Employment Reform - Government Publishes Policy Paper and Consultation

Employment legislation has not been far up the government agenda recently, but on 10 May 2023 a few interesting proposals were made in the Department for Business & Trade’s policy paper Smarter regulation to grow the economy. These address areas of employment law where the government considers there is an opportunity to improve regulation following the departure from the EU. The proposed changes are to the Working Time Regulations 1998 (WTR) and the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The government also proposed changes in the policy paper to non-compete clauses which do not derive from EU law but were the subject of a consultation paper in December 2020. 

Hot on the heels of the policy paper, on 12 May the government published its Retained EU Employment Law Consultation on the proposed changes to WTR and TUPE which closes on 7 July 2023. Importantly, as part of this the government confirmed that intends to preserve:

• Maternity and Parental Leave etc Regulations 1999
• Paternity and Adoption Leave etc Regulations 2002
• Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000
• Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002
• The Agency Workers Regulations 2010
• Information and Consultation of Employees Regulations 2004
• Transnational Information and Consultation of Employees Regulations 1999
• Areas of the WTR not specified below
• Areas of the TUPE not specified below

Holiday pay

The proposed changes to the WTR will be welcomed by employers who have grappled since their introduction with how calculations should be made for holiday pay and managing holiday pay in an agile workforce. The proposals promise to reduce “the administrative burden and complexity of calculating holiday pay” in part by making rolled up holiday pay lawful and by merging the two separate “basic” and “additional” leave entitlements into one pot of statutory annual leave with the total statutory annual leave staying at 5.6 weeks. 

Rolling up holiday pay

Rolling up holiday pay (what many do in practice in any event with casual workers) will simplify the administration of holiday pay for many. The consultation proposes that rolled-up holiday pay is paid at 12.07% and paid to workers with every payslip. This will be welcomed by employers and will ensure that workers with irregular hours receive their holiday pay regularly.  The government is consulting on whether this should be an option in relation to workers with regular hours as well as those with irregular hours.

Single leave entitlement

The current distinction between the basic 4 weeks annual leave under the Working Time Directive and the additional 1.6 weeks under the WTR is important as there are different rules which apply to each type of leave. For example, the 4 weeks annual leave must be paid in accordance with the worker’s “normal remuneration” (which includes basic salary plus other payments such as commission and overtime) whereas the 1.6 weeks must be paid at the worker’s basic rate, and it is not clear which leave accrues or should be taken first. 

The government proposes to create a new single statutory annual leave entitlement which will set out the minimum rate that holiday pay should be paid at. The consultation explores how to define and legislate to introduce a single rate of holiday pay for the entire 5.6 weeks. 

The consultation is looking at how leave is calculated in a worker’s first year of employment and it is intended that revised guidance will be issued to give clarity to employers. 

In addition, the government is consulting on removing the amendments made to the WTR to allow carry over of 4 weeks leave due to Covid and whether this might have any unintended consequences.

Record keeping requirements

The government is intending to remove the EU case law requirement on keeping working hours records.  This follows an ECJ decision which held that in order to comply with the Working Time Directive on maximum weekly working time and daily and weekly rest, employers must set up a system to measure the actual daily working time of individual workers. The government says it wishes to remove the uncertainty about record-keeping requirements by legislating to clarify that businesses do not have to keep a record of daily working hours of their workers. 

In the meantime, we have not yet had the response to the government’s consultation on holiday pay entitlement for part-year and irregular-hours workers that closed on 9 March 2023. This concerned the proposal to make holiday entitlement proportionate to the hours worked in response to the Supreme Court’s decision in Harpur v Brazel Part-year workers favoured in Supreme Court holiday pay ruling

Business transfers

In an effort to simplify the TUPE regulations that apply when a business transfers, the proposal is to enable employers to consult directly with employees (and not have to elect employee reps) for businesses with fewer than 50 employees and transfers affecting less than 10 employees. Any reduction of red tape will be welcomed by businesses, but this is not a significant step. 

The government is also consulting on whether businesses of any size involved with transfers of employees (where fewer than 10 are transferring) should be allowed to consult directly with employees on the transfer if there are no employee reps in place rather than arranging for elections for new reps.    

Non-compete clauses to be limited to three months

The government intends to legislate to limit the length of non-compete clauses to 3 months with the intention that this will provide employees with more flexibility to join a competitor after they have left a position. Whilst there are no details yet on what the legislation will look like the government has confirmed that limiting the non-compete clauses will not interfere with the ability of employers to use paid notice periods, or garden leave or non-solicitation clauses. There may well therefore be little difference in result, just a change in how employers get there, with employers using garden leave and potentially longer notice periods to achieve their aims. There is no timetable for the implementation of these provisions other than the vague assurance of “when parliamentary time allows”.  For further commentary by my colleague Nick Hurley Clipping the wings of non-competes.

EU retained law

Significantly, also on 10 May, the government announced that it was tabling amendments to the Retained EU Law (Revocation and Reform) Bill including scrapping the “sunset clause” which means that retained EU law will not be automatically revoked on 31 December 2023. The reversal of the sunset clause will be a welcome relief to businesses as the default position was likely to have caused uncertainty and the potential for increased litigation as a result. 

As an alternative, the government intends to revoke a specific list of measures and in the Retained EU Employment law consultation it confirms that its review of retained EU employment law has identified three regulations it intends to revoke, two of which concern posted workers and the last one relates to the European Co-operative Society regulations.    

Conclusion

We will await with interest the outcome of the consultation but it should be noted that over recent years anticipated legislation has failed to materialise.  There is no specific timescale set out in the consultation on WTR and TUPE and there is no date for the changes to non-compete clauses, therefore it remains to be seen when these proposals will come into force. However, employers now have some clarity about what the government intends to retain, potential changes and what is being revoked.