The Department for Business and Trade has published “Smarter Regulation to Grow the Economy”: a high-level policy paper and the first in what is intended to be a series of regulatory reform announcements.

The paper sets out the Government’s desire to use the UK’s regulatory decoupling from the EU to enact new proposals that, if implemented, are intended to drive economic growth.

While we are yet to see their impact on the economy, the measures outlined would mean significant changes to UK employment law.

It is notable however that on the same day as releasing its policy paper, the UK Government also announced that they were ditching their plans to have a “sunset clause” on retained EU laws. Prior to this reversal, unless a piece of EU legislation had been specifically retained through the UK’s parliamentary process, it would automatically disappear from our legislative framework in December 2023. With many of the UK’s employment laws stemming from EU directives, this would have resulted in a further raft of very significant changes to the UK’s employment law overnight. Instead, the Government has stated that all laws will be automatically retained, unless the Government legislates to disapply them. So far, none of the pieces of legislation on the list for repeal will create any material changes to the current employment law landscape for UK based employers.

Proposed employment law changes

The proposals include:

• The amalgamation of the separate legal concepts of what we’ve come to describe as “Euro Leave” (4 weeks’ holiday under the EU Working Time Directive) and “Additional UK Leave” entitlement (the extra 1.6 weeks’ leave afforded under the Working Time Regulations). The overall statutory leave entitlement will remain the same, but the Government is inviting views from employers and workers on the best method of calculation of holiday pay. Those of you who have grappled with this issue over the years (including the question of which variable components of pay should be included for holiday pay purposes), will know that calculation of holiday pay is anything but simple! The Government’s stated aim is to reduce administrative hassle for business whilst ensuring workers’ rights are not eroded. Against that backdrop, it’s difficult to see how the Government could justify restricting holiday pay to basic pay only again, but we will keep our ears to the ground on this.
• The removal of the requirement for employers to keep written records of daily working time for the purposes of demonstrating compliance with the Working Time Regulations;
• Allowing the currently unlawful approach of “rolled up” holiday pay, which would effectively allow employers to pay in lieu of accrued holidays where their workers work irregular hours. It should be noted that the Government is also currently consulting on calculation of annual leave entitlement for part-year workers (as well as those with irregular hours), so it would seem prudent for them to consider the responses to both consultations collectively before implementing any proposed changes;
• The simplification of TUPE regulations with the extension of the current micro-business exemption from employee representative consultation obligations. Currently, businesses cannot consult employees directly where they do not have employee representatives in place. Instead, there is a requirement to elect new employee representatives. While the micro-business exemption from this currently only applies to businesses with fewer than 10 employees; this will be widened to include businesses with fewer than 50 employees. Coupled with this extension, it is also proposed that any size of organisation will be able to consult directly with employees as long as they don’t have existing employee representatives in place and fewer than 10 employees are affected by a TUPE transfer; and
• New restrictions on post-termination non-compete provisions which have become a standard part of many employment contracts and restrict an individual’s ability to work for or establish a competing business to a previous employer. The proposal is to cap the length of such restrictions to a maximum of three months after termination: a significant shortening on the period often used in many senior employees’ contracts. The Government is clear, however, that this change will not interfere with other restrictive covenants in employment contracts including the ability for employers to utilise paid notice periods, gardening leave, non-solicitation clauses, and confidentiality provisions. To read more about the business protection implications of this proposed change, you can do so here.

What this means for employers

Ultimately, this policy paper and the associated consultation only marks the Government’s future direction and no changes have passed as legislation or come into force. No timescales are committed to and there remains significant potential for other competing political priorities to consume the Government’s time. Furthermore, a general election next year could lead to a new government with new policies. It is also possible that the proposals could change significantly as a result of responses to the consultation the Government launched on 15 May 2023 on "Retained EU Employment Law" and, indeed, as a result of further developments in case law.

On a practical level, the main thing to note is that for the moment you don’t need to change any policies or alert employees to any changes at this time. However, we would suggest keeping your eyes firmly peeled on the outcome of these proposals, and we will keep you updated on that as and when it happens, as well any further proposals that are announced.

And if you have any questions about the proposals outlined above, or indeed any other employment or discrimination law queries, please feel free to get in touch with Jennifer Skeoch or Ross Gale.

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