European Union: Brexit: Future Proofing Your European Business

The dust has now settled after the seismic shift of the UK's vote to leave the European Union (also known as "Brexit") on 23 June.  The British Government has yet to formally trigger exit, and legal challenges are underway by opponents of Brexit.  The expectation is still on Brexit taking effect by 2019 as the 2 year negotiation process will likely start next year - even though the terms of the deal with the EU are still up for negotiation. It is clear that until the exit process is complete, the UK remains fully part of the EU and subject to its legislation, yet the projects and investments that companies are planning now may spill over the anticipated post Brexit period.  A substantial portion of UK employment and immigration laws are grounded in EU law - therefore, while waiting to see how "Brexit means Brexit" translates in practice, planning ahead is worthwhile. 

Seyfarth Shaw's International Employment team and Immigration team in London have the following guidance on how to prepare your European business during this transition period and beyond.    

Restructuring

The issue: A number of employers are restructuring their UK operations - either to send an advance guard to another European location (and in some cases use that location for EU financial services "passporting"), or to make savings in anticipation of tougher times ahead.  

Action points: Reductions in force in the UK do not require financial justification. A reduction or anticipated reduction in workload in the UK because of ramping up in another country will be a fair reason for termination provided the correct process is followed. But if an entire team or function is being relocated, this may trigger a TUPE transfer entitling employees to transfer to the new location. Where a restructuring could potentially lead to 20 or more employees being terminated within a period of 90 days, extra consultation applies - and this is arguably triggered when the plans are still in development and have not been finalised.  There are serious financial penalties for failing to follow either the TUPE or redundancy consultation processes.

Mobility

The issue: Perhaps the key issue in the Brexit vote was immigration. Though positions are likely to evolve again the British Government is currently expected to resist continuing the current free access for EU citizens to the UK in the Brexit negotiations.  This would have clear consequences for EU nationals (or family members of nationals) currently working in the UK without the need for immigration approval.  Even if the deal struck allows existing residents to stay, it may restrict future access.  And we expect that any restrictions which the UK applies to EU nationals will be applied equally by the EU to UK nationals living or visiting the continent. 

Action points:

Immigration - EU nationals in the UK. EU nationals are the largest minority in the UK's diverse range of resident workers, making around 10% of the UK workforce.  Employers have no obligation to fund or support nationals applying for local nationality, and would need to be ready to justify doing this for certain employees and not others to avoid potential discrimination liability. However, employers can inform their senior executives and key employees that Brexit could mean the need for immigration approvals in future, and encourage them to make their own applications for UK citizenship or a passport in another EU country now, to anticipate any future change of legislation.

An EU national exercising  their right to live and work in the UK  may apply for a UK residence card to confirm his or her status.  Family members may also apply for a residence card as the dependant of an EU national. This is not mandatory, but we would recommend it as a safeguard in case EU nationals do lose the right to live in the UK post-Brexit.  Residence cards would be valid for five years, at which point the EU national and family members should then be eligible to apply for permanent residence. 

Likewise, the immigration status of UK nationals residing or working in EU countries will not change until the transition procedure has been completed.  We anticipate that UK nationals who are settled in EU countries will be permitted to remain there after the UK has formally left the EU, however this is not guaranteed and will be subject to the outcome of the negotiations. Therefore, UK nationals residing in another EU country, who qualify for permanent residence or citizenship in that jurisdiction, may wish to apply now to formalize his/her status or gain "dual nationality" to preserve his/her right to remain in another EU country post-Brexit.

International assignments. It is likely that the UK will have to make concessions on EU visitors in order to get a favourable trade deal, so it is too early to be recalling employees from assignment or changing mobility strategies. However, we do recommend making a check of current cross-border working arrangements between the UK and the rest of the EU: how many employees may need to change work location or need immigration approvals in the worst case?  

For future assignments, check your documentation includes a continuous duty on the employee to cooperate in providing information on their immigration status and to cooperate in applications, and a right of immediate recall where required immigration approvals are not in place. If an employee cannot continue to work in their location country this may justify termination under local rules (as in the UK) but employees on international assignment may have a right of return to their "home" country and severance payment entitlements. 

Recruitment. Employers should steer clear of taking nationality into account in hiring. Discrimination claims are being reported, where employers prefer UK nationals for jobs because they are unsure that EU nationals will have the right to continue in role post-Brexit. Candidates rejected for this reason would have a right to financial compensation under the UK's anti-discrimination laws.  Similarly, existing employees should not be singled out based on their nationality. 

Mobility - benefits. Assignments between EU countries will need more thought post-Brexit, both in terms of immigration approvals and also because EU rules allowing social security continuation between different member states would likely no longer include the UK. Thought will need to be given to preserving employees' benefits position at the early stages of assignment planning.

At the moment, employees who have worked in different EU (and EEA) Member States receive "credit" for their past service to accrue social security and pension rights. Also, employees entitled to benefits from one country (typically unemployment benefits) may generally receive these when they are looking for work in the UK. Post-Brexit, this coordination could be discontinued, though bilateral agreements could be negotiated between the UK and each of the Member States (as the US has done with individual countries) to replicate the arrangement in part. This could have a particular impact on the pension rights of employees who work in the UK or plan to retire there. 

European projects

The issue: Currently UK employees count towards the thresholds triggering set up of European Works Councils, for employee representation, and employee participation in an SE (the special form of European Company). If and when Brexit does take place, these thresholds may no longer be met, so companies with a large presence in the UK may find they no longer need to maintain a European Works Council. For those who do continue to maintain a European Works Council or SE, UK employees may no longer have a right to be included.

Action points: Check whether your company does have European Works Council or SE. If a European Works Council, check whether it was set following employee request or on a voluntary basis before a request was made, as this will affect whether it needs to continue and whether it will cover the UK.  If it will no longer cover the UK, this would mean that information on UK developments may no longer need to be provided to the European Works Council (although information may still need to be given directly to UK representatives). If setting up a Special Negotiating Body or European Works Council now, companies may want to avoid making it subject to UK law, as this may not be accepted by the EU states post-Brexit.

Data privacy

The issue: If the UK leaves the EU, it will no longer be treated as an automatically "safe" destination for the transfer of data from the rest of Europe. This potentially means separate agreements and security measures would be required in order to transfer data - as is currently the case for transfers between the EU and the US. It is possible the UK's data privacy rules will diverge from the EU's post-Brexit, although the new UK Information Commissioner has recently stated that she expects the same levels of protection to continue: "I don't think Brexit should mean Brexit when it comes to standards of data protection."

Action points: It has been reported that some large European companies, such as Barclays, are considering relocating their key operations or servers from the UK to other EU countries so they can continue to take advantage of free transfer of data between EU member states.  We recommend tracking data flows to assess how far the UK is a hub for EU data and potentially pausing plans to expand data held in the UK. However, maintaining data privacy standards will be key to the Brexit trade negotiations - so for now businesses should be preparing to comply with the EU Data Protection Regulation in the UK which comes into force in May 2018, before the earliest possible date for Brexit. Clients should assume the UK's data privacy standards will be maintained.

Changes to employment law

The issue: A number of the UK's labour laws originally stem from European directives (which set minimum standards for member states to bring into law in their own countries). These include the TUPE regime (on business sales and outsourcing), discrimination legislation and collective redundancy consultation. There is speculation that some of the more employee protective aspects of this legislation could be removed following Brexit.

Action points: Our view is that any changes to UK labour laws post-Brexit will be limited short term. Most EU laws are now firmly embedded in the UK through UK legislation that has been in place for a number of years. There may be scope, in particular, for change around the edges - in particular the European rules on holiday pay and agency worker rights which have been strongly contested in the UK. But as EU law holds good for a minimum of two years, employers cannot yet apply a approach of "wait and see" to claims under these rules. Long term, depending on the terms the UK is able to negotiate with the EU, further reforms may be expected  as the UK will want to ensure it remains a competitive market attractive to employers, yet it is too early to speculate what changes would take place. For now, the UK Government has stated that it will not reduce workers' legal rights - while introducing extra powers to penalize employers who hire workers without the right to work in the UK.

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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