Important employment law reforms announced

The Government has announced “proposed changes to employment law that will cut red tape for businesses and save £1bn per year while safeguarding the rights of workers”. This comes as part of news that the Government is intending to change its approach to retained EU law. 

Here is a summary of what is planned.

Retained EU Law Bill

The EU Retained Law (Revocation and Reform) Bill, introduced by Liz Truss’ Government last year, paved the way for all retained EU law to be revoked automatically at the end of 2023 unless it was expressly transferred into UK law. At least that was the plan. 

In a written statement to Parliament, Kemi Badenoch, Secretary of State for the Department of Business and Trade, has confirmed a reversal in approach. Now only those laws expressly identified by the Government at the end of 2023 will be revoked. All other retained EU law will remain in place. 

The indication is that this will affect around 600 laws to a lesser or greater degree (the Government’s current proposed list is here), as opposed to a potential 4,000, although the Government reserves the right to reform the rest at a later date “after proper assessment and consultation”. 

Reform of employment law

At the same time, the Government has published the first in a series of regulatory reform announcements: “Smarter Regulation to Grow the Economy”, which starts with extensive detail about the Government’s vision for reforming regulation in order to support economic growth. 

For employers, the significant news is contained in section 4: "Reforming regulations to reduce burdens". Here, the Government sets out its proposed package of reforms for employment law. Further detail on these can be found in the Government’s response to its consultation on non-competes and its newly published consultation on the Working Time Regulations, holiday pay and TUPE (the Consultation):

Working Time Regulations (WTR)

Three changes are proposed:

• Record keeping
  Remove the requirement to keep adequate records in respect of every worker showing compliance with working time obligations. This requirement appears to have been more honoured in the breach, so is unlikely to make a significant difference in practice.
• Rolled up holiday
  Introduce rolled-up holiday pay paid at 12.07 per cent of a worker’s pay, so that workers can be paid an amount for holiday pay in their normal hourly rate. This would reverse the ECJ decision in Robinson-Steele which ruled that rolled-up holiday pay is unlawful. Despite this decision, many employers have continued with the practice of rolled-up holiday pay, on the basis it was the most practical way of dealing with holiday pay and entitlement for zero hours and other atypical workers. This is therefore likely to be a welcome change for employers, though one which commentators are warning could be open to abuse as a means of deterring people from taking holiday.
  
  Employers would need to make workers aware if they pay rolled-up holiday pay by clearly marking the payment as holiday pay on a worker’s pay slip.
  
  Earlier this year, the Government launched a consultation on “Calculating holiday entitlement for part-year and irregular hours workers”. This followed the case of Harpur Trust v Brazel, in which the Supreme Court confirmed that paid holiday for part-year workers cannot be pro-rated (for more information see here). In that, the Government proposed allowing employers to pro-rate holiday for part-year workers based on a 12.07 per cent method. It is a little surprising that this proposal is not repeated in its package of reforms announced now. However, the Consultation does contain a similar assertion, that “statutory annual leave entitlement is 12.07 per cent of hours worked by a worker,” which, though not expressly stated, suggests a continued commitment to introducing a pro-rata approach.
• Single annual leave entitlement
  Merge the four weeks’ EU-derived holiday entitlement with the additional 1.6 weeks provided for under domestic legislation, so that all workers are entitled to a single pot of statutory annual leave of 5.6 weeks. This will allow for consistency of treatment for all statutory holiday entitlement.
  
  
  The Government wishes to introduce a single rate of holiday pay for the entire 5.6 weeks of entitlement. The Consultation explores whether that rate of pay should be a worker’s normal rate (including commission, bonuses and some overtime – currently the position for the 4 weeks’ pay) or basic rate (excluding other payments – currently the position for the 1.6 weeks). The Government also intends to clarify that, in the first year of employment, workers will accrue annual leave entitlement at the end of each pay period.
  
  

The Government says it will consult on these proposals, but confirms it intends them to come into effect “this year”.

TUPE

Currently under TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) only employers with fewer than 10 employees can inform and consult affected employees directly on a business transfer or service provision change (commonly known as the "micro-businesses exemption"). In all other circumstances, the obligation to inform and consult must be with ‘appropriate representatives’ of employees, which in the absence of a recognised trade union often involves elections being held to appoint employee representatives.

The Government is now consulting on extending the micro-businesses exemption so that employers can inform and consult directly with employees where either:

• it is a small business, ie with fewer than 50 people, or
• it is a business of any size but fewer than 10 employees are transferring.
  
  

No timeframe is given for when this change might come into effect.

Non-compete clauses

The Government proposes to limit the length of non-compete clauses in employment contracts and contracts for limb workers to a maximum of three months. Currently there is no set maximum period for a non-compete clause, and in some sectors restrictions of 6 – 12 months are not uncommon for senior employees.

This change is not intended to limit the ability of employers to use paid notice periods or garden leave, nor will it affect the use non-solicitation, non-dealing  or confidentiality clauses. 

The Government intends to bring this change into effect “when parliamentary time allows”. For commentary and further detail on this proposal, see our separate blog A global shift away from non-competes? Major changes proposed.

What is not changing?

In its Consultation, the Government confirms its intention to preserve the majority of key employment protections currently contained in EU retained law. These include those relating to:

• Maternity and parental leave
• Paternity and adoption leave
• Part-time workers
• Fixed-term employees
• Agency workers
• All other aspects of TUPE and the WTR not mentioned above
  
  

In other words, the vast majority of EU-derived employment law is likely to remain unchanged. While way back when the fear was that Brexit would bring about "a bonfire of workers’ rights", it now seems likely it will amount to just a few tweaks around the edges. 

What should employers do now?

For now, it is very much a case of wait and see. This Government is not known for bringing employment law changes into effect with any degree of rapidity. Just take the long-awaited but now abandoned Employment Bill for example. Employers are therefore advised to continue with their current practices until such a time as legislation is introduced to enact these reforms. We will provide updates on the Government’s proposals as and when further detail is available.

If you would like to respond to the Government’s Consultation, responses can be submitted online until 7 July 2003.   

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2023