Last week the government announced its intention to introduce new legislation to limit non-compete clauses in employment contracts to three months. The measure is one of three key changes the Government has announced in a drive for innovation and cost savings for employers. Other proposed changes announced include revoking the requirement to keep working time records and simplifying consultation requirements in TUPE transfers.
These changes have arisen because of the Government’s intention to revoke certain aspects of EU legislation following the UK’s exit from the European Union.
3-month time limit for non-competes
Whilst non-competes would be limited to three months, employers will still be able to rely on other post-termination restrictions such as non-solicitation and non-poaching clauses which seek to stop employees from taking staff, clients or customers to their new employer or business. The purpose of this change is to give workers greater freedom to switch jobs, apply their skills elsewhere and earn a higher salary.
This change could be significant to businesses that rely on non-compete clauses in senior employee contracts to protect confidential information and customer connections, particularly in niche innovative industries where the pool of competition is limited. It could therefore have the reverse effect on innovation if companies feel unable to protect themselves from a key employee leaving to join a competitor, taking confidential information with them, in just three months.
If these changes are made, such businesses will need to revisit contracts of employment to require longer paid notice periods or garden leave clauses to keep senior leavers away from competitors for more than three months. This would impose a larger financial burden on businesses. Whilst employers will want to see the detail of these proposals before they prepare for the changes, it would be sensible for businesses to start reviewing their contracts and non-compete clauses now to check they are fit for purpose and to consider how best to adapt them for the new legislation.
Revoking the requirement for employers to record working time and making rolled up holiday pay lawful.
It’s currently unclear how the government intends to remove the requirement to keep working hour records, and employers should be careful before disbanding this requirement because they must still keep such records for up to six years for National Minimum Wage compliance purposes. Rolled up holiday pay is where employers pay the worker a top up payment as well as their hourly pay to cover the holiday they have accrued – basically, instead of getting the holiday they get an immediate payment for it. Making rolled up holiday pay lawful could be significant for employers with casual workers (particularly agencies) as it makes it administratively easier for them to ensure they are compliant with holiday pay legislation. The government has also recently consulted on other aspects of holiday pay calculations they want to simplify, so there will likely be quite a bit of change for employers to introduce in their HR and Payroll processes towards the end of this year.
Simplifying the consultation requirements in TUPE transfers
In an asset purchase, the seller is legally required to inform and consult with employee representatives rather than employees directly. This creates an additional administrative burden on smaller businesses. However, there is a limited exception which applies to micro-businesses where the employer has fewer than 10 employees and certain conditions apply. The government proposes to extend the existing exception to businesses with fewer than 50 employees and where the TUPE transfer affects less than 10 employees. Whilst this change won’t impact medium to large businesses, it will be welcomed by smaller employers who won’t have to go through the administrative task of consulting with employee representatives as well as the individuals when selling a business or outsourcing services. However, it appears that it will still only apply to a TUPE transfer that affects less than 10 employees, so it's questionable what impact it will have.
If you have any concerns with these changes and how they will affect your business, please contact Charlie Barnes.