Out-Law News 3 min. read

UK government plans major reforms to employment regulation

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Proposals in a new policy paper published by the UK government could have a significant effect on employment regulation, according to legal experts.

The policy paper, which sets out the government’s plan to overhaul the UK’s regulatory framework and ensure that the work of regulators will “drive economic growth”, contains a number of employment-related reform proposals.

Changes outlined in the policy paper include the introduction of future legislation to limit the length of non-compete clauses in employment contracts. The government said capping these clauses at three months would give former employees more flexibility to join a competitor or create a rival business, but would not interfere with employers’ ability to use paid notice periods or ‘gardening leave’, or to include non-solicitation clauses in employment contracts.

Employment expert Edward Goodwyn of Pinsent Masons said the three-month limit might not be the real concern for businesses, who often worry more about the potential for rivals to poach their clients and existing staff members. “For those employers who do need to keep ex-employees away from their competitors, however, we could see an increase in the use of lengthier notice periods and additional garden leave provisions when they draft employment contracts,” Goodwyn said.

Anne Sammon of Pinsent Masons added: “While we still have no timetable on when these changes will be introduced, employers might wish to start considering the extent of the impact that this change could have on their business. For example, they could carry out an audit of how many employees currently have non-compete clauses in excess of three months, and look at alternative ways to protect their business so that they are well positioned when these changes are implemented.”

The policy paper also contains plans to remove ‘retained EU law’ that imposes requirements for keeping working hours records and abolish other administrative requirements under the 1998 Working Time Regulations, as well as offering a simpler method for calculating holiday pay. The government added that merging the current two separate annual leave entitlements into one pot, while maintaining the same overall amount of statutory leave entitlement, would reduce the administrative burden on employers.

Employment law specialist Anthony Convery of Pinsent Masons said the proposal to introduce ‘rolled-up’ holiday pay reflected the reality that many employers of workers with variable hours or shifts already roll up holiday pay into basic pay. He added: “While this practice is technically in breach of existing UK legislation and European case law, it is driven by the administrative complexity of calculating holiday pay for these workers. The proposed reform would give some much-needed clarity in this area.”

Convery warned that the plans to merge the current two separate leave entitlements into one pot of statutory annual leave was less clear for employers. “At present, workers are entitled to four weeks’ leave derived from European legislation, along with a UK-specific leave entitlement of 1.6 weeks. While merging these into a single 5.6-week entitlement might appear simpler, the proposal does not address one of the key differences between the two types of annual leave,” he said. “At present, for many workers the rate of holiday pay differs between the two types of leave. For the European-derived leave, workers must receive normal remuneration, usually based on average pay over a reference period, but for the 1.6 weeks’ leave, many workers are only entitled to basic pay. It remains to be seen whether the government will address this discrepancy – either by reducing the full 5.6 weeks’ entitlement to basic pay, or by applying average pay to all of it,” Convery added.

Additional reforms set out in the policy paper would amend the 2006 Transfer of Undertakings (Protection of Employment) Regulations (TUPE) to allow a business with fewer than 50 employees to consult directly with affected staff members when a transfer affects fewer than ten of them. Gillian Ross of Pinsent Masons said: “Removal of the obligation to elect representatives for smaller businesses, and where fewer than 10 employees are impacted by a transfer, will streamline and simplify the information and consultation process, improve employee engagement and remove the risk of costly protective award claims for employers who wish to consult directly with their employees in these scenarios.”

But Goodwyn said it was a “shame” that the policy paper did not address the issue of post-transfer variations, when transferred employees retain different terms and conditions to the staff members that already work for the new employer. “Questions over when these variations can be pushed through without fear that they are non-binding remain a real headache for employers, and simplification to allow changes in the right circumstances would be welcomed,” he said.


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