Monthly Highlights – UK Employment Law – May 2023

5 minute read | May.31.2023

In this month’s instalment, our team highlights the UK’s plans to reform employment law in a post-Brexit world, with a focus on what it might mean for employers and UK employment law. We also discuss new employment protections for parents and unpaid carers.

Employment reforms in a post-Brexit world

The Government has announced a number of employment law measures following its departure from the EU in a policy paper "Smarter Regulation to Grow the Economy". These measures are summarised as follows but will require legislation to be enacted into UK law:

  • Rolled up holiday pay to be allowed

    To reduce the administrative burden and complexity of calculating holiday pay, the government has proposed to introduce and allow rolled up holiday pay, the practice of paying workers an additional sum each month to represent holiday pay, typically 12.07% of salary. This practice is unlawful under EU law.  If applicable law is passed and employers start paying rolled-up holiday pay, they should inform workers and ensure the payment is clearly marked as holiday pay on payslips. It is envisaged that this change simplifies calculating holiday pay for casual and temporary workers.

  • Holiday entitlements

    Currently, employees have two separate holiday entitlements - four weeks’ leave based on EU law and an additional 1.6 weeks from the UK. The government plans to merge these entitlements into one type of statutory annual leave. That will ensure that both types of leave are treated consistently and are indistinguishable which may affect the treatment of leave in terms of carry-over to the next leave year or where annual leave cannot be taken due to sickness absence or family leave such as maternity leave. It is also envisaged that this may result in the old method of calculating holiday pay by reference to basic salary and ignoring that emerging EU case law that introduces the possibility of holiday pay including other forms of variable remuneration such as overtime payments and commission. Whist employers will welcome this move, the government has offered no details as to what this will look like in practice.

  • Working time records

    Another proposal is to remove the EU case law requirement that employers keep individual working time records for their employees. Under the Working Time Regulations 1998, employers must maintain adequate records showing that they comply with the rules on maximum working hours for employees who have not opted out of the 48-hour working week limit and those working nights. Few employers tend to keep such records in practice, so removing this requirement may have little practical effect but it will prevent a technical breach of the rules by employers.  However, employers should consider the importance of having records that show the hours that have been worked. This can help employers comply with other regulations, including the entitlement to national minimum wage.

  • Reforms to TUPE

    The government intends to consult on proposals to remove the requirement to elect employee representatives in Transfer of Undertakings (Protection of Employment), or TUPE, consultations for businesses with fewer than 50 employees and transfers affecting less than 10 employees (regardless of the size of the employer). Such change could allow businesses to consult affected employees directly and on an individual basis and remove the administrative burden on electing representative in certain cases. Currently, only employers with fewer than 10 employees can inform and consult affected employees directly on a business transfer or service provision change.

  • Limits on non-compete clauses

    Although not strictly related to Brexit, the government has announced plans to limit the length of non-compete, post-termination restrictions to three months. Non-compete clauses protect businesses by restricting a former employee from immediately working for a competitor on their departure. General market practice is often for senior and highly valuable employees to face a restriction from competing with their former employer for between six and 12 months after termination of employment. However, the government has recognised that such clauses can be “unnecessarily burdensome” insofar as they have become a default provision in many employment contracts. The aim of the proposed three-month limit is to boost competition and innovation by making it easier for employees to move to a competitor. The government does not believe this will interfere with an employer’s ability to use paid notice periods, gardening leave or other post-termination restrictions such as non-solicitation clauses and such limit will only apply in the employment context and not to shareholder non-competes or other non-compete provisions outside the employment context.  

    Until the government announces further details, this is likely to cause uncertainty for employers given a lack of clarity as to whether limiting non-compete clauses to three months will apply retroactively or only to new contracts. However, given that other post-termination restrictions would be unaffected, employers will likely place more emphasis on other protections and look to extend the length of notice periods and reinforcing garden leave provisions for key employees.

  • Abandonment of “sunset” provision

    In 2022, the government stated that nearly all EU-retained law would be revoked automatically at the end of 2023.  Now the government has indicted that it plans to revoke only certain EU laws at the end of 2023 to be included by reference to a list of EU statutory instruments that it intends to repeal – currently such list does not reference any significant employment legislation so there is not expected to be an immediate impact on UK employment laws.

Parents and carers to receive new protections

Parents and unpaid carers are set to receive new employment protections, as three government backed Private Members Bills received royal assent in May. The government has said it will introduce secondary legislation in “due course” to implement the entitlements.

Once in force, parents and carers will receive:

  • Up to 12 weeks of paid neonatal care leave for parents with children in neonatal care. This is in addition to other leave and pay entitlements, such as maternity and paternity.
  • Extension of existing redundancy protections for mothers to cover pregnancy and protection to parents for a period of time after their return to work. However, it is currently unclear how long parents will be protected after returning to work.
  • A new entitlement for unpaid carers to a week of flexible unpaid leave per year, for employees who care for a dependant with long-term care needs. This will enable carers to better balance their caring and work responsibilities, supporting them to remain employed.

Employers should monitor these developments and consider updating and amending policies and/or handbooks to reflect the new protections once in force.