Government announces post-Brexit employment law reforms

On 10 May 2023 the Government published a new policy paper, Smarter Regulation to Grow the Economy, setting out measures it proposes in order to improve regulation following the UK’s departure from the EU, whilst maintaining UK labour standards. This is the first in a series of upcoming regulatory reform announcements, focusing on improving regulation in order to “reduce burdens, push down the cost of living and drive economic growth”.

The policy paper set out a number of proposals for reforming employment law. A subsequent consultation paper, plus a response to a previous consultation, have also now been published, setting out the Government’s proposals in more detail.

Working Time

The Government proposes making the following changes to existing working time rules under the Working Time Regulations 1998 (WTR):

1. Removing the existing requirements, established under retained EU case law, for employers to keep daily working time records in respect of their workforce.
2. Introducing the express right for employers to pay ‘rolled-up holiday pay’. This is still common practice for many employers of variable-hours workers but is technically unlawful under current working time rules. The proposal is to allow rolled-up holiday pay calculated at the rate of 12.07% of hours worked, provided this is clearly set out on workers’ payslips.
3. Merging the separate EU-derived four-week holiday entitlement under regulation 13 WTR and the ‘additional’ 1.6 weeks’ holiday entitlement under regulation 13(A), while maintaining the overall level of 5.6 weeks’ total annual leave entitlement. The Government is seeking views on how to define holiday pay under the WTR and whether this should be based on ‘normal pay’ (including overtime, commission and bonuses, as currently required for the Regulation 13 four-week period) or on basic pay only.
4. Simplifying the calculation of holiday entitlement in the first year of work, by providing for the accrual of annual leave at the end of each pay period (rather than accruing on a monthly basis).
5. Repealing the Working Time (Coronavirus) (Amendment) Regs 2020, which allowed the carry-over of up to 4 weeks of leave due to the effects of Covid-19.

TUPE

The Government also proposes a change to the consultation requirements under the current TUPE regulations. Businesses with fewer than 50 employees, and businesses of any size planning transfers affecting fewer than 10 employees, will not be required to elect employee representatives for the purpose of consulting them in relation to the TUPE transfer, if employee representatives are not already in place. This means that such employers will be able to consult directly with the affected employees instead of consulting with elected representatives.

The Government’s proposals for amending the WTR and TUPE are included in the Retained EU Employment Law consultation paper, published on 12 May 2023 and closing for responses on 7 July 2023. There is no confirmed date for any of these changes to take effect. 

Non-compete clauses

The Government recognises that post-termination non-compete clauses can play an important role in protecting businesses, but that “unnecessarily burdensome clauses have become a default part of too many employment contracts”. It therefore intends to introduce legislation “when Parliamentary time allows” to limit the duration of non-compete clauses to three months.

Under these proposals, the Government is not planning to limit the use of notice periods or garden leave by employers, or to limit the use (or duration) of non-solicitation and confidentiality clauses.

Proposals to reform the use of post-termination non-compete clauses were the subject of a previous consultation in December 2020. The Government’s response to this consultation, published on 12 May 2023, confirms that it is not planning to take forward any of the other proposals it previously consulted on, such as the payment of compensation by the employer to the employee for the duration of a non-compete clause. It has promised to ‘enhance transparency’ by producing guidance on the use of non-compete clauses.

Legislation to introduce the three-month limit for non-compete clauses will be brought forward “when parliamentary time allows”.

Retained EU Law (Revocation and Reform) Bill

On 10 May, the Government confirmed in a written statement to Parliament that it would be removing the ‘sunset clause’ in the Retained EU Law (Revocation and Reform) Bill. Under this clause, it was intended that EU-derived law would be automatically revoked at the end of 2023, unless the Government passed secondary legislation to retain it.

This provision was the subject of much criticism for being impractical and unworkable, given the huge volume of EU-derived law in force. The Government has now decided to reverse the position under the Bill so that it will instead include a list of retained EU legislation that it intends to revoke on 31 December 2023. Everything else will remain in force until such time as the Government actively takes steps to remove or amend it.

The Retained EU Employment Law consultation sets out (on page 8) the regulations that the Government intends to revoke, which are of limited application to the majority of employers:

• The Posted Workers (Enforcement of Employment Rights) Regulations 2016
• The Posted Workers (Agency Workers) Regulations 2020
• The European Cooperative Society (Involvement of Employees) Regulations 2006

Other than the proposed changes to the WTR and TUPE, all other retained EU employment law will remain in place and unamended for now, including the Agency Workers Regulations 2010 (which many had predicted to be one of the early casualties of Brexit).

Now that the anticipated ‘bonfire of employment rights’ seems to have been extinguished, the proposed employment law reforms, as set out in the Government’s recent policy paper, could be regarded as an attempt to reiterate the so-called ‘Brexit freedoms’ that are otherwise now absent from the Retained EU Law (Revocation and Reform) Bill.