Smarter Regulation: Changes to working time, TUPE and restrictive covenants announced
The Government recently announced a number of employment related reforms intended to cut costs and reduce the administrative burden for businesses.
In the policy paper ‘Smarter Regulation to Grow the Economy’ published on 10 May 2023 the Government has announced a number of employment related reforms intended to cut costs and reduce the administrative burden for businesses.
The paper proposes changes to working time, TUPE and post-termination restrictions, all in the context of cutting back regulation following Brexit. The Government’s stated aim is to save UK business up to £1 billion per year through deregulation, while still safeguarding workers' rights.
There are two aspects to the Government’s proposed reform of Working Time Regulations 1998 (WTR). The first relates to record-keeping. The legislation currently requires employers to record working hours for almost all staff, which can be burdensome and time-consuming (although, in practice, few employers keep detailed records for working time purposes in any event). Consultation will take place this year on how to lift some of the record-keeping burden while ensuring that employers retain enough information to meet other employment law obligations, such as calculating the National Minimum Wage.
Secondly, the paper proposes measures to simplify the calculation of holiday pay. At the moment rules around how holiday pay should be calculated are unclear and difficult to navigate especially for those working irregular hours. The proposal is to allow ‘rolled up’ holiday pay (where an additional payment is made during the weeks an individual works, representing pay due in respect of holiday periods, rather than paying the individual when they are actually on holiday). Although this practice has technically been unlawful under EU law for a number of years, many employers still adopt forms of ‘rolled up’ payment for holiday as, provided that the arrangement is explained clearly to employees, remedies for breach of the rules are limited.
Currently, part of a UK employee’s holiday entitlement is derived from EU law and part from domestic law (4 weeks of EU leave and 1.6 weeks of UK leave). These two different types of statutory holiday will be combined that all statutory leave falls into the same ‘pot’. This will have an impact on holiday pay calculations as, under current rules, enhancements such as overtime and commission need only be factored into holiday pay for EU leave, and not pay for additional UK leave. It is not yet clear what the Government’s preferred approach to including these additional payments in holiday pay will be, as the issue is not addressed in the policy paper.
The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) protect employees when the business they work for transfers to a new owner, or when a particular service transfers to a new provider. Where a transfer or service provision change takes place, employers have a duty to inform and, if appropriate, consult the representatives of affected employees.
Currently, businesses cannot consult employees directly where they do not have employee representatives in place. New employee representatives must be elected first. The Government will consult on removing this requirement for businesses with fewer than 50 employees and transfers affecting fewer than 10 employees. This measure is intended to "save business red tape and improve engagement with workers" while continuing to protect workers' rights.
The limited information available so far does not make clear whether the exemption will only apply in situations where both these criteria are met, or whether these are alternatives. In other words, we don’t yet know if the exemption will always apply to smaller employers with fewer than 50 staff, or only where only fewer than 10 employees of that business are involved in the transfer. Conversely, it is also possible that the exemption might apply to larger employers if the transfer is small (involving fewer than 10 employees). Hopefully the upcoming consultation will provide further details.
The ‘Smarter Regulation’ paper also announces an intention to introduce new legislation to restrict the duration of certain post-employment restrictive covenants to three months.
Restrictive covenants are used by employers to protect their business by restricting an employee’s activities in various ways for a period of time after employment has terminated. This proposal applies only to ‘non-compete’ clauses, which prevent an individual for working for a competitor, or setting up their own business in competition with their former employer.
While restrictive covenants should go ‘no further than is necessary to protect legitimate business interests’ employers are currently free to set their terms and duration. If an employee has concerns about the length or scope of a restriction, its enforceability can be challenged in an employment tribunal (which will consider whether the restriction is reasonable). While non-compete restrictions of around 3-6 months are most common, it is not unheard of for restrictions of 12 months or even longer to be deemed enforceable. This will be the first time that a statutory limit has been introduced to limit the extent of post-termination restrictions.
The Government has made clear that confidentiality clauses and ‘non-solicitation’ clauses (which prevent departing employees enticing away an employer’s staff or customers) will not be subject to the three month time limit. Further, an employer may prohibit the employee from competing for a longer period of time if they are still employed and being paid (for example, on paid garden leave, or serving out a paid notice period).
Since the UK exited the EU in 2020, there has been ongoing speculation about how domestic employment law might be impacted. We finally have some answers, and it appears, at least in the short term, that changes will be less drastic than anticipated.
As expected, the Government’s reforming gaze has fallen first on the messy topic of holiday pay, which is still perceived as extremely difficult for employers to understand and implement. The Consultation has recently closed on various measures to ‘tidy-up’ complex holiday pay rules, and this drive to simplify is taken further by the ‘Smarter Regulation’ paper.
Rumours that TUPE might be radically stripped back, or even scrapped altogether, have not materialised. Instead, the Government has opted for some minor adjustments to streamline the process for smaller employers. This cautious approach may arise from divided opinions around TUPE in the UK business community; the legislation is regarded by some as commercially obstructive, while others value the structure it provides when businesses change hands. It is important to note that ‘micro-businesses’ with fewer than 10 employees in total are already exempt from TUPE consultation requirements.
The Government has long regarded ‘non-compete’ clauses as ‘unnecessarily burdensome’ and stifling growth. In fact, consultation took place back in 2020 on such restrictions should be banned altogether. In the current, difficult economic climate, many employers will be relieved that this limited safety net will not be completely pulled away.
No timetable has yet been announced for these changes, which will be introduced ‘when Parliamentary time allows’. The changes relating to working time and TUPE can be achieved by amending existing legislation and so could be pushed through relatively quickly. The proposals to limit non-compete clauses require new, primary legislation to be drawn up, which will take more time. We will provide further updates as more details become available.
If you have any comments or questions, please do not hesitate to contact your usual Weightmans advisor.
If you would like to know more about the employment related reforms that have been announced, please contact our employment law solicitors.