Exclusivity Clauses to be banned in Employment Contracts for low-income workers

Exclusivity clauses prevent employees from undertaking other work.

Some employers include clauses in their employment contracts which state that employees are unable to undertake other work without the consent of the employer, which enables the parties to reach an agreement about the other work the employee undertakes whilst employed. In my view if you have an exclusivity clause within a contract, you should provide the employee with the opportunity to discuss with you any other work they may wish to undertake, and not withhold consent unreasonably.

Employers usually use exclusivity clauses to ensure that employees do not undertake any work for a competitor whilst employed. In addition, the employer may wish to know what other work is being undertaken by the employee to ensure they are getting sufficient rest between their jobs, and accordingly that there is no health and safety risk.

Exclusivity clauses are already banned from zero hours contracts, and this came into force in 2015. The ban was implemented due to it being deemed unreasonable to restrict an employee without guaranteed hours from working elsewhere. At the time this ban on exclusivity clauses was introduced, the government also considered extending the ban to employees who were on a low-income. However, they decided not to extend the ban beyond zero-hour contracts at that time.

The government have decided to revisit the idea of extending the ban on exclusivity clauses due to the Covid-19 pandemic, and on the 4 December 2020 a consultation was opened to extend the ban to cover employees who earn below the lower earnings threshold which is currently £123 a week. As a result of the consultation, the government has decided to extend the ban to these employees.

The idea behind the change is to provide employees with the ability to obtain other employment, without the need to seek agreement from their current employer or being restricted from undertaking alternative work.

Interestingly, those who responded to the consultation considered that the ban on exclusivity clauses should be extended further because they felt the lower earning threshold was too low and does not sufficiently address the imbalance between employers and employees. However, the government has rejected this idea, as they believe it will cause an increased cost to businesses, who are still recovering from the financial impact of the pandemic.  

Another concern that was raised by those who responded to the consultation was that employers may increase employee’s hours slightly, to ensure that their wage increases just beyond the lower earning threshold, and therefore, they avoid the ban on the exclusivity clause. However, the government rejected this argument as the threshold increases each year, and so employers would need to increase employee’s hours each year to avoid the ban.

The change, once implemented, will mean that employers will no longer be able to prevent employee’s who earn below the lower earnings threshold from obtaining other employment, and any exclusivity clause within their contract will become void.

In addition to the ban the government will also extend the right for an employee who earns below the lower earnings threshold not to be unfairly dismissed or subjected to a detriment for failing to comply with an exclusivity clause and will increase the Employment Tribunal’s ability to award compensation where an employer dismisses an employee or subjects them to a detriment for not complying with the exclusivity clause within their contract.

The ban has not yet come into force; however, the government will be implementing legislation to give effect to the changes in due course.

What Action Should Employers Take?

Due to the potential claims which could arise, it is important that employers are aware of the change and check their employment contracts as they may need to be updated.

We offer a fixed fee service for reviewing contracts in addition to our flagship HR Harbour service, which provides employers with unlimited HR advice regardless of the level of cover you choose.

If you would like further information, please do not hesitate to contact either myself or a member of the team on 01983 897003.

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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