Employment partner Elizabeth Lang tells California's Daily Journal how Brexit would impact US companies and what management should do now to assess personnel and business practices.
On June 23, the United Kingdom will hold a referendum on whether the UK should
remain in the European Union. The question posed will be: "Should the United
Kingdom remain a member of the European Union or leave the European Union?"
Voters will be given two options: "Remain a member of the European Union" and
"Leave the European Union." The prospect of the U.K. leaving the EU has been dubbed
"Brexit," and the continuing uncertainty raises issues for U.S. companies with
subsidiaries or personnel in the U.K. and Europe.
The U.K. has been a member of the EU since enacting the European Communities
Act in 1972, which cedes legislative sovereignty in specified areas to the institutions of
the EU. EU legislation is a significant source of existing U.K. employment law,
particularly in relation to working time, agency worker rights, collective redundancy
consultation, discrimination, business transfers and family-friendly rights; and these
laws have largely become part of normal U.K. working life. Other employment rights,
relating to dismissals, industrial relations and whistleblowing for example, do not stem
from the EU.
What would happen to U.K. employment law in the event of Brexit depends, to a
large extent, on the nature of the post-Brexit legal relationship negotiated between the
U.K. and the EU. Several relationship models have been proposed, based upon and
named after a variety of existing arrangements that the EU currently has with Norway,
Switzerland, Turkey, South Korea and the World Trade Organisation. Each of the
models differs significantly on a variety of issues, of which minimum standards
governing employment relationships are just one element.
For example, if the U.K. followed the Norway model, and remained a member of the
European Economic Area trade agreement, then it would need to retain a large
proportion of the EU's employment legislation, whereas if it followed other models, it
would have more scope to determine its own employment legislation. It is possible that
the EU would require the U.K. to retain certain employment law provisions as part of
any renegotiated relationship, perhaps in order to prevent the U.K. from undercutting
EU member states through what could be regarded as unfair competitive advantages.
Ultimately, the U.K.'s sovereignty over employment law issues may in practice be
conceded as part of a wider trade agreement.
If the U.K. public voted for Brexit and the Parliament simply repealed the European
Communities Act, then all of the EU employment legislation passed under it would
cease to have effect. In contrast, other employment legislation not emanating from the
EU would remain in force. This would cause a measure of confusion and legal
uncertainty. Therefore, it is considered that the most likely approach - especially given
that the U.K. must remain in the EU for a minimum two year 'notice period' following a
vote to leave - would be a series of piecemeal changes to address specific laws
individually over time. U.S. operations in the U.K. would have time and notice to adapt
to any changes that might be ushered in, but should be aware that responding to such changes could involve a material administrative burden.
While Parliament might be presented with the opportunity to rewrite U.K.
employment law, given that much of the present EU employment legislation is
entrenched in U.K. working life, it appears unlikely that there would be any sweeping
changes. It would be politically challenging to remove minimum entitlements of
employees (for example, to a minimum amount of annual paid holiday), and indeed in
many areas, such as paid holiday entitlement and parental leave, U.K. legislation
actually exceeds the minimum protections imposed by the EU.
Changes to the range of protections originally enacted due to EU legislation would
likely be subtle. For example, tweaks that could be made by the government (depending
upon the political landscape), might include a decision to cap the amount of
compensation an employee could be entitled to in the event of unlawful discrimination,
or to amend the law on the protection of employees upon the transfer of a business to
enable employers to harmonise the terms and conditions of the new and existing
employees in a faster and more effective way.
In addition, upon Brexit the U.K. would no longer be bound by the decisions of the
European courts. However, when interpreting legislation originally enacted during EU
membership it is likely that, particularly in the short-term, the U.K. courts would still
treat any European court decisions as persuasive.
Free movement of people between member states is one of the central concepts of the
EU. A citizen of the EU has the right to work and reside in any member state, enabling
a mobile and integrated workforce. Negotiations between the U.K. and the EU to
determine the post-Brexit relationship would include determination of whether the free
movement provisions would still apply to U.K. citizens. If the U.K. joined the European
Economic Area, free movement of people also applies to EEA members. Alternatively, if
the U.K. wished to remain in the single market but outside the EEA, like Switzerland, it
would probably have to agree a free movement treaty with the EU as a whole, or
separate treaties with individual European countries.
Were the U.K. to opt for a complete exit from the EU, movement and immigration
could become subject to additional restrictions. An EU citizen could be required to
apply for a visa to enter and work in the U.K. in the same way as non-EU citizens,
rather than having an automatic right to reside in another member state where local
conditions are satisfied. The same could also apply to U.K. citizens living and working
in EU member states. This would represent a material change for employers in the
U.K., including US employers.
It is expected that the government would, subject to conditions, honour existing
residence rights. However, Brexit has the potential to cause significant difficulties for
U.S. companies with subsidiaries or personnel in Europe by restricting the mobility of
employees, complicating the recruitment of employees and reducing the talent pool.
The nature and extent of such difficulties would not be known until the nature of the
U.K./EU post-Brexit relationship was agreed, and so any changes would take effect
gradually giving time for those affected to prepare. In the meantime, the biggest
concern remains economic uncertainty; foreign companies may be less willing to invest
in the U.K. until the situation becomes clearer.
It is hard to predict the future for employment and immigration law. Many
uncertainties remain, but in the event of Brexit it appears that changes would be
neither immediate nor radical. Despite this, U.S. companies would be well-advised to
assess internally the potential impact of Brexit on personnel and business practices
(notwithstanding the significant unknowns) and continue to monitor political
developments in the U.K.
This article was first published in the Daily Journal and is re-published with kind permission.