UK votes to leave the EU – What happens now?

UK votes to leave the EU – What happens now?

On 24 June 2016, the EU referendum result was announced, with a majority of voters deciding that the UK should leave the EU. Once the government notifies the European Council that the UK has decided to leave the EU, the two-year period for the negotiation for exit under Article 50 of the Treaty of the European Union can start.

No European Union Member State has ever left the EU, so the process of withdrawal is untested, and until the shape of the UK’s exit has been determined, the direct legal implications for UK businesses are unclear.

Brexit Victory

The Brexit victory sent immediate economic shockwaves through global markets. There is uncertainty over what will happen when the UK leaves the EU because it has to make new trade agreements with the rest of the world. Supporters of Brexit argue that EU countries have every incentive keep trading with the UK, which is a large importer of goods and services. But the Remain camp worries that foreign companies will be less likely to invest here and could relocate their headquarters if Britain loses access to the EU’s single market.

The impact of Brexit on UK employment law will depend, to a large extent, on the specific arrangements put in place to formalise the UK’s exit. If, for example, the UK follows the Norwegian model and joins the EEA, the UK would still be subject to most aspects of European employment law. The Swiss model, involving access to the single market and many bilateral agreements, could also restrict the sovereignty of employment law due to the need to satisfy trading partners.

What should employers do now?

At this stage the referendum outcome has no immediate legal impact and therefore employers don’t have to do anything now. The vote itself does not trigger any employment law changes and no changes are expected in the short term as the process via which the UK leaves the EU will take a number of years. At the end of the negotiations the withdrawal agreement will need to be ratified by both sides which again could be a lengthy process. Until we leave, all EU legislation (including workers’ free movement rights) will continue to apply.

What are the possible long term implications?

It is likely to take a while for the government to clarify its intentions and so employers will need to play things by ear.

Immigration

The free movement of people is one of the four economic freedoms of the EU.

Following Brexit, EU citizens will no longer have the automatic right to reside and work in the UK, and vice versa unless they have already obtained permanent residency. In reality however, freedom of movement is likely to be an integral part of the negotiations around the post-Brexit relationship between the UK and EU. The UK is therefore unlikely to take any immediate steps to curtail EU nationals’ freedom of movement rights.

At this stage also nothing is expected to change from an immigration perspective for workers already in the UK.

If steps are taken to restrict EU nationals entering the UK employers may want consider taking steps such as bringing workers into the UK pre-emptively or taking steps to secure their immigration status before any restrictions take effect. Whether or not such restrictions will be put in place is questionable as the UK may not be able to negotiate a trade agreement with the EU without agreeing to the free movement of persons.

Employment Law

A significant proportion of the UK’s employment law comes from the EU, including discrimination rights, collective consultation obligations, transfer of undertakings regulations, family leave, working time regulations and protection of agency workers.

In theory post-Brexit the UK government could repeal all of this. However, this is unlikely; any change is likely to be gradual and piecemeal and it is far more probable that EU law will continue to exercise a significant influence even after we leave for a number of reasons:

  • Protection against sex, race and disability discrimination, and equal pay provisions in the UK pre-dated EU law. Similarly, there was a UK right of return from maternity leave before EU maternity leave rights were implemented. It is unlikely that the government would want to scale back these protections;
  • Even if there was not a pre-existing UK right, modern social attitudes make any significant roll-back of discrimination protections politically unpalatable;
  • An even more compelling reason for the UK to continue to observe EU law is the need to stay in a relationship with the EU. The price of a trade agreement with the EU is likely to be adherence to a certain amount of EU employment and social protection.

On leaving the EU it will not automatically mean that all EU derived law simply disappears. Provisions giving effect to EU law are enshrined in UK primary legislation including for example, our domestic anti-discrimination legislation. A government no longer obliged to follow the EU line may be minded to repeal or, more likely, amend unpopular Regulations to create a more business-friendly legislative environment.

Areas in which there is unlikely to be change

The level of any national minimum wage, domestic unfair dismissal protections, and domestic rules on strikes will be unaffected as these are outside the scope of EU law.

It also seems unlikely the UK will repeal or significantly change the Data Protection Act 1995 as if UK businesses want to continue to operate in the EU they will have to transfer data between the UK and EU member states and this will require adequate protections equivalent to the current ones.

Discrimination law & compensation limits

Whilst repeal of anti-discrimination law is unlikely, some commentators have suggested that those forms of discrimination which were only implemented because of EU law and which enjoy less political consensus, for example age discrimination and fixed term/part time worker protections, may be targets for change. A cap could also be imposed on discrimination compensation similar to that for unfair dismissal; this is currently not possible under EU law.

Working Time Regulations

Whilst the WTR have been unpopular with successive UK governments, a wholesale repeal of the Regulations is unlikely. There are however aspects of the right to paid holiday and other rights under the WTR that the government may want to amend. Many businesses would be keen to see the repeal of the maximum 48-hour working week. The right of workers on long-term sick leave to continue to accrue and either take or carry over paid annual leave may also be ripe for change. A return to holiday pay based on basic contractual pay (rather than the current hot topic of holiday pay calculations needing to include regular overtime and/or commission payments) is thought likely.

TUPE

Although many businesses would like to see the back of TUPE, it seems more likely that the government would make small changes to it to make it more business friendly. Change could include making it easier to harmonise terms following a TUPE transfer, and relaxing the formality surrounding the information and consultation obligations.

Agency Workers Directive

The most obvious candidate for complete revocation if the Agency Workers Regulations which are complex and unpopular with businesses.

Summary

Overall it seems unlikely that UK employment law will be transformed in a significant way, particularly in the short term. Employers should therefore continue to follow existing rules on employment law.

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