Proposed changes to employment law unlikely to deliver predicted savings, warns RSM UK

11 May 2023

The government has now backtracked from its plan to withdraw all EU legislation by 31 December 2023, and has instead announced proposals to make changes to employment laws by the end of the year.  

The government intends to introduce new legislation to limit non-compete clauses in employment contracts 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. This change is to give workers greater freedom to switch jobs, apply their skills elsewhere and earn a higher salary. The government also believes it will allow businesses to better compete and innovate.

Charlie Barnes, legal services director, RSM UK, said: ‘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 will impose a larger financial burden on businesses.’ 

The government is also proposing to remove certain requirements of the Working Time Regulations (WTR) which it predicts will save businesses over £1 billion per year. The current proposals include:

  • Removing the current requirement on employers to keep working hour records
  • Reintroducing rolled up holiday, which has been deemed unlawful by EU case law
  • Merging the separate ‘basic’ and ‘additional’ leave entitlements under the WTR into one entitlement to annual leave.

Charlie Barnes concludes: ‘The challenge with this proposal is that it isn’t just the Working Time Regulations which require working time to be recorded. National Minimum Wage legislation requires employers to keep records of all working time for up to six years for impacted employees and workers. The government is also consulting around holiday pay obligations for casual workers, which will also require records of working time to be kept. Whilst it’s unclear whether the holiday pay proposals will be affected by this announcement, the requirements of the National Minimum Wage legislation are likely to remain unchanged. Whilst there are benefits to business of the proposed changes, the predicted savings and boost to the economy may not be as large as the government anticipates.’