Brexit: implications for employment law in the UK

26th February 2016

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On 2 February 2016 the European Council published a package of proposals that David Cameron is hoping will form the basis of a deal for EU reform to be agreed at a Brussels summit on 18 and 19 February. If agreement can be reached between the member states, the UK's "in-out" referendum could be held as early as June. A decision on the so-called "Brexit" could therefore be made by this summer. What would be the implications for UK employment law if the UK votes to leave the EU?

Possible implications of a Brexit

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 duties to agency workers. In theory, if there is a vote to leave, the UK government could repeal all of this. However the government is unlikely to take this step and it is far more probable that EU law will continue to exercise a significant influence even after a Brexit.

There are various reasons for this:

  • Some EU employment laws merely subsumed protections that were already provided by UK law. For example, UK equal pay, race and disability discrimination laws preceded EU anti-discrimination obligations. Similarly, there was a UK right of return from maternity leave before EU maternity leave rights were implemented. It is not likely that the government would want to row back on these protections.
  • Even if there was not a pre-existing UK right, would the government repeal such employment protection? Much employment law, such as family leave, discrimination rights and even the right to paid holiday is regarded by both employers and employees as a good thing. Indeed, UK family leave rights go further than the EU requires.
  • 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.

Disentangling the UK from its EU commitments will be a lengthy process. The UK is required to give two years' notice of an intention to leave the EU. During this period, the parties would negotiate the terms of the departure and it is likely that new trade arrangements would be put in place. The government could then gradually repeal EU-derived employment laws, or, as is perhaps more likely, modify them to make them more palatable to UK businesses.

Discrimination law

The Equality Act 2010 (EqA 2010), which implements the UK's laws against discrimination, is primary legislation, so would remain in force even if the legislation that incorporates EU law (the European Communities Act 1972 (ECA 1972)) is repealed. Although the government could repeal the EqA 2010 after exiting the EU, to do so would be controversial. It is difficult to imagine many employers arguing that they should be free to discriminate on any of the protected grounds. Any change to the existing regime governing direct discrimination, indirect discrimination and harassment also seems unlikely. Some commentators have suggested that, free from EU constraints, a cap could be imposed on discrimination compensation similar to that for unfair dismissal. Another possibility is that the government could change the law to allow positive discrimination in favour of under-represented groups in a way that is currently impermissible under EU law.

Parental leave and pay

Rights to parental and family-related leave in the UK are a mixture of rights deriving from the EU and rights originating in the UK. UK maternity leave and pay preceded the EU rights and are more generous than those rights in some respects. The (relatively new) right to shared parental leave and the right to request flexible working are purely domestic in origin. Accordingly, although some critics consider these rights to be a burden on business, there seems little political appetite for their repeal or even for watering them down.

Transfer of undertakings

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE) can attract a lot of negative press but the principle that employees in a transferred business or undertaking should transfer with it is often useful for businesses and is incorporated and priced into many commercial outsourcing agreements. Although there may be some businesses that would like to get rid of TUPE, it seems more likely that, following a Brexit, the government would make small changes to make it more business friendly. For example, it might choose to make it easier to harmonise terms following a TUPE transfer.

Holidays and working time

The right to statutory paid holiday is now well established and it would be deeply unpopular with workers and trade unions if it was removed. This right is also now broadly accepted by most employers. For these reasons, a wholesale repeal of the Working Time Regulations 1998 (SI 1998/1833) (WTR) is unlikely. However, there are aspects of the right to paid holiday and other rights under the WTR that the government may want to amend if it was not prevented from doing so by membership of the EU. Various ECJ decisions on holiday pay are unpopular with UK businesses, for example the right to keep accruing holiday while on sick leave and the fact that holiday pay should be based on all aspects of remuneration, not just basic pay. Following a Brexit, the government may want to retain a right to paid holiday based on basic pay and with limited rights to accrue and carry it over into new holiday years. The UK may also wish to remove the cap on maximum weekly working hours under the WTR. It is less clear whether there is a demand to limit the rights to other rest breaks or the protections for night workers contained in the WTR.

Collective redundancy consultation

Collective redundancy consultation obligations were reduced by the last government. The obligation is now not particularly onerous and trade unions are likely to fight any plan to remove it altogether. It is not obvious what would happen to this obligation following a Brexit. It is possible that it could be watered down further or done away with, particularly as many employees arguably do not feel particularly strongly about this right. On the other hand, it is not clear to what extent businesses regard this obligation as a burden that needs ameliorating. Similarly, other collective consultation rights such as works councils and transnational works councils are possible candidates for removal, but the obligations imposed by them on UK businesses are relatively light.

Agency workers

The most obvious candidate for complete revocation is the Agency Workers Regulations 2010 (SI 2010/93) which are complex, unpopular with businesses and have not yet become embedded in a way that might make them politically difficult to remove.

Data Protection

It seems unlikely that the UK would repeal or significantly modify the Data Protection Act 1998 (DPA 1998), which implements the Data Protection Directive (95/46/EC) (DPD 1995) if it leaves the EU. The DPD 1995 directs that personal data must not be transferred to a country outside the EU unless that country ensures an adequate level of protection for the rights of the data subject. If UK businesses want to operate in the EU (or EU businesses in the UK) they will have to transfer personal data between the UK and EU member states and there will need to be adequate protections equivalent to the current ones. Although other solutions are possible (such as safe harbour arrangements or model clauses) they also have downsides, as is evidenced by the recent ECJ decision that the safe harbour arrangements with the US are not adequate (Schrems v Data Protection Commissioner (Case C-362/14)), which was followed by various national data protection regulators declaring that data transfers to the US based on model clauses were no longer acceptable either. If the UK does decide to abide by the EU regime, it will have to update the DPA 1998 to take account of the new General Data Protection Regulation, which is expected to be adopted around Easter 2016 with an implementation date in 2018.

Freedom of movement

There are currently large numbers of UK nationals living and working in other EU countries and many nationals of other EU member states living and working in the UK. Following a Brexit, these individuals would no longer have the automatic right to do this.

It would not seem to be in anyone's interests (whether the individuals', their employers' or the national governments') to require them to return to their country of origin. It therefore seems likely that the UK government would agree an amnesty, whereby existing EU migrants could stay (at least for a reasonable period) in return for permission for UK citizens abroad to remain where they are. In the medium term, these individuals could be given sufficient time to obtain citizenship of the country in which they are residing and to return home if they fail to do so. The UK could introduce an immigration system similar to the current system for non-EU citizens, whereby skilled workers and students can gain permission to stay for a limited period. This would presumably help to reduce immigration to the UK from its current historically high levels (barring unforeseen consequences, such as an increase in illegal immigration). However UK businesses may have issues if they are banned from recruiting labour they are used to accessing from the EU. It is also questionable if, in practice, the UK could 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.

Transitioning from the EU

EU law has been incorporated into UK law in a variety of ways. Some of the UK laws (such as TUPE) are secondary legislation introduced by a government minister under powers granted by the ECA 1972. If the ECA was repealed, secondary legislation made under it (including TUPE) would probably fall away unless deliberately retained. On the other hand, primary legislation such as the EqA 2010 would remain in force until repealed. The government would not want employers to have to deal with an avalanche of legal changes.

In the light of these challenges, the government is likely to take a piecemeal approach, keeping the majority of EU employment law but with minor modifications. However, this would lead to another issue, which is the effect of ECJ and UK jurisprudence. On leaving the EU, the ECJ would no longer have jurisdiction over the UK courts and its future decisions would not be binding. Currently, however, the UK courts must interpret EU-derived law in accordance with ECJ decisions and a body of UK case law has built up that does so. These decisions would remain binding on lower courts, subject to their ability to distinguish them because the particular facts of the case are different. It is unclear to what extent UK courts may treat the fact that they are no longer obliged to apply ECJ judgements as a materially different circumstance justifying a departure from precedent. It seems likely that they will follow previously established precedents in order to preserve legal certainty. It is also possible that UK courts would continue to see ECJ decisions (even future ones) as persuasive, even if not binding.

The domestic issues that might make some changes more politically difficult to effect than others have been considered above, but there are also other political realities at play. The UK is likely to want an ongoing trade relationship with the EU, which is its biggest export market. The price of a free trade agreement with the EU may well be acceptance of EU social and employment regulation. This is the case, for example, 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 EU decision-making process. The EFTA court (which interprets EEA rules) is also bound by ECJ decisions. Switzerland, which has negotiated a series of agreements with the EU, is in a similar position.

Ultimately, even if the UK were to leave the EU, it seems unlikely that UK employment law would be transformed in significant ways, particularly in the short term.

This article was written by James Davies, Partner, and Bethan Carney, Practice Development Lawyer, Lewis Silkin LLP. For more information please contact James Davies or Bethan Carney. Reproduced from Practical Law with the permission of the publishers. For further information please visit www.practicallaw.com.

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