Brexit changes to employment law announced

Following the Brexit result, the government introduced the Retained EU Law (Revocation and Reform) Bill (‘REUL’) with a view to ending the supremacy of EU law and legal principles in the UK and automatically revoking all retained EU law by the end of 2023 (unless a statutory instrument is passed to expressly preserve it).  This came to be known as the ‘sunset clause’.

In a written statement released on 10 May 2023, it was announced that, due to the risks of legal uncertainty posed by the sunset clause, the government intends to flip the Bill on its head and, instead of allowing all EU laws to fall away unless expressly retained, the government has issued a list of EU laws intended to be revoked under REUL at the end of 2023 (warning: the list is long and not very interesting).  This followed lobbying by a large number of representative bodies across many sectors, including animal welfare and environmental groups, who were concerned that the sunset clause would lead to holes in legislation and the loss of vital legal protections.

There was also major concern in legal circles, with large parts of employment law in particular underpinned by legislation that had originated in the EU, such as the Working Time Regulations 1998, which govern entitlements to key employment rights such as holiday and rest breaks.  The enforceability of these and similar regulations would have been thrown into doubt if the originating legislation had been repealed.

Indications are that some 600 pieces of legislation will be revoked initially, rather than a much larger number (in excess of 4,000, or 3,500, or 2,400, depending upon which figure you choose to believe) had the Bill proceeded in its original form. It is hoped that this new approach will allow ministers and officials to better focus on reformation and ensuring that all legislation and regulation is fit for purpose in the UK and to provide certainty for businesses by making it clear which regulations will be removed.

It was a busy day.  In addition to the announced change discussed above, the government also turned its mind to some specific employment related reforms. In a Policy Paper released at around the same time, proposed changes were set out to the Working Time Regulations and the Transfer of Undertakings (Protection of Employment) Regulations (‘TUPE’), in addition to changes to what post termination restrictions an employer can lawfully write into an employment contract.  The stated objective of these changes is “to improve regulation following our departure from the EU whilst maintaining UK labour standards which are some of the highest in the world”.

Since 10 May, the government has also released a consultation paper, giving more insight into the intended regulatory changes.

Working Time Regulations

The proposed changes include:

• • Removing requirements on businesses to keep working hour records for all members of its workforce. In reality, compliance with this requirement was limited outside of specific high-risk sectors such as transportation.

• • Introducing rolled-up holiday pay “so that workers can receive their holiday pay with every payslip”. What this means in practice is that employers will be able to incorporate holiday pay into a worker’s normal, everyday pay rather than workers receiving holiday pay when leave is actually taken.  The consultation suggests that statutory holiday pay should be calculated at 12.07%, as was the position before the Supreme Court ruling in Harpur Trust.   This would be particularly beneficial useful for working out holiday and holiday pay entitlement for workers with irregular hours, but this calculation can be applied to all workers for simplicity.

• Merging ‘normal’ and ‘additional’ holiday pay into one entitlement whilst not reducing the overall entitlement of 5.6 weeks. This would appear to be a sensible simplification. Additional leave was introduced to ensure that employers couldn’t count the 8 (or 9 depending on what part of the UK employees work in) as part of the 20 days’ leave guaranteed by EU legislation, but the slight difference in how it is treated from the first 20 days led to unnecessary and artificial complexity in some situations.  The proposal seeks to create one singular statutory annual leave entitlement, governed by one set of rules, to be paid at one rate of pay.

TUPE

The government is consulting to remove the requirement for small businesses (those with fewer than 50 workers total), or larger businesses with over 50 workers where the proposed transfer will affect fewer than 10 such workers to elect and consult with employee representatives.

Under this proposal, these businesses will be allowed to consult directly with affected employees where employee representatives are not already in place (such as recognised trade unions), removing red tape and improving engagement.  Businesses (other than small businesses) would still need to arrange for the election of representatives where they are not already in place if the proposed transfer affects more than 10 employees.  This would also appear to be a sensible simplification and remove the artificial and unhelpful requirement to go through an election process where only a very small number of employees are involved in a transfer or face the risk of a technical (but potentially costly) breach of the TUPE regulations.

No timetable has been set as to when these changes can be expected to take effect, and we will keep you updated as more information becomes available.

Post-Termination Restrictions

It is unusual (although not unheard of) in UK law, for the Government to directly interfere with what private parties can agree to in contracts that they enter into with one another.  In the case of agreements that restrict the activities of an employee after their exit from a particular role, it has traditionally been left up to the courts to determine whether any particular restriction is unfair or unduly onerous because it unreasonably restricts the former employee from getting a job or pursuing their chosen career.

However, the final reform set out in the Policy Paper proposes to limit the length of non-compete clauses to 3 months.  There is no clear definition as to what is meant by a ‘non-compete’ clause, but the paper states that the intention is not to interfere with an employer’s ability to use paid notice periods, garden leave, or non-solicitation clauses.  This indicates that the change may be limited to ‘pure’ non-compete clauses, which expressly prevent an employee from working for a competitor business for a fixed period.  These clauses, being the most restrictive and problematic for employees, have historically been the most difficult to enforce in any event, but the significance of them being restricted to a maximum 3 month period is undoubtedly significant.  If this provision makes it to the statute books (“when parliamentary time allows”) it is likely to trigger a need for very many employers to revisit their standard employment contracts and review/revise the drafting.

Conclusion

The announced proposed changes represent some significant developments in employment law and are described in the Policy Paper as “just the next down payment on this government’s ambitious regulatory reform agenda”, so we should probably expect more announcements down the line.

If you have any concerns about how any of the proposed changes might impact your business, please reach out to a member of our Employment Team, who will be happy to help.