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May’s Employment Law Digest – Government announces proposed changes to employment law

The Government has proposed several significant changes to employment legislation, including in relation to the applicability of EU-derived employment laws beyond December 2023.

Goodnight for the ‘sunset clause’

Employment laws introduced by the European Union were typically brought into UK law by domestic legislation. For example, the EU Working Time Directive 1996 set out certain minimum rights at EU level which were then enshrined in UK law by the Working Time Regulations 1998 (which included some enhanced worker rights). Whilst the UK is broadly no longer subject to EU laws following Brexit, any domestic legislation brought in to implement EU law would remain in force.

The Government’s approach to this was to include a ‘sunset clause’ in the Retained EU Law (Revocation and Reform) Bill. The effect of this would be that any EU-derived law would be automatically revoked with effect from 31 December 2023, unless the Government passed new legislation to specifically preserve it. There have been widespread concerns regarding the chaos which this could cause in the field of employment law, with certain key rights (such as paid annual leave) being removed completely and other rights (such as the protections afforded by TUPE) being preserved in part but not whole due to UK law going further than its EU counterpart.

The Government has now updated the Bill to remove this ‘sunset clause’. This reverses the position so that domestic legislation which implements EU laws will continue to have effect in the UK unless specifically repealed by Parliament. Many will see this as a far more sensible approach which will avoid a great deal of uncertainty and potential chaos as 31 December 2023 approaches.

The Government has also given an indication of the areas of employment law which it is keen to change below.

Working Time Regulations 1998

The Government intends to permit ‘rolled-up holiday pay’ to be paid in a significant departure from the long-established ban on this. This would allow employers to pay holiday pay for certain staff as a supplement to basic salary on their payslip each month, rather than the traditional approach of the worker having to actually take the annual leave and then be paid for it.

The obligations to keep records demonstrating compliance with certain aspects of the Working Time Regulations 1998 is set to be scrapped. However, employers will remain mindful of the benefit of maintaining adequate records of working time and pay in the event of any pay dispute from an employee or ex-employee, given the six-year limitation period for breach of contract claims in the County Courts.

Finally, the Government is proposing to merge the annual leave entitlement under the Working Time Regulations 1998. Currently, Regulation 13 grants 4 weeks’ paid leave (being the EU minimum) whilst Regulation 13A grants a further 1.6 weeks’ paid leave, leading to an anomaly where certain EU case law only applies to the former. Many suspect that this may be intended to overturn the EU case law which requires regular overtime, commission and similar payments to be factored into holiday pay calculations for salaried employees.

These proposals come off the back of the Government consultation on proposed reforms to holiday pay for part-year and irregular works, which closed in March 2023 with no response yet from the Government.

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TUPE allows businesses with fewer than 10 staff to inform and consult regarding a TUPE transfer directly with the affected employees. All other employers are required to undertake the full process of electing employee representatives for the purpose of informing and consulting about a TUPE transfer (in the absence of any recognised trade union or appropriate standing body of representatives), even if fewer than 10 employees would be affected by the transfer. The result is that businesses can be under an obligation to go through a time-consuming, formal and often unwanted process to elect representatives amongst a handful of staff.

The Government proposes to extend the ‘micro-exemption’ to allow employers to inform and consult with employees directly where the number of employees affected by the transfer is below 10, provided that the employer has fewer than 50 employees in total.

Limit on non-compete clauses

The Government has been consulting on potentially reforming this area of law for some time. Currently, there is no fixed limit on the length of post-termination restrictions in employment law contracts. Employers can restrict an individual’s employment or business activities post-termination provided that they can establish that the restriction in question goes no further than is necessary to protect a legitimate business interest.

The bluntest of these tools is the ‘non-compete’ clause, which aims to prevent an employee from working for any competing business for a fixed period of time after their employment ends. Other restrictions include ‘non-solicitation’ clauses which aim to prevent an employee from poaching clients, suppliers and/or employees, and ‘non-dealing’ clauses which aim to prevent an employee from dealing with certain parties completely.

The Government is proposing that non-compete clauses will only be permitted to have effect for up to 3 months after completion. Whilst on first glance this seems a significant proposal, the reality is that courts are more reluctant to uphold non-compete clauses than other types of post-termination restrictions, and employers can still provide themselves with extensive business protection through other measures such as longer non-solicitation clauses and strategic use of garden leave provisions. There are nevertheless cases where non-compete clauses lasting 6 or even 12 months have been enforced by the High Court.

Our expert Employment Lawyers have significant experience of dealing with restrictive covenants, holiday pay and TUPE. Don’t hesitate to get in touch with one of our team with any employment law needs.