Brexit: the implications for employers

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As the shockwaves from the EU referendum result continue to be felt and the political landscape undergoes seismic change, we look at what employers need to know.

Whilst the events which have unfolded since the EU referendum result may have been foreseeable, the reality is that not many employers will have made contingency plans for a 'Leave' vote. What are the legal and practical implications of the result on Employment laws and what, if anything, should employers be doing?

Legal implications

As has been widely reported, nothing changes in the next few weeks or even months in terms of EU law. Once the withdrawal process is triggered under Article 50 (and David Cameron has indicated it will be for the new Prime Minister to trigger it when he steps down in September), we remain a member of the EU until either an exit is negotiated or two years have passed. As commentators predict that there will be no swift exit deal, we are likely to be in the EU for the next two years or possibly longer (there is currently even speculation about Article 50 being invoked at all). This means that (subject to any political appetite to defy EU law) EU Regulation, Directives and case law will all need to be adhered to.

Parliament will be looking at the European Communities Act 1972 (ECA) and considering which laws it should repeal and when. Many regulations on Employment law which are derived from EU law are made under the ECA 1972, but the Government is unlikely to repeal the ECA 1972 (whereby the Act would be treated as if it had never been made) without first putting transitional provisions in place, as it would result in legal and commercial chaos. More likely is that Acts of Parliament and Regulations which implement EU laws will be repealed or amended piece by piece, a painstaking and potentially very long process.

In addition, some EU-derived rights are set out in UK Acts of Parliament (for example the Equality Act 2010 and the Employment Rights Act 1996), or in regulations wholly or partly made under other Acts. These would mostly be unaffected by a repeal of the ECA 1972.

Specific provision would need to be made for Scotland, Northern Ireland and Wales because currently legislation made by the devolved administrations does not take effect if incompatible with EU law. There is of course uncertainty as to the implications generally for Scotland and Northern Ireland following the vote.

A more interesting question is how our courts will respond. Whilst we remain a member of the EU, UK courts would still have to give effect to EU law in interpreting our domestic laws. Even after we have left the EU, lower courts (eg Employment Tribunals and the EAT) would in theory still be bound by decisions of the higher courts (eg the Court of Appeal or Supreme Court) which have given effect to EU law unless the relevant law has been changed. The position is not entirely clear, though, because the lower courts may become emboldened to 'distinguish' those decisions on the basis that EU law is no longer relevant. Alternatively it is possible that higher courts, whilst no longer bound by EU law, would still give some consideration to EU rulings in their interpretation of domestic laws.

In addition, potential changes could be severely limited by the subsequent trade deal negotiated – other non-EU countries such as Norway and Switzerland have not in practice been able to free themselves of many EU labour laws. In several areas, such as data protection, we are likely to produce laws that mirror EU legislation to ensure we can conduct business effectively.

Impact on migrant workers

There is a big concern that businesses will be hard hit by the impact of 'Brexit' on immigration in respect of EEA (European Economic Area – which includes all EU countries plus Norway, Iceland, Liechtenstein, and additionally Switzerland) citizens currently working in the UK (who currently have freedom of movement) and in respect of future recruitment. EEA citizens already working here may be concerned about what the future holds for them, and indeed more than 11,000 migrant workers plan to stage 'Workplace action' on Monday 4 July. The original idea had been full-scale strikes, but this was tempered down to wearing T-shirts and badges to draw attention to the concerns of EEA workers, with a call on the Government to act quickly with legislation over their position.

Some employers may want to reassure staff that:

  • the UK will continue to be an EU member state in all likelihood for the next two years at least
  • there is likely to be some form of worker registration scheme for EEA citizens already working here
  • in the unlikely event that such a scheme does not materialise, there may be the option of sponsoring their workers under any new system that is introduced
  • EEA nationals who have been living and working in the UK for at least five years will have acquired permanent residence and are unlikely to be affected by the UK leaving the EU
  • non-EEA family members of EEA citizens living in the UK are likely to have the same rights as EEA citizens.

Employers will be concerned at their ability to attract and employ new workers from within the EEA. Skilled workers may continue to be recruited with relative ease. The sticking point comes with low-skilled workers, relied on heavily in the agricultural, leisure and care sectors. It is reported that three quarters of EEA citizens currently working in the UK would not meet the current non-EEA requirements (under the non-EEA Points Based System). It is possible the Government would introduce new requirements to enable the recruitment of low-skilled workers, but this is by no means certain bearing in mind the promises of the 'Leave' campaign. The never-introduced 'Tier Three' of the Points Based System is for unskilled workers and if there is the political will it could now be used as an alternative to EEA workers.

Over the long term it may become more expensive and administratively difficult to recruit from within the EEA, but by no means impossible. Blake Morgan has a specialist Immigration law team that can assist you with these matters, working closely with our Employment law team.

Impact on staff generally

Many employers have already taken steps to reassure staff about the outcome of the referendum. Though there may be an immediate impact on recruitment, most employers will not be expecting any significant changes in the short to medium term until more is known about the terms of any exit deal. Those that know they will be relocating offices or people will need to ensure they begin meaningful consultation as early as possible.

Some employers with defined benefit pension schemes might be interested in this article from our Pensions team which highlights the possible impact of Brexit on such schemes. Where employees are in defined contribution schemes and approaching retirement, the effect on the markets may impact the value of their pension funds, and they may require specific financial advice. Some employees may even choose to put off their planned retirement date. They cannot be forced to retire (unless, exceptionally, the employer operates a 'justified' retirement age) and should be supported as far as possible, but employers should be careful not to give financial advice or make promises they may not be able to keep.

All employers should watch out for the effects of stress and anxiety that may be caused or exacerbated by the referendum and ensure there is support where it is needed.

What legal changes could be on the horizon?

In our previous article, we considered how in reality Employment law was unlikely to see too many dramatic changes from a Brexit. Despite claims that businesses are stifled by EU labour laws, the fact is that that many Employment law rights either originated in the UK or have become deeply embedded in UK law as the UK's attitudes to social issues have evolved. A move to scale back all but the most minor Employment law rights would, in all likelihood, be politically unpopular.

Such changes as there are could be seen in the areas of collective consultation rights, clarification on Working Time rights such as paid holiday and a repeal of the 48-hour limit, tweaks to the Transfer of Undertakings (Protection of Employment) Regulations 2006, and potentially more significant changes to/removal of the Agency Workers Regulations 2010 (see our previous article for further details). Whilst the Government is unlikely to repeal discrimination law, a cap could be placed on compensation in the same way as currently exists for unfair dismissal.

Conclusion

The UK is entering uncharted territory on many fronts. Unfortunately, the lack of a clear indication as to what any exit deal would look like makes it very difficult for businesses to plan for it. Nevertheless, employers have an important role to play in stabilising their workforce, and encouraging an atmosphere of calm and tolerance between employees who may hold completely opposing views.

Our legal experts are ready to help you with any concerns or issues you may have, both in relation to Employment, Pensions and Immigration, and with any wider issues. A sample of views from our other legal practice areas can be found here.