The Implications of Brexit for Employers
by Carmel Sunley
On 23 June 2016, the UK voted to leave the EU. In the immediate aftermath of the UK’s vote there will be no change to the UK’s employment law rights and obligations. It is business as usual until the process for leaving the EU has been completed.
This article sets out a legal overview of what Brexit means for employers and an opinion on what the legal landscape for employment law looks like in the short to medium term.
The referendum vote itself does not trigger withdrawal from the union under EU law. Article 50 of the Treaty on European Union (“TEU”) sets out the process for a member state to withdraw from the EU. Until the Article 50 process is concluded, the UK remains an EU member with all the rights and obligations attached to all EU citizens, businesses and the member states themselves.
The Prime Minister has told the House of Commons that he will not trigger Article 50 but will leave it to his successor. Legal commentators have debated whether Article 50 will in fact be triggered. Speaking on BBC radio 4’s Law in Action programme Steve Peers, Professor of European and human rights law at the University of Essex said “I think it’s maybe 70-30 likely that we will invoke Article 50”.
In fact there is no legal obligation on the UK to trigger Article 50 following the vote and if the UK decided against doing so, it would legally remain in the EU.
Whether or not there is the political will to decide against invoking Article 50 remains to be seen. It is likely that the new Prime Minister will want to be seen as invoking the principles of democracy by upholding the vote of the electorate in the referendum. At the moment though the UK is showing no immediate rush to trigger Article 50, but how long the UK can dictate the timetable is another matter.
Uncertainty is the enemy of growth and businesses throughout the EU will quite rightly want to know what lies ahead sooner rather than later. The EC president, Jean-Claude Juncker, has urged the UK to clarify it’s position and has banned all EU officials from having any talks with the UK until it activates Article 50. MEPs also called for the UK to activate Article 50 as soon as possible.
The Article 50 process is triggered by a state formally notifying the European Council of its intention to withdraw. The intention to withdraw must be set out clearly, with an explicit intention to initiate Article 50 TEU.
Negotiations for the terms of withdrawal then begin. At this stage the withdrawing state is excluded from the European Council and their discussions about negotiations to withdraw, as well as negotiations on the new agreement.
Article 50 foresees a two-year period in which to carry out the withdrawal process, although this can be extended by agreement. Otherwise the withdrawing state “falls out” and the EU membership rights and obligations cease to apply. Obviously this black hole needs to be avoided and so the purpose of the withdrawal negotiations is to ensure that the EU membership rights and obligations conclude in an orderly manner. Negotiations will cover matters such as the rights of citizens and businesses from the withdrawing state who are living or operating in other member states and vice versa.
Jonathan Smithers, President of the Law Society of England and Wales said in relation to this:
“It’s clear that there is an enormous amount of work to do in the coming months and years to establish the terms of withdrawal from the EU and scope the necessary changes to domestic law.
The UK will also need to resolve issues relating to its trading relationship with other parts of the world, specifically in terms of international trade agreements.
Amid all the uncertainty, its important to remember there is no immediate change to anyone’s legal rights or obligations.”
Once negotiations are concluded, a new agreement will set out the new legal rights and obligations between the UK and the EU when its membership ceases.
Until the Article 50 procedure has been concluded however the UK remains a full member of the EU and all EU law will continue to apply, including EU legislation giving access to the internal market.
Implications for UK Employment Law following Brexit
If and when the UK leaves the EU, businesses in the UK are likely to be looking at piecemeal changes to UK employment law introduced over time. It is unlikely that businesses will see fundamental changes introduced overnight by the government following the cessation of the UK’s membership to the EU for the reasons explained below.
Sources of Employment Law
Employment law in the UK is derived from both the EU and from UK national law.
By virtue of our membership in the EU we have implemented collective consultation obligations, transfer of undertakings regulations, family leave, working time regulations and duties to agency workers. This is known as secondary legislation. Upon leaving the EU, secondary legislation falls away unless deliberately retained by the government.
Other EU employment laws merely subsumed protections that were already provided for by UK law, known as primary legislation. This included UK equal pay, race, sex and disability discrimination and a UK right of return from maternity leave. Other UK national employment laws include the right not to be unfairly dismissed and the right to a national minimum wage. This primary legislation will remain in place upon the UK leaving the EU.
Repeal of all EU Law?
In theory, the UK government could repeal all of the secondary legislation that we have been required to implement by reason of our membership in the EU, once our exit is concluded. However for practical and political reasons, it is likely that EU law will continue to exert a significant influence on UK employment law for some time. This is because where EU derived laws are left in place, UK courts will look to past and future European Court of Justice (“ECJ”) judgments on the parent Directive. Even where the EU derived law is repealed and replaced with a lighter version on the same topic, UK courts may still look to non-binding jurisprudence of the ECJ on that topic for guidance.
In reality even if the government decides to continue its agenda of deregulation, it would not want employers to have to deal with sudden, fundamental change in the law as this is disastrous for business and the economy. Any changes are more likely to take a piecemeal approach, at least initially.
The government is also unlikely to repeal EU derived laws that have promoted equality and diversity and are widely regarded as the very fabric of our working society in the UK. Any attempt by the government to do so is likely to be very unpopular.
Possible repeals of EU law in the short-term
Of course some EU derived employment laws that have remained unpopular with employers in the UK may by popular demand be repealed sooner rather than later. These include:
The Agency Workers Regulations 2010, which are commercially unpopular.
The Working Time Regulations, at least some of the unpopular aspects such as the accrual of holiday rights to workers on long-term sick leave and the inclusion of commission and overtime payments into holiday pay.
The cap on bonuses in the financial services sector, which the UK unsuccessfully sought to challenge in 2014.
Possible repeals to individual employment laws in the medium term
In the medium term we may begin to see individual employment laws being varied where they are perceived to be unduly restrictive. Although the variations are likely to be modified only to the extent to make them more palatable to UK businesses.
Speaking at the annual conference of the Employment Lawyers Association that I attended in May of this year, leading employment law experts predicted that there are three likely outcomes if the government decides upon a programme of reducing individual employment protection laws:
the gaps in employment protection laws may be requested as additional clauses in contracts of employment, particularly from senior employees;
the common law may come to the rescue and we may find implied terms being upheld by Tribunals and Courts; and
as protective employment laws fall away the role of collective bargaining increases along with increases in trade union membership and activity.
The Transfer of Undertakings (Protection of Employment) (“TUPE”) Regulations 2006 have over the years received a lot of criticism from businesses and as secondary legislation could be repealed. But, although some businesses would like to see the back of TUPE it seems more likely that the government would only make small changes to make it more business friendly, for example making it easier to harmonise terms following a TUPE transfer. This is because since the introduction of the service provision change provisions, businesses have overwhelmingly wanted to retain the certainty of a transferring workforce, where the associated costs can be factored ahead into contracts and tenders.
Freedom of Movement of Workers
The right of free movement of people remains in effect until the UK’s exit has been determined.
There are currently large numbers of UK nationals living and working in other EU countries and many nationals of other EU countries working in the UK. Once the UK’s exit is finalised there will no longer be an automatic right to do so.
UK businesses may have issues if they are no longer able to access labour from the EU and so much will depend on what is negotiated. One of the key questions is whether the UK will be able to negotiate a trade agreement with the EU without agreeing to the free movement of persons, as this is regarded as fundamental by EU states such as France and Germany.
Until the negotiations have concluded and the UK’s exit has been determined, the only certainty is that there will be no immediate change to the law or employer’s legal rights or obligations.
The UK electorate voted to leave the EU following a leave campaign that promised a reduction in immigration; cost savings and the commencement of deregulation of EU laws. Whether or not those promises can now be fulfilled remains to be seen because the political realities at play are that the UK is likely to want an ongoing trade relationship with the EU, which is the UK’s biggest export market.
A long political power game will ensue but ultimately the price of a free trade agreement with the EU may well be the acceptance of EU social and employment regulation. This is the case for the non EU members of the European Economic Area (“EEA”) such as Norway. Such states are obliged to accept most of EU employment law without being part of the decision-making process. Notably the EFTA Court (which interprets EEA rules) is also bound by ECJ decisions.
Again referencing the Employment Lawyers Association annual conference that I attended this year, Swiss Law Firm Walderwyss Attorneys at Law spoke about life outside the EU from a Swiss perspective.
Switzerland has negotiated approximately 120 bilateral agreements with the EU. But in order to obtain those agreements Walderwyss explained that free movement of persons was one of the key negotiation points for the EU which Switzerland had to accept. Interestingly Switzerland has the 2nd highest foreign population in Europe with 26.4% of it working population being foreign, compared to 10.3% of the UK’s workforce.
Walderwyss commented that the bilateral agreements with the EU come at a price and often form part of a “package deal” which requires Switzerland to pay costs to the EU as well as implement EU laws. There is also currently a strong push from the EU for Switzerland and other non EU members to accept the EU court jurisdiction as part of a new “package deal” calling into question notions of parliamentary sovereignty: own law; own jurisdiction.
In conclusion taking everything into account it seems unlikely that UK employment law will be transformed in significant ways, particularly in the short term.
For the moment therefore I would like to assure all of my business clients that nothing will change for at least the next two years and the same legal rights and obligations of UK employment law will continue to be in place.
I will post details of any developments that arise with the UK and the EU following the start of the UK leaving the EU by the government invoking Article 50. It is unlikely given comments from Angela Merkel and Jean-Claude Juncker that any pre-Article 50 discussions will take place between the EU and the UK but I will keep you updated as developments arise.
If any client is worried about the implications of Brexit on their business or would like to discuss any of the issues raised in this article or any of the services offered by Sunley Solicitors please do not hesitate to contact Carmel Sunley direct.
49a Joy Lane
Kent CT5 4DB
T: 0741 5306300
This article was written by Carmel Sunley on 1st July 2016 compiled from research drawn from the legal resource Thomson Reuters Practical Law; published statements by the Law Society of England & Wales; the Solicitors Law Journal and BBC Radio 4’s Law in Action programme. The article is intended for general information only and is not intended to be specific legal or professional advice. If you would like advice on a particular matter please contact Carmel Sunley.