Smarter Regulation to Grow the Economy

On Wednesday 10 May, the Department for Business and Trade announced proposed changes to a number of employment law measures as part of their policy paper titled “Smarter Regulation to Grow the Economy”.   This initial paper sets out a package which is the first to be announced in a series of deregulation announcements that are expected to follow later this year.  The Government says the focus is on delivering benefits for businesses – to reduce unnecessary regulation, cut costs and allow them to compete.   It’s reported that the proposed changes could save employers over £1billion per year.

Within the paper were three proposals affecting current employment law measures.  As you can imagine, there is very little detail available on the proposals and we do not have any guidance on time scales other than that they will be implemented after consultation when the Government has parliamentary time. Below is a summary of what we know so far:

1. Changes to holiday pay

The proposal relating to holiday pay is to introduce rolled-up holiday pay.  Now this used to be commonly used up until around 2006, since which time it has been technically unlawful to pay holiday pay in this way (although many employers have risked continuing to use it, regardless).  The Government is proposing allowing such practice to ease the current burden of holiday calculations on employers.  This means that workers can receive their holiday pay with every pay slip.  How this will operate and what measures of protection are put in place are not yet known.

2. TUPE

The Transfer of Undertakings (Protection of Employment) (TUPE) Regulations currently protect employees when the business or organisation for which they work transfers to a new owner or when a service transfers to a new provider.  The regulations currently provide that a business cannot consult with employees directly and it must have employee representatives put in place.

The Government’s proposal is to remove the requirement for employee representatives, and to allow the business to consult directly with affected employees, where they have fewer than 50 employees and the proposed transfer will affect less than 10 employees in total.

3. Restrictive covenants – non-compete

Restrictive covenants are commonly found in contracts of employment but they should only be used to protect a business’s legitimate business interests.  One form of restrictive covenant (amongst others) is a non-compete clause.  A non-compete typically seeks to prohibit an employee from competing with their ex-employer for a set period after leaving the business or from setting up in competition.  These covenants play a vital role in protecting a business and the investment they have made in their staff.  However, if the clause goes further than necessary (i.e. it seeks to prohibit the employee for too long period of time), it can be found to be unenforceable and a restraint of trade. They can also act as a deterrent when they might be unenforceable in any event. A non-compete restriction of 12 months is considered to be the current maximum duration the courts will allow as enforceable.

The Government proposes to limit the length of non-compete clauses to three months, to allow employees more flexibility to join competitors and set up competing businesses.

What we don’t know at this stage is how this will proposal would work in practice; in our view, it seems to fail to mention or deal with the following:

i.         How will non-compete restrictions that are currently longer than three months be dealt with? Will they be rendered entirely unenforceable or would they be automatically reduced to three months?;

ii.        Whether business’s will need to update contracts and restrictive covenants to reduce their non-compete restrictions as a result (therefore having to following a consultation process);

iii.       Whether there will be exceptions for circumstances whereby it is absolutely necessary for a longer restriction than three months;

iv.        Whether the proposed changes will have any impact on non-solicitation or non-dealing clauses.  It seems to suggest that non-solicitation clauses will be unaffected, but non-dealing clauses are not mentioned in the paper.

We’ll keep this page updated as we find out more information on the above proposals and any further changes.

Laura Kelleher, Solicitor