Post-Brexit regulatory reform of employment law

16 May 2023 4 min read

By Sarah Hellewell

At a glance

  • Following last week’s publication of its policy paper “Smarter regulation to grow the economy”, the government has now published a consultation on retained EU employment law and a response to its consultation on reform of non-compete clauses.

Consultation on retained EU employment law

The consultation paper confirms the government’s intention to retain the UK’s strong record on workers’ rights and that it will preserve most EU derived employment laws in unaltered form.  The goal, however, is to remove unnecessary bureaucracy in the way in which rights operate. To this end, the government has identified aspects of the Working Time Regulations (WTR) and of the Transfer of Undertaking Regulations (TUPE) where it says there are opportunities for improvement.

Working Time Regulations

  • The first aspect of the WTR addressed by the consultation is record keeping, where the requirements are thought to be an area of uncertainty for employers following a 2019 judgment of the European Court of Justice. The government proposes to legislate to clarify that businesses do not have to keep a record of daily working hours of their workers.
  • The second aspect of the WTR where reform is proposed is in relation to annual leave. The government wants to simplify the system of annual leave and holiday pay calculations. It proposes to achieve this by:
    • Creating a single annual leave entitlement of 5.6 weeks, as opposed to the current system which provides four weeks’ annual leave set by the Working Time Directive plus an additional 1.6 weeks’ leave beyond the EU requirements.
    • Permitting carry forward of 1.6 weeks’ leave to the following leave year if agreed in writing between employer and employee. Carry over of entitlement of more than 1.6 weeks will only be permitted where an individual has been unable to take leave due to long-term sickness absence or a form of family leave.
    • Providing that during the first year of employment, workers will accrue their annual leave entitlement at the end of each pay period.
    • Setting a minimum rate of holiday pay for the new single statutory leave entitlement. The consultation will be used to explore how this rate should be defined, with the suggested options including basic pay or normal pay (which would include regular overtime pay, regular commission and regular bonuses).
    • Permitting rolled-up holiday pay as an option for all workers, so that a worker receives an additional amount with every payslip to cover holiday pay, as opposed to receiving holiday pay only when they take annual leave. The government’s proposal is that rolled-up holiday pay is paid at 12.07%, which is the proportion of statutory annual leave in relation to the working weeks of each year.


In the consultation paper, the government recognises that the TUPE regulations, which provide a legal framework for transfers of staff in a business acquisition or service provision change, provide important protections for employees and also recognises the importance of an employer consulting with employees and employees’ representatives in relation to a transfer. However, given that businesses can find some aspects of the regulations burdensome, the government is proposing changes to TUPE consultation requirements with the aim of simplifying the transfer process. The proposals are that:

  • Small businesses (with fewer than 50 employees); and
  • Businesses of any size involved with small transfers of employees (where fewer than ten employees are transferring)

should be permitted to consult directly with their employees on a TUPE transfer, if there are no employee representatives in place, rather than being required to arrange elections for new employee representatives. If employee representatives are already in place, then the employer would still be required to consult with them.

Response to consultation on reform of non-compete clauses in contracts of employment

Alongside the consultation on retained EU employment law, a response has also been published to the government’s 2020 consultation on the use of post-termination non-compete clauses. Having considered the responses received and conducted further research and analysis, a decision has been made to introduce a statutory limit on the length of non-compete clauses to three months, with the limit applying to contracts of employment and to limb (b) worker contracts.

Other options which were considered, but have now been discounted, included both an outright ban on the use of non-compete clauses or the introduction of mandatory compensation for the duration of the non-compete period.

The government intends to introduce legislation to implement this three month restriction when parliamentary time allows. Other forms of post-termination restrictions, such as non-dealing and non-poaching provisions, will not be affected.

In conclusion, the proposals which are being made are fairly modest considering the amount of employment law which was in scope of the government’s review of retained EU law. However, each of the proposed changes will require careful consideration by employers as well as amendments to employment contracts. Businesses wanting to respond to the government consultation paper should do so by the closing date of 7 July 2023.