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“Climbing Down from the Sunset” – Jeremy Lewis KC Comments on Recent Government Announcements Relating to the Retained EU Law Bill

11.05.23

On 15 May 2023 the Retained EU Law (Revocation and Reform) Bill will start its House of Lords Report stage.  It will do so having ditched the much-criticised sunset provisions.  Instead of the default position of all EU derived subordinate legislation falling away at the end of 2023, there will be about 600 named pieces of legislation to be revoked by the end of the year.

The climbdown was announced on 10 May 2023.   A full list of legislation for the chop is awaited.  But a Government paper also published on 10 May, “Smarter Regulation to Grow the Economy”, identifies only limited proposed changes to employment related retained EU law, together with one further proposal in relation to non-compete clauses:

• Three changes are proposed (subject to consultation) to the Working Time Regs 1998 (WTR):
  • Removing the obligation on employers to keep (and retain for 2 years) working-hour records (reg 9 WTR). Rather than having to record the hours worked each day, employers will have flexibility to determine what records are needed to show no breach of working time obligations (contrary to the position indicated by the CJEU’s decision in Deutsche Bank SAE [2019] IRLR 753).
  • Removing the distinction between the basic four weeks’ annual leave, and the 1.6 weeks’ additional leave. Although removing the distinction between basic and additional annual leave is presented as sensible simplification, the reality may be more sinister.  The domestic formula for calculating a week’s pay for a worker with normal hours (s.221, 222 ERA) would not include pay received other than in relation to those hours, such as overtime, discretionary bonuses and commission, whereas the entitlement under EU law revolves around the broader concept of “normal remuneration”.  Currently, for the basic four week period of leave, it can be argued that a right to normal remuneration can be framed on the basis of construing the domestic legislation so as to conform with the Working Time Directive (WTD).  Under the Retained EU Law Bill that will no longer be possible.
  • Rolled-up holiday pay will be permissible. That is not the case under the Directive.  In practice however reg 16 WTR already permits credit for sums paid in respect of a period of leave and, even aside from the Bill, there can be credit for the rolled up payments if made “transparently and comprehensibly” (Lyddon v Englefield [2008] ICR 198 (EAT).
• In relation to TUPE the only proposal (again subject to consultation) is to extend the micro-business exception, in reg 13A TUPE, relating to collective information and consultation, which permits the duties to be discharged without the need to appoint appropriate representatives. This currently applies if the employer has less than 10 employees.  It is to be extended to businesses with fewer than 50 people, and also to transfers affecting less than 10 employees (even if made by a large employer).  There is no suggestion of any wider changes such as relating to the restriction on variations by reason of a transfer.  Indeed the Paper acknowledges the importance of TUPE protections.
• Quietly tacked on to these proposals relating to retained EU law, it is also proposed that “Non-compete clauses” will be limited to three months. This is to be introduced “when Parliamentary time allows”; which may be no time soon.  The principal advantage is the certainty it is hoped it will bring.  The requirement for a covenant to be no wider than reasonably necessary to protect the employer’s legitimate interest may otherwise in practice be an insufficient safeguard to an employee concerned as to the costs risk in prospective injunctive proceedings.    It will not though cover other post-termination covenants such as non-solicitation or (presumably) non-dealing covenants.  It is also said that the proposal will not cut across confidentiality clauses.  It is though well-established that a non-compete covenant may be needed precisely because it may be the best way of protecting confidential information.  The proposed reform may also provide impetus for a greater use of extended notice periods/ garden leave and exploration of other alternatives to circumvent the proposed new legislative limit. That might involve structuring arrangements to including covenants in non-employment agreements, such as in shareholder, investor or LLP agreements, and/or indirect restrictions such as in good leaver provisions associated with long term incentive schemes.

Although the proposals are a long way from the threatened bonfire of EU laws, this comes with two caveats.  First, the principle of the supremacy of EU law will go.  As with the provisions as to holiday pay, it may be crucial that it will no longer be permissible to apply the current approach, where there can be a strained interpretation to conform with an EU Directive provided that this goes with the grain of the legislation.

Second, the Bill will still contain powers for a Minister to revoke or amend and EU derived laws other than passed by primary legislation.  The change from the general sunsetting provision has been explained on the basis of affording more time to review EU retained legislation.  But a cynic might see political expediency in putting off any broader slashing of employment rights until the other side of a general election.