An exclusivity clause in an employment contract restricts workers from taking on additional work with another employer. As with other restrictive covenants, they are only enforceable if they are designed to protect a legitimate business interest and are reasonable.
Often, in an employment context, exclusivity clauses may be appropriate to ensure employees can’t work for other companies with similar businesses. Where, however, a worker is not an employee but a casual worker, an exclusivity clause may be seen to be an unreasonable restraint of trade and, in the case of zero hour contracts, such clauses have already been banned.
On 9 May 2022, following a government consultation which commenced in December 2020, the government published a press release stating that legislation proposing to widen this ban to low earning workers will be laid before Parliament later this year.
Exclusivity and zero hour contracts
In 2015 exclusivity clauses were banned in zero hours contracts. Pursuant to section 27A(3) of the Employment Rights Act 1996, a provision in a zero hour contract is unenforceable if it either prohibits a worker from:
- doing work or performing services under another contract or under any other arrangement; or
- doing work or performing services under another contract or under any other arrangement without the employer's consent.
Under a zero hour contract, there is no guarantee of work and so no guarantee of income. This reform, therefore, provided workers under such contracts with more flexibility allowing them the freedom to take other work and have more control over their hours and income.
When the ban first came into force there was no form of redress to employees whose employers continued to enforce exclusivity on them. The government therefore introduced The Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 which came into force on 11 January 2016, which gives zero contract workers the right not to be unfairly dismissed (no qualifying period is required) and the right not to be subjected to a detriment for failing to comply with an (unenforceable) exclusivity clause.
Widening the ban: lower earning limit
In December 2020, in response to the impact of the pandemic which has led to a decrease in the number of hours some employers have been able to offer to their workers, the government opened a consultation to extend the ban on exclusivity clauses to those who earn under the Lower Earning Limit (which is currently £123 per week). According to the government, this will mean that around 1.5 million low-paid workers will no longer be subject to exclusivity clauses. This will provide workers with flexibility over where and when they can work which, in turn, will assist them to increase their income.
The press statement released by the government states that: “As well as supporting workers to increase their income, the reforms will also benefit businesses by widening the talent pool of job applicants to those who may have been prevented from applying for roles due to an exclusivity clause with another employer, and also helps businesses to fill vacancies in key sectors like retail and hospitality. The reforms will allow low-paid workers to reskill and make the most of new opportunities in existing sectors with growing labour demand.” This reform is also in accordance with the government’s pledge to support people with the increased cost of living in the UK.
The reform would give employees who earn under the Lower Earning Limit the same rights of redress as zero contract workers.
If adopted, this ban, which would stop employers from contractually restricting workers earning under £123 a week from working for others, will be a welcome change. Undoubtedly, exclusivity clauses and restrictive covenants in general can be vital to protecting a business (in terms of trade connections, trade secrets/confidentiality or stability of the workforce). In certain situations, however, such clauses are being abused and act as an unreasonable restraint of trade preventing lower paid workers with the flexibility to find additional work and earn more income. This reform would help limit that abuse.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Helena Antoniou or write to us using the contact form below.