The European Union (Withdrawal) Act 2018 preserved a number of EU laws in UK statute as Retained EU Law (REUL). The Retained EU Law (Revocation and Reform) Bill (REUL Bill) was introduced to amend, remove and replace the REULs that the UK government deemed to be unsuitable and replace them with bespoke UK provisions. The REUL Bill was initially drafted to automatically revoke all REUL from UK statutes at the end of 2023.
On 10 May 2023, it was announced that the ‘sunset’ of all REUL was being reversed and instead the government will provide a list of REUL that it intends to revoke under the REUL Bill at the end of 2023. Whilst not proposing to “sunset” all REUL, on the same day, the UK government published a policy paper called ‘Smarter regulation to grow the economy’ (the Policy Paper). This paper is the first to be announced in a series of deregulatory measures that are expected to follow this year. The purpose of the proposals is to reduce the level of ‘red tape’ on businesses and to enable them to innovate and grow. The Policy Paper proposes amendments to three areas of REUL:
- Record keeping requirements under the Working Time Regulations (WTR);
- Simplifying annual leave and holiday pay calculations in the WTR; and
- Consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
The Policy Paper also sets out proposals relating to non-compete provisions in employment contracts.
On 12 May 2023, the Department for Business and Trade announced a consultation seeking views on the first three areas of reforms. The date to respond to this consultation is by 7 July 2023.
Taking each proposal in turn:
Record keeping requirements under the WTR
The government is proposing to keep the key provisions of the WTR (i.e. a maximum average working week of 48 hours for adult workers measured over a 17 week reference period; workers’ ability to opt-out of the 48-hour limit; rest break of at least 20 minutes for a working day of more than 6 hours; annual leave of 5.6 weeks etc.). However, it is reviewing the requirement for employers to have an “objective, reliable and accessible system” to record the duration of time worked each day by each worker in order to accurately measure rest breaks, minimum rest periods and the limit on maximum weekly working time. The government deems this obligation to be onerous and potentially costly to employers and seeks to remove the requirement for employers to keep a record of daily working hours of their workers.
Holiday entitlement and holiday pay
Holiday entitlement is currently split into two allocations: four weeks’ leave which is required under the EU’s Working Time Directive (Regulation 13 Leave); and 1.6 weeks’ leave which is additional to the EU minimum requirement (Regulation 13A Leave). The treatment of the two types of leave in certain situations is different. For example, the Regulation 13 Leave must be paid at the worker’s “normal remuneration” (which can include commission, bonuses and overtime payments received). The Regulation 13A Leave must be paid at the worker’s basic pay rate – it does not need to reflect the worker’s normal remuneration (unless otherwise agreed between the parties). Indeed the government notes that many employers choose not to distinguish between the different leave entitlements.
In addition, the Regulation 13 Leave cannot typically be carried over into the next leave year (some exceptions do apply e.g. if the worker is on long-term sick leave or on maternity, paternity or parental leave). The Regulation 13A Leave can be carried over into the next leave year if there is a written agreement between the worker and their employer to do so.
The government’s proposal is to have one pot of annual leave entitlement for all workers in Great Britain. The government does, however, intend to keep the current arrangement where only the Regulation 13A Leave can be carried over into the next leave year if there is a written agreement between the parties.
In terms of holiday pay, the government is proposing to introduce the concept of ‘rolled up’ holiday pay as an option for employers to use to calculate the holiday pay for their workers. This is a system where a worker receives an additional amount with every payslip to cover their holiday pay, rather than receiving holiday pay only when they take annual leave. This proposal would give employers the choice between paying workers holiday pay based on a 52-week holiday pay reference period or rolled up holiday pay.
The rolled up holiday pay proposal is to pay workers 12.07% of their pay on each payslip as 12.07% is the proportion of the year taken up by statutory annual leave. The worker does not receive any further pay when on holiday as they have already received their holiday pay. Employers would need to adjust this percentage to account for any contractual leave they offer beyond the statutory minimum. This could provide employers more certainty as to how much holiday pay to pay workers with irregular hours.
The government is consulting on introducing rolled up holiday pay as an additional method that employers can choose to use when calculating and paying holiday pay for their workers.
TUPE applies when there is a change to the ownership of a business or when a service transfers to a new provider. Currently, in advance of a transfer, the current employer and the new employer are required to inform and consult with the affected workforce’s existing representatives (or arrange elections for representatives if they are not already in place) before the transfer takes place. Businesses with fewer than 10 employees may inform and consult employees directly if there are no existing employee representatives in place e.g. no recognised trade union. This means that they are not required to arrange elections for new employee representatives. However, larger businesses are required to arrange elections for affected employees to elect new employee representatives if they are not already in place.
The government is proposing that all small businesses (those with fewer than 50 employees) can consult directly with their employees on TUPE transfers. The government is also proposing that this extends to businesses of any size involved in a transfer of fewer than 10 employees. This would only be allowed if no existing employee representatives were in place. If employee representatives were already in place, then the employer would still be required to consult with them.
Non-compete clauses in contracts of employment
The Policy Paper mentioned an additional item that the government was seeking to review which is not part of this consultation. The Policy Paper indicates that the government will legislate, when parliamentary time allows, on limiting the length of non-compete clauses in contracts of employment to three months. This would mean that an employer would only be able to prevent an individual from working for, or establishing, a competing business for three months after the termination of their employment. It is important to note, however, that this potential reform will not interfere with the ability of employers to use paid notice periods, garden leave provisions or non-solicitation clauses. This may have a significant impact for those sectors who do not have long notice periods or who do not wish to rely on garden leave clauses. The reforms will also not affect confidentiality clauses.
The proposed changes in the consultation are far from ground breaking and will make little difference to employment lawyers across the country. They could, however, be useful in tidying up some grey areas that have arisen from recent case law e.g. in relation to the calculation of holiday pay and the current treatment of the different types of leave.
More interesting is the possible reform of non-compete clauses. As it stands, the most pertinent question in relation to this possible reform is: when will parliamentary time allow. In the interim, this announcement could see employers inserting longer notice periods in their contracts of employment and more robust non-solicitation restrictions.