Goodbye to the Sunset
It was anticipated that under the Retained EU Law Bill (‘REUL Bill’) we would see all EU derived legislation abolished by 31 December 2023 unless specifically retained. This intention led to a lot of uncertainty for businesses, and a lot of criticism. The sunset clause in the REUL Bill says that retained EU laws will automatically expire at the end of 2023. The government has announced it will replace the sunset clause with a list of EU laws it intends to revoke by the end of 2023 (expected to be around 600 pieces of legislation). Any EU laws not included in this list will continue to be law, pending consultation. We do not yet know whether any employment legislation will be affected, however we anticipate that the government intends to keep the WTR and TUPE due to the proposals which have been put forward in the policy paper.
Let’s look at the possible employment changes:
Working Time Regulations (‘WTR)
Rolled up holiday pay - The government intends to introduce rolled up holiday pay so that workers receive their holiday pay ‘with every payslip’. Rolled up holiday pay is a practice where the employer pays the employee an additional amount on top of their normal hourly rate of pay to represent their holiday pay, instead of taking the leave. Historically, it has been understood that this practice is unlawful under EU law and so clarification will be welcomed. The change will provide administrative convenience for many businesses, particularly those who engage casual zero-hour workers, who will not have specific days of annual leave. It is unclear how this change will work alongside the consultation which dealt with the Harpur Trust v Brazel case and whether it will apply to all types of workers.
Merging holiday - The government also proposes to merge basic (4 weeks) and additional leave (1.6 weeks) entitlements into one entitlement to annual leave. The idea is that by merging the two entitlements, this will reduce the complexity of calculating holiday pay.
Keeping working records - Continuing the theme of reducing administrative burdens on businesses, the government also intends to remove the requirement on businesses to keep working hour records. However, as a side, employers may wish to keep recording working hours to be able to defend working time claims or claims relating to pay/hours worked.
There are also proposals to allow small businesses with fewer than 50 employees with a TUPE transfer affecting less than 10 employees to consult directly with affected employees. The current law sets out that all businesses must consult with employee representatives on the TUPE transfer and cannot directly consult with the affected employees (unless it is a microbusiness, employing fewer than 10 employees). It remains unclear how much impact this will have, as we often see many small businesses consulting directly with the impacted employees with their consent.
Non-compete restrictive covenants are often drafted into contracts of employment to prevent an employee moving to a business or setting up a business in competition with their employer on termination of their employment. “When parliamentary time allows’, the government is intending to legislate on limiting the length of post termination non-compete clauses to three months, providing employees with more flexibility to join a competitor or start a competitive business after they have left a position. The idea is that this change will boost the UK economy, support employers to grow their businesses and increase productivity by widening the talent pool. Employers will still be able to restrict activities during paid notice periods or garden leave and the three-month limit will only be applicable to non-compete covenants. In December 2020, the government launched a consultation into non-compete clauses. It is not clear whether the limit of non-compete clauses to 3 months will apply retrospectively or whether it will just apply to new contracts. It also remains unclear whether longer non-compete restrictions can still be agreed as part of settlement agreements.
What does this all mean for employers?
Whilst it is not clear what the new framework will look like, any changes to the WTR and TUPE with the aim to reduce administrative burden will no doubt be welcomed by many businesses.
The clarity given around the REUL Bill will also be welcomed by businesses, as it will provide certainty as to what EU laws will be revoked and provide more time for EU laws which are not on the list to go through proper consultation.
It will be a while until we see any legislation on restrictive covenants come into force, however it will be important for employers to start reviewing the drafting of their current restrictive covenants. Businesses should make sure they are maximising protection given by other restrictive covenants (non-solicitation and non-dealing). We are likely to see a shift towards longer notice periods and greater use of garden leave clauses to stop employees from working for competitive businesses. We are also likely to see the removal of garden leave offset clauses (clauses which reduce the duration of the restrictive period by the time spent on garden leave) to prevent competition for as long as possible.