Government announces intention for employment law reform

Last week, the government released its policy paper on ‘Smarter Regulation to Grow the Economy’ where it said how it plans to reform some employment laws post-Brexit.

The updates from an employment perspective are as follows:

Non-compete clauses

The government is proposing to limit the length of non-compete clauses in employment contracts to three months. Non-compete clauses are generally the types of clauses which restrict an ex-employee from going to work with a competitor for a certain time-frame after employment, and it is the time-frame which the government is trying to limit. These time-frames usually range between 3 and 6 months, with longer time-frames being more common for more senior and executive employees.

This issue has long been discussed, especially as the government launched a consultation in 2020 which explored various avenues for reforming post-termination non-compete clauses in employment contracts. They toyed with ideas such as introducing compensation during the term of the non-compete clause and making them completely unenforceable, but have chosen to pursue the idea of putting a limit on them instead. It is said that the main motivations of limiting the time-frame for non-compete clauses are to boost flexibility and innovation in the labour market, make it easier for workers to be able to move to a competitor or start a competing business, and also to fill vacancies and attract better candidates.

It is important to note that the government is not proposing to limit post-termination restriction clauses which limit a former employee’s ability to poach former clients or former colleagues, nor will they be interfering with the ability of employers to use paid notice periods or garden leave. Whilst the government is wanting to make this change, it recognises the commercial benefits to employers to retain other post-termination restrictions but considers that non-compete clauses sometimes fulfil no purpose and have become a default part of too many employment contract. This proposal by the government will need legislation to be implemented, so is not a change in the law yet, but it gives us an idea of what the government are seeking to do longer term.

Reducing Working Time Regulations reporting burdens

The government’s position is that under EU legislation there are unnecessary burdens on businesses due to having to keep records and fulfil other administrative requirements related to working hours. They have therefore proposed removing the EU requirements to retain working hour records. The government anticipates that this will help save £1 billion per year. They have also proposed reducing the administrative burden and complexity of calculating holiday pay by introducing rolled-up holiday pay, so that workers end up receiving their holiday pay with every payslip. They will also merge the current two separate leave entitlements into one pot of statutory annual leave.

Simplifying Transfer of Undertakings (Protection of Employment) (TUPE) Regulations

The government is proposing simplifications which can be made to reduce some administrative burden on businesses without changing employee rights when there are transfers of employees. The paper says that the government is consulting on removing the requirement for businesses with fewer than 50 people or where the transfer affects fewer than 10 employees to have employee representatives in place during the consultation process. This will make the process simpler for employers and less burdensome.

As the proposals have been described by the government as an initial package, it remains to be seen what will carry through to become law. However it is clear from the paper that they are considering the ‘red tape’ which binds businesses in their administrative processes for their workers. Looking forward, we may well see further proposals for employment law reform as the government takes the opportunity to either rewrite EU-based employment laws or merge them into UK law and the best advice is to watch this space!

If you would like to discuss these latest government announcements, please get in touch with our Employment team who will be happy to assist with any questions.

Darren Smith
Partner, Employment
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This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

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