Brexit – what next for UK Employment law?

However on Christmas Eve, it was announced that a free trade deal between the UK and EU had finally been agreed. At over 1,200 pages, the Trade and Cooperation Agreement (the “Agreement”) sets out in detail the terms of the trade deal between the UK and the EU (the “Parties”) and the mechanisms for resolving disputes between them. In summary, the Parties have now agreed a trade deal which is free from tariffs and quotas, but which also contains commitments to ensure that the principle of a “level playing field” is maintained between the two sides in key areas such as employment, tax, social policy and the environment.

In this article we take a look at how the Agreement may impact and shape UK employment law in future.

Clearly, Brexit will also have an immediate impact on business immigration both from and to the UK; please find further commentary on this issue here and additional wider Brexit commentary here.

A “level playing field”

During the Brexit deal negotiations, there was a great deal of tension between creating a deal which ensured a “level playing field” for the EU, whilst also maximising the “sovereignty” of the UK. A “level playing field” is a trade-policy term for a set of common rules and standards that effectively prevent businesses in one country (or bloc) from gaining a competitive advantage over those operating in other countries. The principle is a key element of the EU single market which allows for free movement of people, goods, services and capital, and maximises “open and fair” competition.

Under the Agreement, the Parties each now have the right to set their own policies and priorities in relation to “labour and social standards”.

Under the Agreement, “labour and social standards” is defined as encompassing the level of protections provided in the Parties’ laws and standards in connection with:

• fundamental rights at work;
• occupational health and safety standards;
• fair working conditions and employment standards;
• information and consultation rights at company level; and
• restructuring of undertakings.

So how does the Agreement attempt to maintain “a level playing field”?

Essentially, the Parties’ rights to set their own policies and priorities in the area of labour and social standards are subject to several important provisions and measures (contained within a “non-regression” clause) which seek to maintain a common underlying basic standard and conformity between the Parties in this area:

i. the Parties have committed to not weaken or reduce the level of labour and social protections which were in existence as at 31 December 2020, in a manner which affects trade or investment between the Parties;

ii. the Parties shall continue to strive to increase their respective labour and social levels of protection; and

iii. the Parties may be subject to “re-balancing” measures if significant divergences in protection arise in the future, and such divergences have a material impact on trade or investment. Such “re-balancing” provisions aim to act as a deterrent through the imposition of tariffs and the suspension of parts of the Agreement on trade in the event that there is significant divergence in employment law protections in respect of the five areas set out above. 

It is as yet unclear what changes might trigger these rebalancing measures. In the labour and employment sphere, the UK could gain an unfair advantage if it decided to lower employment standards and/or lower the national minimum wage in order to create a cheaper labour market. This could have the effect of attracting employers to the UK, and potentially drawing away business from the EU. In such a situation, if these outcomes affected trade and investment between the Parties, the EU could impose “rebalancing measures” such as tariffs on UK products, effectively limiting the UK’s access to the EU single market.

In order to effectively enforce labour and social standards in the five areas listed, the Agreement requires the Parties to have in place:

• an effective system of labour inspections;
• administrative and judicial proceedings that allow public authorities and individuals to bring timely actions against violations of labour law/social standards;
• appropriate and effective remedies, including interim relief, proportionate and dissuasive sanctions; and
• respect for the role and autonomy of social partners at national level.

A failure to “effectively enforce” the relevant laws and standards could be classed as a potential breach of the “non-regression” clause. The Agreement states that any disagreements on the operation of the “non-regression” clause should be first addressed through dialogue, consultation, exchange of information and cooperation over a 90-day period. Following this period, a formal dispute resolution system exists whereby a panel of experts decide whether a Party has failed to comply with its obligations.

The UK arguably falls short of the Agreement’s requirements, in not having a comprehensive system of labour inspections, unlike many of our EU neighbours. This was noted in the 2017 Taylor Review of modern working practices, which recognised the fundamental role that enforcement plays in ensuring workers actually receive employment rights. The UK is now committed to establishing a new Single Enforcement Body for employment to improve enforcement of employment rights for workers and businesses.

The other obligations set out under the Agreement may also limit the UK’s ability to be completely autonomous in its approach to enforcing employment laws and standards. For example any proposal to re-introduce fees for pursuing Employment Tribunal claims could fall foul of the requirement to have administrative and judicial proceedings that allow public authorities and individuals to bring timely actions against violations of labour law/social standards.

A continued legal union?

The European Union (Withdrawal) Act 2018 created the concept of “retained EU law.” This concept essentially means that EU-derived employment law, as it applied in the UK on 31 December 2020, continues to apply. This includes legislation derived from the EU’s Working Time Directive, the General Data Protection Regulation, TUPE, and around 150,000 other pieces of EU-derived legislation.

In relation to the “retained EU law,” the UK courts must still follow any case law of the European Court of Justice (“ECJ”) made before 31 December 2020. Furthermore, although no longer binding on the UK courts, principles and decisions from the ECJ made on or after 31 December 2020 can still be taken into account by domestic courts where relevant. Notably, however, the Court of Appeal and the Supreme Court can give a ruling which is contrary to EU case law “when it appears right to do so.”

The Agreement also means that post-Brexit EU law does not entirely cease to be relevant for the UK. For example, if the EU legislates on “labour and social standards” and the UK does not have existing laws which provide equivalent protection, the EU may initiate “re-balancing” measures if the UK does not introduce new measures which are broadly equivalent. However “re-balancing” measures would only be triggered if there was reliable evidence that the resulting disparity between applicable law in the EU and UK had a material impact on trade and investment.

Over the next two years, there are three EU directives which must be implemented into national law by member states. These are the:

• Whistleblowing Directive;
• Transparent and Predictable Working Conditions Directive; and
• Work-Life Balance for Parents and Carers Directive.

Existing and proposed UK legislation places the UK in a good position of compliance with such directives, and therefore it seems unlikely that there will be a divergence with EU law in these areas that is significant enough to require the application of “re-balancing” measures.

The Agreement also includes a commitment that the UK will continue to respect the rights set out in the European Convention on Human Rights (“ECHR”). Such a commitment will be relevant to employment law. Although the UK can amend or replace the Human Rights Act 1998, the principles of the ECHR must continue to be respected when interpreting and applying English law, which arguably ensures the EU’s legacy in this area in the UK.

Therefore, the UK legal system’s ties with EU law may continue for much longer, and be closer, than may have been envisaged by some.

Which UK employment laws may now change in light of the Agreement?

It is too early to predict exactly what employment laws the UK Government may change. Given the COVID-19 pandemic, changes do not appear to be a priority in the near future. However, there are a few areas which could see some movement given the greater flexibility and autonomy of the UK to set its own domestic law (subject, of course, to its obligations under the Agreement):

• Holiday pay:
  
  
  • Holiday pay has proven to be a complicated and confusing area for both employers and employment lawyers alike. There has been a long line of EU and UK cases which have muddied the area and created a great deal of uncertainty and complexity for employers, in particular on how to calculate holiday pay.
    
    
  • Now that the UK has the ability to repeal/amend the Working Time Regulations 1998, the UK may now have the opportunity to clarify under UK law whether holiday pay should be calculated based on basic salary only or whether it requires a wider range of payments (such as commission) to be taken into account.
    
    
• Compensation for discrimination cases:
  
  
  • Under the Equality Act 2010, compensation for unlawful discrimination is uncapped, as required under EU law, whereas under the Employment Rights Act 1996, compensation for unfair dismissal (a purely domestic right, not derived from EU law) is capped. The UK government may in theory now have the opportunity to consider introducing a cap on discrimination compensation, without being in breach of EU directives. In practice, this type of change seems unlikely, particularly in view of the continuing disadvantages suffered by minorities in the workplace and the perceived need for government to do more to address these, rather than chip away at existing legal rights in this area.
    
    
• TUPE:
  
  
  • The UK TUPE Regulations are derived from the EU Acquired Rights Directive. Some of the provisions, particularly the restrictions on changes to terms of employment for a reason connected to a TUPE transfer, are viewed by some as unduly restrictive. The UK may now have scope to amend TUPE in order to make it more employer-friendly.

However, in all of these areas (and indeed the field of UK employment law more generally), the UK government will of course need to take into account the “re-balancing” provisions in the Agreement, and ensure that any proposed changes do not materially impact trade and investment.

Concluding thoughts

As outlined above, the UK certainly does have scope for setting its own “labour and social standards” going forward, as well as the ability to retain, amend or repeal UK employment laws which originally derived from the EU and to depart from ECJ case law. However, if the “non-regression” clause in the Agreement is breached, there are potentially serious consequences for the UK.

The prospect of a trade dispute with the EU may keep the UK’s system of employment law protection largely consistent with EU standards and therefore there may be less divergence in connection with “labour and social standards” than one might have predicted.

It is yet to be seen how effective the dispute resolution procedure contained within the Agreement is, and whether the ability of the Parties to set tariffs and quotas where there is a breach of the non-regression clause may be enough to avoid any dramatic differences in the employment and labour rights and protections between the Parties for the foreseeable future. Time will tell.