Government reform of UK employment law – what do employers need to know?

The Government has proposed significant reform of key aspects of UK employment law.  

In the “Smarter regulation to grow the economy” policy paper (the “Paper”) published last week, the Government identified an opportunity to improve post-Brexit employment regulation whilst maintaining UK labour standards, which it states are some of the highest in the world.

The “Retained EU employment law reforms” consultation paper has also now been published. It contains reform proposals in relation to the Working Time Regulations 1998 (“WTR”) and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE Regulations”) summarised below.

The Government has identified these areas as being too onerous on business to be used effectively, or too complex for workers to know, understand and use.

Working time reform proposals

• A proposal to merge the current “basic” statutory annual leave entitlement of 4 weeks (derived from EU law) with the “additional” UK entitlement of 1.6 weeks, to create one annual leave entitlement of 5.6 weeks. This means there would be only one set of rules under the WTR including in relation to the calculation of holiday pay, carry-over of holiday, and calculating holiday during the first year of employment. The aim is to remove the administrative burden and complications for employers of distinguishing between two annual leave entitlements.  

• The introduction of rolled-up holiday pay (which is currently illegal following EU caselaw). This reflects the change in the labour market, with the number of workers with irregular hours increasing to more than 4.5 million. This would enable employers to enhance the basic pay of workers to provide an additional amount equivalent to 12.07% of a worker’s pay in each payslip, rather than at the time holiday is taken.  The percentage would be adjusted to cover any contractual leave beyond the statutory entitlement.

• A proposal to reform the record-keeping requirements in the WTR so that businesses do not have to keep a record of daily working hours of their workers.

TUPE reform proposals

A proposal to change the current consultation requirements to simplify the transfer process under the TUPE Regulations.

• Small businesses with fewer than 50 employees would be permitted to consult directly with employees if there are no existing employee representatives in place.
• Note that this is an extension of the current micro-business consultation exception, which currently applies to employers with fewer than ten employees.  
• Further, businesses of any size would be permitted to consult directly with employees (if there are no existing employee representatives) if fewer than ten employees will have their employment transferred under the TUPE Regulations.
• If employee representatives are already in place in either case, then the employer would still be required to consult with them.

Non-compete restrictions

While the Consultation covers working time and TUPE reform, the Government’s Paper also detailed the intention, “when parliamentary time allows”, to limit non-compete clauses to three months after termination of employment.

The Government accepts that these types of restriction can play an important role in protecting businesses who invest in their staff, but considers that unnecessarily burdensome clauses have become a default part of too many employment contracts. It estimates that this change will affect up to 5 million UK workers.

Employers will still be able to restrict an employee’s activities during periods of paid garden leave or their notice periods, but any restriction beyond the termination of their employment would be limited to three months. The proposed limit would not apply to non-solicitation clauses (which will be subject to the existing caselaw requirements in relation to enforceability), nor will confidentiality clauses be affected.

Conclusion

The proposals reflect the Government’s intention to take advantage of post-Brexit regulatory freedoms and remove “unnecessary bureaucracy”.

This package of proposed reforms follows hot on the heels of the decision to change approach in relation to the revocation of EU-derived subordinate law (i.e. Regulations). Instead of “sunsetting” all such UK Regulations on 31 December this year, the Retained EU Law (Revocation and Reform) Bill has been amended so that only a specific list of affected Regulations will be revoked, with the rest remaining valid and binding.

That means it will be business as usual for UK employers until the outcome of the employment reform consultation becomes clear. The consultation closes to responses on 7 July 2023.