What does the recent Policy Paper, "Smarter Regulation to Grow the Economy" mean for employers?

We have previously written about the Government’s Retained EU Law Bill, which originally would have seen all retained EU law that was not specifically preserved being repealed at the end of 2023. The Government has now indicated it will take a much more focused approach, only repealing about 600 specified laws. In addition to the Bill, the Government’s recent policy paper titled “Smarter Regulation to Grow the Economy” (the Policy Paper) sets out some proposals to reform regulations following the United Kingdom’s exit from the European Union.

Non-compete clauses

Non-compete clauses are a form of restrictive covenant which prevent an employee from working for a competitor or starting their own competing business after leaving their employment. Currently, non-compete clauses are only enforceable where the employer can show they go no further than necessary to protect a legitimate business interest. The Government has now proposed to limit the length of non-compete clauses to a maximum of three months.

It is hoped that by limiting non-compete clauses workers in the UK will have more freedom and flexibility to switch jobs and start their own businesses. The Government hopes that this will also make it easier for employers to grow their business and recruit top talent, thus providing and overall boost to the economy.

Other forms of restrictive covenants such as non-solicitation and non-dealing clauses will remain unaffected. Employers may want to make use of these other forms of restrictive covenants as well as garden leave and confidentiality clauses.  

We do not know when these changes can be expected. The Policy Paper says that the Government intends to legislate on this “when parliamentary time allows.”

Working time regulations

The Government is currently consulting on changes to the Working Time Regulations and has stated that it intends to reform them this year. Proposals in the consultation include lessening the burden on businesses to keep records of the hours worked by workers.

The consultation also makes proposals to simplify holiday pay calculations and entitlement. Currently, the UK worker’s holiday entitlement is divided into two categories:

• Regulation 13 leave, which is four weeks of basic holiday derived from EU law; and
• Regulation 13A leave, which is 1.6 weeks additional holiday granted above the EU minimum.

Slightly different rules apply to each allocation regarding carryover and calculating holiday pay. For example, Regulation 13 leave may not be carried over into the next holiday year, whereas Regulation 13A leave may be carried over under an agreement between the worker and employer. The Government would like to merge the two types of annual leave into one 5.6 week allocation, with one set of rules. While this will not change the amount of annual leave workers are entitled to, the Government hopes that merging the two categories of leave will reduce the administrative burden on businesses.

The Government is also consulting on whether or not to introduce “rolled-up” holiday pay. Rolled-up holiday pay is when workers receive an additional percentage of their pay (often 12.07%) in their payslip to account for the holiday pay they are owed, rather than receive pay when they actually take their holiday. Rolled-up holiday pay arrangements are currently unlawful following a decision of the European Court of Justice. The concern was that rolled up holiday pay would discourage workers from actually taking their holiday, as they would not receive any wages when they took time off. This and the recent UK case of Harpur v Brazel meant that calculating holiday pay and entitlement for workers with variable hours was quite confusing and burdensome for UK businesses. The Government expects that allowing rolled-up holiday pay would greatly simplify the process of calculating holiday pay and help workers and businesses clearly understand the amount of holiday pay they are owed.

Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

The Government is also consulting on some proposed changes to the consultation requirements set out in TUPE. Currently, businesses with 10 or more employees are required to arrange elections for employee representatives (if they are not already in place) for the purposes of consultation under TUPE. The Government is proposing that small businesses with fewer than 50 employees should be allowed to consult directly with employees where there are no existing employee representatives already in place. Further, businesses of any size would be allowed to consult directly with employees where no existing representatives are in place and where fewer than 10 employees will have their employment transferred.

The Government consultation on changes to the Working Time Regulations and TUPE is open until 7 July. If you would like to contribute your input, you can read the consultation paper here: Retained EU employment law reforms - GOV.UK (www.gov.uk). 

If you are wondering about how your business might be affected by the Government’s proposals please do get in touch by emailing employment@warnergoodman.co.uk or call 023 8071 7717.