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New Government proposals: non-compete clauses to be limited to three months and changes to Working Time Regulations and TUPE

The Government’s policy paper – ‘Smarter Regulation to Grow the Economy’ – published on 10 May 2023, sets out a number of proposed reforms to employment legislation in an effort to grow the economy and reduce costs for employers.

The Government will focus on reforming regulation in the following areas:

Non-compete clauses

Government proposal: The Government intends to introduce legislation which would limit the length of a non-compete clause to three months. The Government acknowledges that non-compete provisions play an important role in protecting businesses but say they can be unnecessarily burdensome, inhibit workers from looking for better roles and limit the ability of businesses to compete and innovate. The proposals will not interfere with the ability of employers to use notice periods, garden leave or non-solicitation clauses.

Our view: Unlike the TUPE and WTR changes set out below, this change will require legislation to be introduced ‘when Parliamentary time allows’. As such, employers can continue using longer non-compete clauses (and other restrictive covenants) but should be considering alternative options for protecting their interests, bearing in mind the Government’s proposals. It remains to be seen how the proposals will impact existing non-competes which are longer than three months, and what practical impact it will have where employees remain bound by other restrictions – such as non-dealing – which could nevertheless impact their ability to carry out work for a new employer for a period of time.

Working Time Regulations

Government proposal: The Government will consult on how to improve the Regulations to reduce the administrative burden on employers but still protect workers. It will look at:

  • Allowing rolled-up holiday pay (where an employee is paid for their holiday with their monthly salary, instead of when they take holiday).
  • Merging ‘normal’ holiday leave with ‘additional’ holiday leave into one lot of statutory annual leave (maintaining the same amount of statutory leave entitlement overall).
  • Removing the requirement on employers to keep working hour records for almost all members of the workforce.

Our view: The rules on holiday pay are very complex, and the Government is already consulting on holiday pay calculations for irregular hours workers (as a result of Harpur v Brazel). While merging holiday entitlements and allowing rolled up holiday may be sensible and welcomed by employers, much more detailed guidance will be required to ensure employers are clear about their obligations. With regard to working hour records, it’s likely that businesses will continue monitoring working hours from a commercial perspective, as well for health and safety and minimum wage reasons.


Government proposal: For businesses with fewer than 50 employees and transfers affecting fewer than 10 employees, the Government will consult on removing the need to elect employee representatives for the purpose of TUPE consultation, allowing employers to consult directly with affected employees.

Our view: This is a practical and much needed change which will no doubt be welcomed by employers.

Whilst it is likely that we’ll hear these changes are a benefit of Brexit, freeing us from EU regulation, particularly in relation to holiday pay and leave, it seems unlikely that this will have a meaningful impact on employers. Allowing rolled-up holiday pay will certainly be welcomed, particularly in relation to casual workers, but commentators are sceptical that removing the working hour record requirement will have any tangible benefit for businesses. Similarly, the proposed change to TUPE consultation seems sensible, but in practice many employers take the pragmatic decision to consult directly with a limited number of staff already, even where this number exceeds the current threshold, since direct consultation is usually preferred by staff.

In the context of the Government back-tracking over the so-called “sunset clause” in the Retained EU Law Bill – the clause which could have seen thousands of EU-derived laws automatically disappearing at the end of 2023 – the proposed changes represent just minor tinkering with employment laws. Back-tracking on the sunset clause was clearly wise, to avoid the chaos that could have followed if we’d lost so much EU law overnight, and many employers will be relieved by this decision. The Government has now released the list of EU laws that it plans to revoke at the end of this year and whilst there are no significant employment laws currently on the list, it has described the current plans as an initial package, so we may see further proposals in due course.