How would Brexit affect UK employment law and HR?

Posted by Andrew Masters

Partner & Head of Employment

On Thursday, 23 June 2016 UK voters will decide whether the UK remains within the European Union (EU). Any decision of the UK to leave the EU following the forthcoming referendum, the so called ‘Brexit’, will potentially have far reaching consequences for employment law and HR.

Historical background

In 1973 under the Conservative Government of Edward Heath, the UK entered the European Economic Community (EEC) which, at the time, was referred to as the Common Market. In November 1993 it subsequently became known as the EU.

On 5 June 1975 the UK held a post-legislative referendum on the question of whether the UK should remain a member of the EEC. At the time the electorate expressed significant support for EEC membership, with over 67% voting in favour on a 65% turnout.

The referendum in June 2016 will be the first time the question of continued membership has been put to the UK’s electorate since 1975. The precise question on the ballot paper will be: “Should the United Kingdom remain a member of the European Union or leave the European Union?”

The EU’s influence on UK law

The European Communities Act 1972 provided for the incorporation of EU law (originally Community law) into the domestic law of the UK. It also gives EU law supremacy over national law transposing EU law into UK law.

Under the doctrine of direct effect, EU treaty provisions, for example, the consolidated Treaty on European Union 2009 (TEU 2009) and the consolidated Treaty on the Functioning of the European Union 2009 (TFEU 2009), have direct effect in UK law without the need for domestic implementation.

Secondary legislation introduced under Article 288 TFEU 2009 includes regulations, directives, decisions, recommendations and opinions. Directives are the preferred means of legislation for the EU and are addressed to member states. Member states are required under Article 288 TFEU 2009 to ensure that the result required by the directive is achieved, although how the member state does so is left to its discretion. Some examples of UK employment regulations that implement directives are: the TUPE Regulations 2006, the Working Time Regulations 1998 and the Agency Workers Regulations 2010.

UK courts and tribunals must decide any question about the meaning or effect of UK law as set out in the decisions of the Court of Justice of the European Union (ECJ). This has led to a significant body of legal case law that gives effect to EU legal principles in a wide range of contexts. The ECJ has usually given a wide interpretation of social rights in the employment sphere and not a narrow one. Some recent examples include the enhanced holiday pay cases where workers were entitled to receive holiday pay rates based on all aspects of remuneration.

What areas are influenced by EU-derived employment rights?

As previously indicated, by a variety of legal means, the UK Government, State Bodies and the courts are required to give effect to EU-derived employment rights and to ensure effective remedies for infringement of those rights. In essence, they prevent the Government of a member state acting to override them and require those Governments to give full practical effect to them.

Importantly, this has led to the development of a ‘progressive’ agenda of employment rights in the UK; some of the key areas which are summarised below:

(1) Protection from discrimination of all kinds now protected under the Equality Act 2010, at all stages of employment, including selection for employment, pay and working conditions, dismissal and post-employment treatment.

(2) Protection of pregnant workers, and rights to maternity and parental leave.

(3) Protection of part-time and fixed-term workers.

(4) Protection of agency workers.

(5) Working time rights, including rights to daily and weekly rest, maximum weekly working time, paid annual leave and measures to protect night workers.

(6) Legal rights to collective information and consultation which operate across a broad range of contexts, including collective redundancies, transfers of undertakings, health and safety, and in all undertakings above a certain size.

(7) Protection of the rights of workers in the event of transfers of undertakings, especially relevant to contracting out exercises.

(8) Many regulations on health and safety at work.

(9) Protection of workers’ rights, guaranteed by the State, in the event of the insolvency of their employer.

(10) Protection on data processing of personal data.

Notwithstanding the significant influence of EU-derived employment rights in the UK, it is not the sole source of employment protection for workers. Some areas such as pay and dismissal are excluded from the scope of EU social law and are thus largely within the domain of national law.

Therefore, the Employment Rights Act 1996, which is a key employment measure covering protection from unfair dismissal, unlawful deduction from wages and individual redundancy is domestic legislation largely unaffected by EU law. Minimum wage legislation is also a domestic measure under the control of the UK Parliament.

At present most EU-derived employment rights operate as a floor, not a ceiling and do not prevent a member state, if it so chooses, implementing legislation that provides a greater level of protection.

In the family friendly area, some good examples are the right to request flexible working and shared parental leave, which are both UK domestic pieces of legislation. Further examples include the decision to increase holiday under the Working Time Regulations to 5.6 weeks when the directive requires a minimum of four weeks. There are also aspects of TUPE law that extend protection for workers beyond what is required by the EU.

The mechanism for departure from the EU

In the event of a majority vote for Brexit at the forthcoming referendum, the UK will use the procedure set out in Article 50 TEU 2009: “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.”

This would require the UK to notify the European Council of its intention to leave the EU. The timing of the notice is a matter for the leaving state, although any notice is likely to be given soon after a vote for Brexit at the referendum.

The process of negotiating a withdrawal would involve complex and lengthy negotiations. Based upon a two year window to negotiate an exit, without an agreed extension, the UK would exit EU membership in around July 2018. However, it seems highly unlikely that a withdrawal agreement could be concluded in a period of less than two years. The European Communities Act 1972 would also need to be repealed in due course. Any staged process relating to a Brexit is more likely to take years to complete.

Trading arrangements available to the UK in the event of Brexit

Whilst there are alternative trading models that already exist with the EU, for example, the Norwegian model, Swiss model and Turkish model, a free-trade model is likely to be preferred in the event of Brexit. This would involve the UK leaving the EU, but entering into a single bilateral free trade agreement, or series of agreements, between the UK and the EU.

Canada, through the Comprehensive Economic Trade Agreement, will in the future have a free trade agreement with the EU that does not require observance of all of its rules and regulations, paying into the budget or accepting persons exercising free movement rights.

The EU also has, or is negotiating; free trade deals with the US – Trans-Atlantic Trade and Investment Partnership (TTIP), China and India, which would not cover a post-Brexit UK.

The legislative framework in the event of Brexit

The full implications of Brexit for the UK would depend largely on what replaced membership of the EU. For example, if the UK followed the Norwegian model and joined the European Economic Area, it would still be required to harmonise laws in respect of the ‘four freedoms’ for goods, persons, services and capital.

In any scenario, it seems inevitable that Brexit would lead to the end of the constitutional relationship between the UK and EU enshrined in the European Communities Act 1972. As a consequence, the principle of the supremacy of EU law would be repealed and would not be directly effective in the UK (albeit specific statutory provision would have to be made to harmonise laws required for whatever relationship replaced membership of the EU).

However, repeal of the European Communities Act 1972 would not undo EU directives, which have become Acts of Parliament (for example, the Equality Act 2010) or statutory instruments (for example, the Working Time Regulations 1998). The UK Government would have to decide whether to review every piece of EU sourced legislation or leave it in place.

Whilst the ECJ would no longer have authority over UK courts and tribunals, it is likely that the UK would continue to follow ECJ case law for guidance, at least initially. These decisions would remain binding on lower courts. However, there would no longer be a system of reference to the ECJ in difficult cases. This could lead to a less ‘progressive’ interpretation of social rights in the employment sphere by UK courts and tribunals.

The status of EU-derived employment rights in the event of Brexit

What we do know in the event of Brexit is that there will be little change for at least two years from notice of withdrawal (and probably longer) whilst the terms of departure are negotiated and new trade arrangements are put into place.

There are different schools of thought on what might happen in the medium to longer term. Relevant to this debate is, of course, the specific nature of the trading relationship replacing membership of the EU and the agenda of the Government that is in place at the time.

Indeed, a future Government with a labour market deregulatory agenda (‘light touch’) is more likely to repeal and amend EU sourced law, particularly during times of austerity.

On the other hand, Jeremy Corbyn, the current leader of the Labour Party, has expressed concerns about a “bonfire of rights” in respect of workers’ employment rights in the event of Brexit. This view is supported by, amongst others, the General Secretaries of the Unite, Unison, GMB and Usdaw trade unions.

The reality, however, is that any repealing and amendment is more likely to take place in a staged, piecemeal fashion with the removal of some employment rights by stealth. This is because a sudden repeal of existing EU-derived employment rights would be potentially unworkable, causing doubt and confusion with associated costs to employers in complying with the revised regulations. Societal changes and worker expectations in recent years are also relevant. It may prove a highly unpopular move to significantly weaken certain rights.

Here are some considered thoughts on some of the future implications…

Discrimination law:

The Equality Act 2010 implements the UK’s laws against discrimination. As an Act of Parliament it is primary legislation, so would remain even if the European Communities Act 1972 is repealed. In any event, there is broad political consensus that employers should not be free to discriminate on any of the protected characteristics.

Should changes take place, a more likely target could be compensation such as the introduction of a compensation cap (currently uncapped) in discrimination claims, similar to unfair dismissal compensation. The burden of proof rules in discrimination cases could also be vulnerable.

Agency workers:

The Agency Workers Regulations 2010 concerning equal rights for agency workers are unpopular with UK business. It is an area that is highly vulnerable to repeal or at least a radical overhaul.

Working time:

Parts of the Working Time Regulations 1998 remain unpopular with UK business. However, they are popular with workers and trade unions.

Possible targets for change include the more controversial aspects of the right to paid holiday. Examples include the right to accrue holiday whilst on sick leave, the right to receive holiday pay rates based on all aspects of remuneration, for example, commission and overtime, rather than just basic pay and the right to carry over holiday in the event of sickness preventing the worker from taking it during the holiday year.

There could also be a change to the rules by which some ‘on-call’ time counts as working time.

In addition, there could be a future removal of the cap on the 48 maximum working hours per week over a ‘reference period’ (usually 17 weeks, but subject to modification via collective agreements and workplace agreements).

Collective consultation:

Subject to some exceptions, and whilst there has recently been some ‘watering-down’, there is generally a requirement to consult with recognised trade unions and/or employee representative groups in the event of a collective redundancy and/or TUPE situation. The consultation should be “in good time with a view to reaching agreement”. This is considered burdensome by some and is a possible target for relaxation.

Other consultation rights such as works councils and transnational works councils are possible targets for removal, although the current obligations imposed on UK employers are relatively light.

TUPE:

There is unlikely to be a complete repeal of the TUPE Regulations 2006. However, reforms are a possibility.

In addition to the collective consultation point above, possible targets include the disapplication of TUPE in all forms of insolvency, including administration and receivership. This could be viewed as promoting a rescue culture helping business to survive and saving jobs.

Another area of possible reform is a relaxation of the law concerning the harmonisation of terms and conditions following a transfer.

Data processing of personal data:

The new EU General Data Protection Regulation is likely to be implemented in the spring of 2018, which would be before any Brexit. It will introduce common standards across the EU relating to the protection of individuals with regard to the processing of personal data and the movement of such data. The proposed standards are likely to be more onerous than those currently applicable under the Data Protection Act 1998.

Freedom of movement:

The issues of immigration and migration are material for many voters in the forthcoming referendum. The UK is not, of course, a member of the Europe’s border-free Schengen area.

The UK may in time introduce an immigration system for EU citizens that is similar to the current system for non-EU citizens, whereby skilled workers and students can gain leave to remain in the UK for a period of time. This approach is favoured by a number of those supporting Brexit.

It is, of course, possible that the UK would negotiate a trade agreement with the EU which, as part of that agreement, allows free movement of persons in any event.

Conclusion

In the short term, any decision by the UK to leave the EU would not have a transformative effect on UK employment law and HR practice. However, depending upon the nature of the trading relationships replacing membership of the EU and the agenda of the Government in place, there could be a relaxation of rights and changes in a number of target areas in the medium and longer term, as well as a diminished influence of the ECJ, thus significantly changing employment law and HR practice in the future.
Readers should be aware that the information contained in this paper is intended as a general review of the subject featured and specialist legal advice should always be sought before taking, or refraining from taking, any action. 


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