On 10 May 2023, the government released a new policy paper, Smarter Regulation to Grow the Economy. 

The paper outlines the government’s initial plans for changing the landscape of employment law post-Brexit.

Non-compete restrictions will be capped at three months, rolled-up holiday pay will be permitted, and the circumstances where employers must elect representatives for TUPE transfers will be narrowed.

In this article, we consider the consequences for employers.

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Non-compete restrictions will be limited to three months

The most eye-catching part of the policy paper is the decision to limit non-compete restrictive covenants to no more than three months in length.

Restrictive covenants are clauses that employers may include in contracts of employment.

They seek to protect the employer’s business from the actions of an employee after their employment ends.

Non-compete restrictions prohibit employees from competing with their ex-employer for a defined period following termination (whether by joining a competitor or by starting their own competing business).

Restrictive covenants are subject to a body of case law which says, if they are to be enforceable, they must be no wider and go no further than is reasonably necessary to protect the employer’s legitimate business interests (e.g. sensitive business information, trade connections or retaining talent).

Whilst non-compete restrictions would be capped to three months, no such limits or changes will be applied to other types of restrictive covenants, such as clauses that seek to prevent an ex-employee from poaching customers or colleagues.

There are also no changes announced for other contractual protections, such as notice periods, garden leave clauses, and confidential information provisions.

This change would resign the days of six-month, nine-month and twelve-month non-compete clauses to the past.

The government aims to give employees more flexibility in their careers, to join rivals and start their own businesses.

The idea is that the economy will generally benefit from a more innovative and reinvigorated market.

However, employers will undoubtedly find ways to adapt to this change.

We could see greater use of longer notice periods combined with garden leave clauses, which would stop the employee from working for anyone else (never mind competitors).

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How will this policy be brought into law?

It remains to be seen how this policy will be brought into law. It could create inconsistencies with other types of restrictive covenants.

For example, an ex-salesperson could move to a competitor after three months but remain bound by continuing non-solicitation and non-dealing restrictions.

Would a new employer want to hire a salesperson who is restricted in this way?

We also wait to see whether the proposals will only apply to employment contracts or whether non-compete restrictions in other types of contracts will also be impacted, such as partnership and shareholders’ agreements.

Furthermore, what does this mean for existing non-compete clauses that exceed three months? Will they be able to continue, or will they be automatically unenforceable or perhaps enforceable only up to a limit of three months?

It will take time for this change to be brought into law. Once it is, it will be interesting to see what impact this could have on investment in the UK.

Will businesses want to hire and place key talent in the UK if they can join a rival after three months?

In the meantime, employers can still include non-compete restrictions in their contracts, though they may want to start thinking about reducing the scope of these or looking to other solutions.

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Rolled-up holiday pay gets the green light

Rolled-up holiday pay is where holiday pay is built into the worker’s basic pay, but it is currently prohibited by EU case law.

It is unclear whether the government will introduce rolled-up holiday pay for all workers.

It seems more likely to be limited to casual and occasional workers.

We await more details, though this will be welcome news for many employers, as calculating holiday pay for casual and zero-hours workers, whose hours and earnings regularly fluctuate, can be tricky.

This change offers a simpler solution.

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A single, unified holiday entitlement

Employees currently hold two different holiday entitlements.

They receive four weeks’ holiday under EU law and a further 1.6 weeks’ holiday under UK law.

The government has announced that it will merge these two entitlements into a single “pot” of 5.6 weeks’ leave. This change makes sense.

However, it remains to be seen whether we will see other sensible changes, such as reforming confusing rules around what is included in holiday pay and when holidays unused due to sickness can be used (as the rules differ under UK and EU rules).

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Easing the reporting burdens of the Working Time Regulations

The government has said that it will remove the EU case law that requires employers to keep a record of the working hours of all employees.

The government is probably referencing the decision in CCOO v Deutsche Bank.

However, it was not definite from that decision that UK businesses were impacted. In any case, the government has now clarified its position on the issue.

Employers should exercise caution before rushing to cease all record keeping, as national minimum wage laws demand records are kept in some cases.

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A small tweak to TUPE

The Transfer of Undertakings (Protection of Employment) (TUPE) Regulations protect employees when the business or organisation for which they work transfers to a new owner.

It may also apply when a specific service within a business is outsourced to a new provider.

TUPE provides employees with various protections and rights in such circumstances.

One is that businesses cannot consult directly with employees when there are no representatives. Employee representatives must be elected.

The government has announced that it will open a consultation on removing this requirement for businesses with less than 50 employees and transfers affecting less than ten employees.

The wording of the announcement could be clearer.

We are unsure whether the requirement to elect representatives will be removed where there are less than ten transferring employees and the business has fewer than 50 employees or whether the requirement is cancelled if either condition applies.

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Controversial “sunset clause” for retained EU law is scrapped

A small, easily missed announcement in the policy paper is the government is cancelling a clause contained in its Retained EU Law Bill, which would have seen all EU law automatically revoked at the end of 2023 (unless actively retained or replaced in advance).

This extreme clause concerned many, and the government has now said it is replacing this “sunset clause” with a new list of regulations that it plans to revoke.

This will be welcomed by most as a sensible change in approach.

The list of regulations that the government wishes to revoke has been published.

There are no critical employment laws in that list, but employers must keep an eye on government activity in the future and after the next general election, as the government can make regulations revoking other EU retained laws.

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Since this article, the government has launched a consultation on reforming the calculation of annual leave and holiday pay and the record-keeping requirements under the Working Time Regulations 1998, and the consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations 2006. The consultation will remain open until 7 July 2023.

The consultation confirms that the government is proposing to remove the requirement to elect employee representatives for the purpose of TUPE consultation for businesses with fewer than 50 employees and/or businesses of any size involved in a transfer of fewer than ten employees (i.e. the exception will apply to both situations).

 The consultation also makes other proposals linked to the unification of basic and additional annual leave, including clarifying the minimum rate of holiday pay and what counts as “normal remuneration”, simplifying the method for calculating leave in a worker’s first year of employment, and removing the exemption which allowed the carrying over of leave due to covid-19.

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If you are an employer seeking legal advice regarding holiday pay, non-compete restrictions, and TUPE transfers, our employment law solicitors can help: