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What does “Smarter Regulation to Grow the Economy” mean for employers?

Employess in bright office working at desks

We look at the potential impact of new measures proposed in the Government’s policy paper “Smarter Regulation to Grow the Economy” published on 10 May 2023 (see here).

1. Non-compete clauses

What is proposed?

  • New legislation affecting post-termination restrictive covenants.
  • Changes would mean ex-employees could work for a competitor after just three months.
  • Currently, employers can determine the length of time before which ex-employees can work for a competitor through non-compete clauses in contracts of employment or other documents, provided that the duration is no longer than is necessary to protect the employer’s legitimate interests.
  • It is not clear whether the changes would affect only new contracts or affect all existing contracts, or whether they would affect other types of agreement that affect an individual’s ability to compete, such as share option plans, shareholder agreements or LLP agreements.

It is also not clear whether the current law, that only non-compete clauses which protect the employer’s “legitimate business interests” would be enforceable, or if instead, all non-compete clauses that are no longer than three months would be enforceable.

What does this mean for employers?

  • Employers may need to consider how to protect their interests if ex-employees work for a competitor or set up on their own after a shorter amount of time.
  • Although full detail of the proposed legal changes has not been published, it appears that employers would still impose other types of restrictive covenant that are longer than three months, such as restrictions on soliciting or dealing with clients or soliciting employees.
  • If the changes are introduced, employers may try to rely more heavily on longer notice periods and garden leave clauses in order to prevent employees moving to a competitor quickly.

2. Limited reform to TUPE Regulations

What is proposed?

  • Consultation on change to the TUPE Regulations affecting small businesses and small-scale transfers.
  • Removing the requirement for businesses to have appropriate representatives in place when consulting employees directly about TUPE transfers.

Which businesses would be affected?

  • The Government is considering changes for businesses with fewer than 50 people and transfers affecting less than 10 employees.

What does this mean for employers?

  • Employers would be able to consult directly with their employees that are transferred under TUPE without the need to elect representatives. This may streamline the process, although in reality it reflects what often happens in practice in the case of small-scale TUPE transfers.

3. Working Time Regulations

What is proposed?

  • Removing retained EU case law that requires employers to keep and maintain adequate working hour records of their employees.
  • Legalising the practice of paying “rolled up” holiday pay. Our experience is that many employers have continued to “roll up” holiday pay, using the 12.07% formula, for casual or irregular hours workers, despite the decisions of the European Court some years ago which made it unlawful and the more recent decision in Harpur Trust v Brazel.
  • Merging the two separate holiday entitlements of 4 weeks and 1.6 weeks to create one single holiday entitlement, as currently workers are entitled to 4 weeks leave which derives from EU law and this is then topped up to 5.6 weeks leave with the additional 1.6 weeks UK requirement (although most contracts express 5.6 weeks holiday entitlement already).

What does this mean for employers?

  • There may be some administrative benefit for employers here, but many will want or need to continue to maintain records of working hours for other purposes, including paying people correctly, health and safety, or simply complying with other Working Time Regulations on rest periods and intervals between working periods.

4. Retained EU Law (Revocation and Reform) Bill (‘the Bill’) – employment law largely escapes repeal

What is proposed?

  • The controversial ‘sunset’ clause which caused a lot of uncertainty has now been scrapped. The sunset clause meant that all EU Law would be automatically revoked at the end of 2023, unless a statutory instrument was passed to preserve it.
  • The proposed change is that all EU Law will remain binding in the UK unless expressly repealed.
  • The Government have released a list of all retained EU Laws they intend to revoke, providing clarity to businesses.
  • The list includes no employment legislation of any wide importance. As it stands, the following employment related laws are scheduled to be repealed:
  • The Community Drivers’ Hours and Working Time (Road Tankers) (Temporary Exception) (Amendment) Regulations 2006
  • The Posted Workers (Enforcement of Employment Rights) Regulations 2016
  • The Posted Workers (Agency Workers) Regulations 2020

What does this mean for employers?

  • The majority of essential employment laws will remain unchanged, providing continuity for employers for now, although the government will still have the power and freedom to amend, remove and replace EU Laws at will.

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