need to be paid;
the proposal mentions only employment contracts and will not necessarily affect non-competition restrictions in share awards or among partners (including members of LLPs).
Finally, it should be mentioned that the government has stressed that its proposal does not extend to other types of restriction, such as those preventing employees from soliciting clients, poaching staff or keeping information confidential.
Working Time Regulations
The Working Time Regulations require that employers keep records of the working hours of most of their employees, including those who have opted out of the 48-hour limit on the working week. This is widely flouted, although it is a criminal offence not to keep those records.
The government has proposed removing this requirement. This is often an issue that comes to light when contemplating the sale or purchase of a business and may be a relief to those who do not keep records and a reduction in the burden on those who do. However, those of us who have had experience of disputes over whether employees have been paid adequately for their working hours, will know that employers tend to be on a back foot where there is a lack of records.
The government has also proposed to reduce “the administrative burden and complexity of calculating holiday pay”. Two particular proposals have been put forward.
Rolled-up holiday pay (the practice of paying workers an additional sum each month to represent holiday pay, typically 12.07% of salary) is technically unlawful under European law, although widely used in the UK. The government proposes to legalise rolled-up holiday pay. One question this raises, particularly given the proposal of “reducing the … complexity of calculating holiday pay” is whether the government will also quietly remove the right established by (EU-driven) case law to include in holiday pay regular payments that employees receive over and above their salary such as overtime and commission.
The government has proposed “merging the current two separate leave entitlements into one pot of statutory annual leave”. This is a reference to the four weeks (20 days for a full-time employee) right under EU law and the additional 1.6 weeks (8 days for a full-time employee) under domestic law. At the moment, different rules apply to both including in relation to sick leave (the EU 20 days must be carried forward if an employee is prevented from taking it while sick, whereas this does not apply to the 8 UK days).
These proposals are likely to be particularly welcome for employers of workers with irregular hours, although the TUC has described them a “a gift to rogue employers looking to exploit workers and put them through long, gruelling shifts without enough rest”.
TUPE
The Transfer of Undertakings (Protection of Employment) Regulations 2006 protect employees when the business for which they work transfers to a new owner or the service for which they work transfers to a new provider.
Where employees are expected to transfer, their existing employer (“the transferor”) is required to provide certain information to and, sometimes, to consult with elected staff representatives. There is currently an exception for “micro businesses” with fewer than 10 employees, allowing them to provide the information and consult directly with the affected employees themselves.
Once again, this is a rule that is widely flouted, with many employers providing the information directly to the employees and then telling them that, if they wish, they can elect representatives to receive exactly the same information again. Unsurprisingly, such employees rarely choose to elect representatives.
The government has said that it will be consulting on removing the requirement for businesses with fewer than 50 people and transfers affecting less than 10 employees to consult with elected staff representatives, allowing businesses to consult directly with the affected employees. It is unclear from the proposal whether these are two separate groups who might be exempted (i.e. businesses with fewer than 50 employees and also bigger companies but with fewer than 10 employees affected) or whether a business will need to fulfil both to be exempted. In any event, this is another example of a regulation to legalise what many employers are currently doing in practice.
