Extension on the ban on exclusivity clauses announced

Move follows consultation which ran between December 2020 and February 2021.

Wrigleys, together with clients and delegates at a previous Wrigleys Breakfast Briefing, contributed to the government’s consultation about whether it should introduce further measures designed to help those on insecure incomes. Below, we recap why additional action was being considered and highlight the key changes being implemented.

What are exclusivity clauses and why were some forms of them banned?

The concept behind exclusivity clauses is simple: if you as an employer wish to engage an employee then you should have the option, if you so choose, to prevent that employee from working for others. There are many good reasons for this, from a need to ensure employees receive adequate rest under the Working Time Regulations to wanting to know that your employee is available and focussed entirely on your business and is not distracted by the business interests of others.

Where an employee works full-time this arrangement appears fair, but what if the employee works fixed part-time hours? On the face of it, if you do not need a full-time employee then it appears reasonable to allow that employee to find employment elsewhere during those hours they are not employed by you.

Where this concept starts to get into difficulty is where it meets the modern ‘gig’ or flexible economy. What if, as an employer, your needs for staff rise and fall through the year, the month, or even the week? Keeping staff employed full-time may mean a significant wage burden even when the business is quiet. Having fixed hours part-time staff may mean you don’t have the staff on hand to deal with surges in demand from clients, which may harm the performance of your business or organisation.

Enter the “zero hour” worker, who contracts with you to work as many or as few hours as you need them to through the week and has no guaranteed hours. The arrangement appears ideal for employers with fluctuating business needs as it aligns the cost of labour with demand and can suit those employees who are looking to earn some money by fitting work around other commitments such as family or studying. However, the employer may find that the employee isn’t available when called on where, for example, they have a shift with another employer.

To ensure availability as and when needed, an employer might consider including an exclusivity clause in the contract. The employee still has no guarantee of work or any income, and is contractually prohibited from finding work or pay elsewhere.

Exclusivity clauses were banned for workers on zero hours contracts in 2015 on the basis it was demonstrably unfair, but the ban did not end zero hours working arrangements.

In December 2020 the government opened a consultation on extending the ban on exclusivity clauses to those below the Lower Earnings Limit (currently £123 a week) (‘LEL’), meaning those on a low number of minimum hours gain additional protection.

Outcomes of the consultation

The government’s full response can be read online, but some highlights are:

• An estimated 1.5 million workers receive less than the LEL in their main job and these same workers are significantly more likely to want to undertake additional work
• Around half of all respondents suggested the LEL was a suitable threshold, though a significant proportion of respondents advocated for a general ban on exclusivity clauses via unenforceability unless an employer could show they had a legitimate business reason for enforcing it
• Alternatives to the LEL suggested by respondents included a ban on exclusivity clauses in contracts where the worker had fewer than 37.5 hours of work a week or they earned less than the National Living Wage
• The government has prioritised supporting those in insecure employment and recognised that some employers have legitimate business interests to protect via exclusivity clauses (such as trade secrets and confidentiality)
• The government’s own cost assessments suggest that using the LEL as the threshold means costs for employers will be kept to a minimum
• The government expects employers to see some positive developments from the ban by freeing up workers to provide their time and labour to those struggling to fill positions
• As well as extending the ban to those earning below the LEL, the legislation introducing the ban will purportedly extend protections against unfair dismissal and the right not to suffer a detriment for failing to comply with an exclusivity clause

Comment

The government’s response to the consultation states that legislation for these reforms will be placed before Parliament in 2022.

For the time being at least there appears to be little appetite to remove exclusivity clauses in employment contracts for those in more secure and higher-paid employment.  The suggestion is that the ban is seen as a way to help those in insecure and low paid work rather than to push for innovations in the ways employers and employees’ contract with one another.

The announcement of the extension of the ban on exclusivity clauses may prove timely, with recent reports that there are currently more job vacancies than the number of people unemployed in the UK. It may be that those workers and employees freed up by the incoming extension on the exclusivity ban may help to plug that gap, whilst creating opportunities for workers to earn more.

However, concerns about abuse of zero hours contracts remain. This can only be further exacerbated as the costs of living crisis continues.