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Proposed employment law changes: Impact on football clubs

The government released its rather modestly titled ‘Smarter regulation to grow the economy’ policy paper in May 2023, announcing proposed changes to shake up employment law and “cut red tape for businesses and save £1 billion per year while safeguarding the rights of workers”.

We focus on the two proposed changes which will be of widest application to employers generally as well as to football clubs: (i) limiting non-compete clauses to 3 months; and (ii) rolled-up holiday pay.

Employment law changes: Impact on football clubs

Non-compete clauses

Post-termination non-compete clauses often divide opinion. On one view, a capitalist, pro-competition society seeks to provide the best price, products, services, and so on, to consumers, and so shouldn’t stifle competition – the uncompetitive businesses simply go out of business. Non-compete clauses – which usually prevent a former employee joining or setting up a competitor – are, on the face of it, anathema to that.

On the other hand, companies would have little incentive to invest in research and development, to invest in their workforce, and so on, if they had no way of protecting such time, money and effort from the threat of employees walking straight across to a competitor equipped with the gains of that investment. Without such protection, risk – and therefore innovation and advancement to the benefit of society/the consumer – would be stifled.

Non-competes, then, are grounded in similar principles to intellectual property rights. Like IP rights, the time-limited nature and other restrictions on their scope create the middle-ground compromise between competing views and aims.

The government intends to limit non-compete clauses to 3 months post-termination of employment, and to produce guidance on their proper use.

Currently, there is no maximum time limit. Instead, courts will render unenforceable any non-compete clause which isn’t proportionate to protect a legitimate aim of the business. It’s a common misconception that you can include a non-compete clause simply because you don’t want someone to go to a competitor. Legitimate aims are, broadly, limited to protecting confidential information, maintaining a settled workforce and protecting business connections. Simply not wanting your CEO to join a domestic league rival wouldn’t be a legitimate aim.

It will be interesting to see how the introduction of a 3-month time limit shapes the courts’ treatment of non-competes (and other restrictive covenants, such as non-solicitation clauses). Generally, 12 months is the upper end of what a court might permit, and 3 months is at the lower end. Will courts continue to staunchly apply the proportionality test, or will 3 months become generally accepted regardless of the contract?

Importantly, the government isn’t interfering with paid notice periods and garden leave which, of course, may be longer than 3 months (subject to a court’s power to curtail either period where it’s considered to be a restraint of trade). The reason for the distinction isn’t entirely clear, other than that non-competes are generally unpaid. Employers keen to protect their confidential information, and other legitimate business interests, should therefore check they have robust confidentiality obligations in their contracts. They may also wish to lengthen notice periods, which may enable them to place employees on longer periods of garden leave. The ability to pay an individual through that period will clearly be of more benefit to larger/wealthier employers. Query whether that advances competition.

Of course, when it comes to footballing roles, the deterrent to prevent key individuals going to competitors is often a release clause. While it won’t impact their ability to compete in the event the sum is paid, it at least provides a level of compensation which, in reality, the selling club will have arrived at having considered all the factors. This includes the ‘legitimate’ business interests a non-compete clause may have sought to protect, and wider interests such as the fact the individual is joining a rival. It effectively places a price tag on competition like the player transfer market.

Rolled-up holiday pay

Rolled-up holiday pay is perhaps the most used unlawful practice in employment law, particularly for casual workers and other atypical workers with irregular working patterns (such as stewards and other match-day staff) – a reality the government recognised in its consultation paper released shortly after the policy paper. Workers are entitled to paid leave, and so simply being paid a sum roughly equivalent to what they would have received had they taken leave from work (usually calculated as 12.07% of the casual worker’s pay for the relevant shift) breaches the Working Time Regulations.

However, actually following the correct process is close to impossible for casual workers – giving such workers 5.6 weeks’ holiday is challenging where, by definition, they owe no obligation to provide their service to the employer. It’s conceptually at odds with the notion that a casual worker is generally not engaged by the employer in between. Can it be ‘holiday’ if they are not engaged by the business when it is being taken?

It will come to the relief of many employers that the government’s currently analysing feedback on its consultation to allow employers to choose to add 12.07% to wages to discharge its holiday obligations. The intention is for it to be capable of being used for all staff, not just casual workers, but it will clearly be of most use to casual workers.

An outcome on the consultation is expected fairly swiftly, but until then, the practice remains unlawful. Employers using the rolled-up holiday pay method can only take steps to mitigate the size of any claim in the meantime, such as clearly itemising holiday pay on payslips.

Employment law changes and impact on football clubs: How we can help

Navigating holidays and restrictive covenants are two of the more complex areas of employment law – and perhaps the two that most get wrong! It’s not clear when the new proposals will come into effect (rolled-up holiday pay is only at consultation stage), so it’s business as usual until then.

We can review and draft restrictive covenants, confidentiality obligations and garden leave clauses, as well as develop a holiday strategy that works for your business and workforce. Contact Charlotte or Adam to find out more.



Employment & Sport

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Employment & Sport

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