UK: Brexit Brake?

Last Updated: 29 November 2016
Article by Andrew Humphrey

Parliament now has to vote on Brexit. How will recent Brexit developments affect your business?

The High Court has ruled that Parliament must now vote on triggering the mechanism to leave the E.U. Sterling spiked upwards in response. The Government has stated that it will appeal. In the meantime, Teresa May has given her first keynote speech on worker rights under Brexit; and the Secretary for Culture, Media and Sport has confirmed that "it will be expected and quite normal for us to opt into" the new EU Data Protection Rules in the meantime.

So what does this all mean for UK employers?

Impact of High Court judgement

We think there are good prospects of this going immediately to the Supreme Court; and fair prospects of the Government losing all over again. It has already proven a tough task to argue that the Government can unilaterally overrule Acts of Parliament, never mind the suggestion that we are dealing with a treaty and so the Royal Prerogative can be evoked. But what does this mean for businesses?

  • It means that there is a risk that MPs vote against invoking Article 50 despite the outcome of the referendum. In turn, this may result in not exiting the E.U. and still being able to access the Single Market. It may also have an effect on the value of Sterling in the short to medium term
  • If this doesn't happen then it may still mean that the triggering of Article 50 is delayed, which will mean that UK businesses are exposed to unamended EU law for longer. That's not an insignificant proposition. By way of example, it means being exposed to an undiluted version of the new EU General Data Protection Regulations for longer. These Regulations require a re-evaluation of all data-flows in every aspect of their business operation and undertake significant compliance work in order to avoid potential fines of up to 2-4% of their global business turnover come May 2018. There is now all the more reason to start preparing before consultant companies jack up their prices next year.

Worker rights if or when Brexit goes ahead

"... [L]et me be absolutely clear: existing workers' legal rights will continue to be guaranteed in law - and they will be guaranteed as long as I am Prime Minister".

This hardly signals an immediate unburdening of Brussels' bureaucracy. And it's no small irony that "The Great Repeal Bill" is actually designed to automatically incorporate all of EU law into domestic legislation, pending later review. There are good reasons to assume little would change in the short-term under Brexit. After all, a significant proportion of the UK's employment law comes from the EU but much of it was built on legislation already enacted by the Government. On that basis, no one really expects an immediate repeal of unfair dismissal law, discrimination law, or family friendly rights.

So would anything change?

Yes, probably. The most likely legislation includes:

  • The Transfer of Undertakings (Protection of Employment) Regulations 2006, particularly where this affects outsourcing arrangements and the more awkward collective consultation obligations.
  • The Working Time Regulations 1998, particularly in respect of the 48-hour opt out; and to include amendments to ensure that overtime payments are not included in holiday pay, and holidays are not accrued whilst workers are off sick. Also, don't totally rule out reduction of annual holiday entitlement. If Brexit goes badly and the Government perceives the need to allow business to reduce employment costs, this may still be introduced under the guise of giving businesses and workers the "freedom to contract" on these issues. Indeed given that the judgement of the European Courts of Justice would cease to apply, expect recent case law to be relitigated on this subject.
  • The Agency Workers Regulations 2010. These may be repealed in their entirety, giving businesses a lot more flexibility about how they engage contractors and agency workers which will help to appease vocal lobbyists complaining about the effect of the recent UBER judgment.
  • The Human Rights Act 1998. We expect special attention to be paid to the Act, given the Conservative Party's longstanding objection to it. We think that issues on deportation and privacy will have the strongest focus.
  • The National Minimum Wage Act 1998. We think that review of this is not inconceivable if Brexit negotiations proved so tough that the Government adopted a stance of putting the UK in a position to undercut European businesses.

What about freedom of movement?

Business immigration would be in sharp focus. What happens to British nationals living and working in other EU countries and those nationals of other EU member states living and working in Britain? Will they lose their automatic right to do so? Teresa May has deliberately not given guarantees. If no amnesty is granted in respect of their preferred arrangements, it's reasonable to assume that they would 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. We would be surprised if the Government did not introduce a points quota system to allow the best and brightest to remain in Britain regardless, but even this is not certain as the Government appears intent on delivering on restricted immigration as a key part of its response to the referendum.

So what does this all mean for British business?

It means that British business needs to keep its eye on the ball.

  • If the Government wins the appeal, be ready for Brexit in March 2017. If Brexit goes bad, then one of the few cards that the Government has to play is a threatened reduction in corporation tax or worker rights which would undercut former European trading partners. It will therefore pay to be on top of any changes. Otherwise, for those trading with directly within Europe it will be essential to monitor the progress with negotiations and to lobby for your interest to be recognised.
  • If the Government loses the appeal, be prepared for a Brexit Brake as Parliament prepares to debate this further. This may see Parliament having more say in Brexit and may even result in a "Soft Brexit" with the UK remaining in the EEA with much the same effect as membership of the EU.

To subscribe to our Brexit Board Briefings, or to discuss Business Regulations and / or Employment issues more widely, please contact Andrew Humphrey, Head of Employment

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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