UK: Brexit: Some Frequently Asked Questions About Workers And Employment Law

Last Updated: 27 July 2017
Article by Geoffrey Mead and Elizabeth Graves

According to the new Prime Minister, Theresa May, "Brexit means Brexit" and, in the coming months, the UK Government will trigger the process for the UK to withdraw from the EU. The Prime Minister's aim is that the process will begin by end of March, 2017, regardless of the outcome of litigation to determine whether the government is ability to trigger commencement without Parliamentary approval.

However, up until such time as the UK actually leaves the EU, nothing changes from a legal perspective. Even serving notice to exit the EU gives rise to an anticipated two year period of negotiation, meaning that businesses will not be subject to overnight change.

In terms of UK employment law, our view is that the likelihood of major change after leaving the EU is small, at least in the short to medium term. Instead, delay and uncertainty followed by piecemeal change, which will depend on the terms of the UK's future relationship with the EU and the political colour of future UK governments, is more likely. Of greater, immediate concern to many employers is the impact Brexit may have on the free movement of workers - see our Immigration frequently asked questions.

Despite not expecting wholesale employment law change upon Brexit, the vote to leave the EU nonetheless raises a number of workplace issues for HR managers, in addition to immigration concerns. We consider some of these employment issues below.

1. Will we need to make any changes to our offer letters, employment contracts or European secondment/assignment documentation as a result of the referendum outcome?

A review is recommended. For example, check that all offer letters and contracts of employment contain "right to work" clauses to support a contractual basis for change, if this is needed in the future. Also, European secondment/assignment terms may need to anticipate the possibility of employees losing the right to work in the host EU country.

2. Will we need to make any changes to our staff handbook or policies?

Probably not but it would be worthwhile conducting a review of these documents and whether any terms within them are limited in geographical scope to "the EU". Restrictive covenant terms might be an example where the area of restriction is defined by geography in this way. If it is, consider revising the definition to ensure UK remains a part of the intended scope, notwithstanding Brexit. Otherwise, and depending on what relationship the UK agrees with the EU, a UK government (current or future) may decide to repeal certain existing employment protection derived from EU employment laws - see introduction above - which may necessitate handbook and policy changes. However, given that Brexit may not happen until the end of 2018, at the earliest, you should not delay any updates to handbooks and policies you would otherwise plan to make.

3. We offer share incentive arrangements to our employees. How will these this be affected?

This depends upon (i) where participating employees are based and (ii) the location of the company whose shares are offered to employees. Depending on the UK's future relationship with the EU, there will likely be more administrative hurdles for parent companies located outside the European Union to grant share awards to UK employees.

4. What impact will Brexit have on pension arrangements?

The immediate effect for pensions schemes will be the impact on funding levels as a result of changes in investment values. The markets have reacted negatively to the vote to leave and, for some schemes, this may result in a significant deterioration in funding levels. Where schemes have hedged the risk or invested in gilts this may be irrelevant or they may actually see a funding improvement. However, for those schemes with exposure to equity markets, this is likely to be negative. Linked to this, there may be a short window of opportunity to consider buying in or out some or all of the scheme's liabilities.

Trustees should also consider any negative impact on their employer's covenant (the ability of the employer to fund the pension scheme). This will be particularly relevant for those seeking to conclude funding negotiations.

5. What action can we take against employees who abuse colleagues over how they voted in the referendum?

Inevitably, the referendum and Brexit are discussion topics between colleagues. However, if behaviour becomes abusive, it's time to take action. Abusing colleagues whatever the reason is likely to merit disciplinary action. Failing to act may expose you, as employer, to liability, for example for harassment, discrimination or even constructive dismissal.

6. Reports of racial harassment against foreign workers have increased in the UK since the referendum. What should we do about instances of racial harassment in the workplace?

Any form of racial harassment should be dealt with robustly and in accordance with your policies on discrimination and harassment. Failure to act swiftly and appropriately may expose you, as an employer, to liability for the acts of its employees.

Now is a good time to ensure your policies are up to date, well publicised to employees (to make clear what will not be tolerated) and visibly supported by senior management.

If employees are experiencing racial abuse outside the workplace, this may be a matter for the police.

7. How will Brexit affect the current holiday pay litigation in the UK?

Until Brexit, the UK has little scope to amend the Working Time Regulations (WTR) and rights to paid holiday. That may change post-Brexit but not until the exit process is concluded and, even then, may be limited by whatever deals we manage to negotiate for a future outside of the EU.

As things stand, for private sector organisations, the current position is dependent upon the eventual outcome of a case currently before the Court of Appeal: Lock and others v British Gas Trading Ltd and another. This case challenges whether clear EU requirements to include various supplemental payments in the calculation of holiday pay are enforceable by employees in the UK. Since the unsuccessful party is likely to appeal the Court of Appeal's decision (expected end of summer) to the Supreme Court, uncertainty may well remain until the UK leaves the EU. It is therefore not clear at this stage whether, in due course, holiday pay will have to be based on normal pay, to include various supplemental payments, or whether basic pay only will suffice.

8. Our organisation relies heavily on agency workers. How will the Agency Worker Regulations be affected?

There are no immediate implications. Once the UK leaves the EU, depending what future relationship the UK agrees, current agency worker protection may be reformed. The UK relies heavily on agency staff, so any such post-Brexit legal reforms could influence the numbers of these workers – positively or negatively.

9. Our organisation uses contractors. Will this be affected?

If economic uncertainty associated with Brexit causes you to slow down recruitment activities, you may decide to increase your reliance on contractors on a temporary basis. It is a good idea to ensure you have appropriate contracts and policies to support the use of contractors, for example, to check whether they are correctly categorised as being self-employed, as opposed to worker or even employee status (with the resulting risks of adverse tax and other consequences if wrongly labelled). Depending on the nationality of your contractors, there may be right to work issues which need to be considered (see our Immigration frequently asked questions).

10. We have a European Works Council. Can it continue after the UK leaves the EU?

Most UK-based European Works Council (EWC) arrangements will be affected in some way by Brexit, however, making changes now could be premature because the exit arrangements are currently uncertain. In the meantime, you should start contingency planning and seek specialist advice.

As part of contingency planning, employers should check whether they still meet the EWC employee threshold after UK employees are taken out (threshold = 1000+ employees within the EU/EEA and at least 150 in each of at least two Member States). If the threshold is met and the UK leaves the Single Market (and the UK EWC Regulations repealed), an EWC set up under the existing UK regulations will be expected to move to another EEA jurisdiction.

If your EWC is set up under the laws of another EEA Member State, the cessation of the UK's membership of the EU and the Single Market may similarly affect whether the employee threshold is still met.

11. Our expat colleagues in the UK get paid in US$/Euros and have therefore seen a sharp hike in value of their pay packet compared with UK colleagues due to the drop in the fall in the exchange rate following the EU Referendum. Do we need to do anything about this?

Many companies pay their in-bound UK assignees in local currency and these employees are therefore exposed to fluctuations in the exchange rate. Unless your terms provide otherwise, there is no obligation on an employer to do anything about it. Similarly outbound UK assignees paid in sterling may have seen the value of their pay fall. Again, there is no obligation on an employer to take steps to alleviate this unless your terms provide otherwise.

12. We are evaluating moving part of our UK operations overseas. What employment law issues do we need to think about?

Employees whose roles are transferred overseas are likely to be redundant and will be entitled to notice and other entitlements on termination. Consultation processes will need to be followed (individual and, depending on the number of employees affected, potentially collective).

Where an entire operation (or part) is to be transferred overseas, TUPE is likely to apply. This in turn may overlay additional information and consultation with representatives of affected employees.

Employing staff in other jurisdictions will require compliance with local employment laws. In many countries it may be necessary or advisable for tax reasons to set-up a local entity or branch to employ the staff. Local law advice should be sought.

13. We transfer employee data around the EU. Do we need to change our approach to data protection because of Brexit?

New EU regulations (General Data Protection Regulations) are due to come into force in 2018 and will be directly applicable to all EU Member States. So close to Brexit, the UK is not likely to be subject to these regulations directly but UK businesses transferring data to and from EU will nonetheless be required to adhere to them (for more information, visit our data protection hub).

14. How will business travellers be treated when visiting the UK in the future (and vice versa where our employees visit EEA countries)?

This will be determined as part of the negotiation of the UK's exit, whether free movement continues and the nature of the immigration system post Brexit. In the absence of free movement, it is possible that business travellers may require permission to enter the UK.

15. Our employer is currently planning a cross-border merger (or acquisition/sale) and we need to understand how Brexit will change employee transfer rights in the EU. What will change?

Even beyond Brexit and regardless of the UK's future relationship with the EU, the UK is expected to continue to operate the principles of TUPE (which presume employment will continue on transfer, whether in EU countries or beyond). Employers already juggle those legal principles with practical issues of relocation and this is unlikely to change. Whilst it is conceivable that EU law or TUPE may change much longer term, the fundamental principles which seek to protect employment are unlikely to do so – though practical issues such as visa requirements could potentially present new challenges.

16: Once the UK has left the EU, will the UK still be obliged to implement the requirement of EU employment law?

This will depend on the relationship which is agreed between the UK and the EU post-Brexit. If the UK continues to have access to the Single Market (such as the Norwegian model) then it is possible that many of the current EU requirements will still need to be implemented in the UK subject to any exceptions agreed. If, however, a rather looser association is agreed, then that may give the UK government greater scope for making changes and departing from the requirements of EU law.

17: If the post-Brexit settlement does give the UK government much greater freedom over the content of UK employment law, where might we see changes?

It is much too early to be able to make firm predictions. However, areas which may be subject to change could include some provisions of the TUPE regulations (especially those relating to changes to terms and conditions of employment); aspects of the Agency Worker Regulations; and possibly compensation levels for discrimination and some elements of the Working Time Regulations.

18: Once the UK has left the EU, will those UK laws which implement EU legal requirements still apply?

Which EU laws will continue to apply in the UK on Brexit will depend on the terms of the UK's future relationship with the EU. If the UK is not required to comply with any EU laws on Brexit, the EU Treaties will no longer apply to the UK. It is, however, considered very likely that the UK Parliament will put arrangements in place to ensure that existing UK legal requirements will continue to apply post-Brexit, rather than simply "falling away" from the date we leave the EU. This will give the UK Parliament time to consider which EU laws it wants to continue to apply in the UK, as we expect this review process to take many years.

19: We have recruitment programmes under which we fund the external education/training of future employees in advance of them joining our employment. Could we either (i) refuse funding to EU citizens who might not in the future have the right to work in the UK (ii) implement a scheme to reimburse training costs retrospectively if the individual is subsequently able to come to work for us?

Refusing funding to all EU citizens who are not UK nationals would amount to unlawful direct race discrimination. In contrast, refusing funding to someone because he or she does not have a permanent right to work in the UK (which would exclude some, but not all, EEA and other non-UK citizens) would not be directly discriminatory: the reason for the refusal would not be nationality but the potential that the individual in the future may not have the right to work in the UK. However such a policy would amount to indirect discrimination and so would still be unlawful unless justified. Our view is that such a policy would be difficult to justify at present. A further risk would be of individuals bringing claims on the basis of article 45 of the Treaty and Regulation 492/2011 which protects workers' rights to exercise their right to free movement in other EU member states.

The second option, ie reimbursing training costs only after training had been completed and the individual had gained the right to work in the UK in the relevant role, would not fall foul of direct race discrimination rules provided UK nationals and non-UK nationals were treated in the same way. It would be likely to be indirectly discriminatory, however, needing to be justified. In our view, this approach would be more easily justified than the first option, although it would not be risk free from a legal perspective. A policy of only reimbursing training costs retrospectively could also make a job far less appealing to prospective employees and so in a competitive market could mean the employer loses out on good candidates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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