15 May 2023

On 10 May 2023, the Department for Business and Trade issued the policy paper Smarter Regulation to Grow the Economy, in which the Government sets out a number of significant prospective changes to UK employment legislation. Aside from the restriction on the use of non-compete covenants (see below), all of the proposed changes appear to be subject to consultation; nevertheless, they form a clear statement of legislative intention.

Merging of leave entitlements

Currently, the UK statutory entitlement to annual leave consists of two parts: the 4 weeks required under EU law, plus a further 1.6 weeks in excess of EU requirements. The Government now proposes to merge these entitlements into one, with no reduction in the overall entitlement. A full-time worker is currently entitled to 28 days’ holiday (which can include bank holidays), although some employers provide for a greater entitlement.

While the merging of two entitlements might appear inconsequential, it is possible this signals an intention to reverse the retained EU law whereby overtime, commission or other payments that the employee would have received while working must be included in holiday pay.

Legalization of rolled-up holiday pay

Under the Working Time Regulations 1998 as interpreted in retained EU case law, ‘rolled-up’ holiday pay (RUHP), whereby a worker is paid their holiday entitlement as a percentage enhancement of their basic wage on each payslip, is illegal. The reasoning is that, since any holiday is paid concurrently with work done, there is a disincentive to actually taking the leave, thus violating a worker’s right to paid holiday.

The Government has now announced that they intend to legalize RUHP. The stated aim is to reduce the administrative burden and complexity of calculating holiday pay. In some instances, particularly those of workers who work irregular hours or only for part of the year, the decision to make paid holiday strictly proportionate to hours worked will reduce the entitlement (as Harpur Trust v Brazel [2022] UKSC 21 showed). Even so, this change will probably be welcomed by employers as much for the increased ease of legal compliance as for any entailed reduced costs.

Removal of record-keeping requirements

The Government proposes to remove the ‘disproportionate’ requirements on businesses to keep working time records for most members of the workforce.

Changes to TUPE consultation requirements

The TUPE regulations govern an employer’s obligations to employees on selling or buying a business. The Government proposes to abolish the requirement on the outgoing employer to appoint employee representatives where the business has fewer than 50 employees or where fewer than 10 employees are affected by the transfer. Instead, employers will be allowed to consult directly with the affected employees in these cases. Again, the stated aim is to reduce the administrative burden.

Restrictions on the use of non-compete covenants

Non-compete covenants are a type of post-termination restriction that an employer may seek to include in an employment contract which prevent a former employee from working for a business which competes with the business of their former employer or from setting up in competition (sometimes within a specific geographical area) for a defined period of time after their employment ends. As such, they are perhaps the most powerful legal means by which an employer can protect its business interests after an employee leaves the business.

Non-compete covenants (and post-termination restrictions generally) will only be enforceable if they are no wider than is reasonably necessary to protect the employer’s ‘legitimate business interests’, such as its confidential information and valuable business connections. If a court deems a covenant to be too wide in its restrictive scope or unnecessary in the specific circumstances, it will be unenforceable by the employer.

While it is fairly common to see non-compete covenants of up to 12 months’ duration in employment contracts, the Government is now proposing to restrict all non-compete covenants to a maximum period of 3 months following the end of an employee’s employment. The stated intention is to boost the economy by allowing employees more freedom to change jobs thus creating a larger and more competitive recruitment pool for those employers who are willing to expand their businesses; more competitive rates of pay will be a collateral benefit.

The Government states that it does not intend to change the enforceability periods of other types of covenant or to affect employers’ powers to use notice periods and garden leave to restrict the freedom of employees before termination.

This change will require primary legislation which the Government states will be introduced ‘when Parliamentary time allows’. No further consultation or timeframe has been indicated at this point.

How we can help

For further information on the possible implications of any of these proposed changes to UK employment legislation, please contact the team at Synchrony Law.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.