The possibility of a UK exit from the EU – colloquially known as a Brexit – is high on the political, business and media agenda. On 23 June the UK will hold an in/out referendum to determine whether we should remain a member of the European Union. Whatever the result, the vote is a historic moment, which could have seismic implications for the economies of many European countries and transform the UK’s future role in world affairs. Against this backdrop, the impact of a Brexit on UK employment law is a relatively minor issue in a much wider debate, but bears consideration. What are the key questions for employers?

The legal implications of a Brexit turn on both the mechanics of exit and the model for any replacement UK / EU relationship, both of which are currently unknown.  We do know that any formal exit would not happen for at least two years following a vote to leave. In the event of an ‘out’ vote, the UK would invoke Article 50 of the Treaty on the European Union and notify the European Council that it intends to secede from the EU; a controlled and negotiated process developing over the following two years would follow. In the immediate aftermath, therefore, a vote to leave the EU is unlikely to have a significant impact on UK legislation.

Following a vote to leave, there would be a number of options for the future relationship between the UK and the EU, including:

  • The Norwegian model: Membership of EEA and EFTA (access to the single market);
  • The Swiss model: Member of EFTA; many bilateral agreements;
  • The Turkish model: join the EU Customs Union, access the EU market under WTO rules; and
  • Possibly, a bespoke UK model.

It is possible that the UK would seek to follow the Norwegian model and become part of EFTA and the EEA in order to continue favourable trading relations with countries in Europe.   As part of this organisation,  under its current rules,  the UK would remain subject to most aspects of EU social and employment policy given that EEA member states are bound by, for example,  the Acquired Rights Directive,  the Collective Redundancies Directive,  the Working Time Directive and the Agency Workers Directive. This would have a knock-on impact on the UK courts as the EFTA Court (which fulfils the judicial function within the EFTA system, interpreting the EEA Agreement with regard to the EFTA States) is bound by ECJ case law.  As such,  ECJ case law would continue to have a significant influence in the UK courts. In this scenario, the impact on UK employment law would be likely to be minimal in the short to medium term.

The Swiss model is unlikely to be an attractive option, as it involves complex negotiation of bilateral trade agreements, under which the EU would be likely to require the UK to adhere to many aspects of EU employment policy.

In the event of an alternative relationship, the UK Government may have more freedom to depart from EU social and employment policy, although that may come at a cost. A Brexit would make it more difficult to recruit individuals from and move them within Europe and, as such, the talent pool available to UK business would diminish.  Visa requirements could make it difficult to bring overseas talent and skills into the UK and individuals may prefer to be located within the EU given the unrestricted movement that would afford to them.   This impact would be felt across a range of sectors including, for example,  financial services,  technology,  hospitality and construction. Depending on the relationship negotiated, however, legislation could remain largely stable, with implemented Directives and existing Regulations remaining (even then, treaties would still be affected and the Supreme Court would become the highest court for interpretation). Alternatively Regulations could fall away but Directives already enacted in domestic law remain.  EU driven domestic legislation might be replaced on a case by case basis – although presumably not without sufficient warning.

The UK Government would be unlikely to fully repeal existing employment laws which implement EU requirements for a number of reasons including that:-

  • A raft of wholesale changes to employment law would lead to unwelcome confusion and uncertainty for employers as well the potential for significant cost in complying with a revised regime
  • Many of the rules which flow from Europe reflect accepted standards of good industrial relations;   for example, requiring employers not to discriminate and providing for rest breaks and paid holiday;
  • Even if it leaves the EU, it is expected that the UK will nonetheless remain in a significant trade relationship with the rest of Europe (whether as an EFTA member of the EEA or through bilateral trade agreements).   Any of these relationships will only be possible if the UK retains a playing field which is largely level with the rest of the EU in terms of employment law regulation; A far more likely outcome of a Brexit therefore is that the UK employment law regime is left largely as is, but that the Government legislates to remove or change some aspects of the existing regulation which are particularly unpopular with British employers.   The main examples of EU employment regulation cited by UK business as burdensome and which would therefore be likely to change are (i) the inability to harmonise employment terms after a business transfer; (ii) the requirement to ensure pay parity for agency workers after 12 weeks; and (iii) various aspects of the working time rules including record keeping and holiday pay.

In terms of ECJ case law, even assuming a full exit of the UK from the EU and no continuing EEA/trade relationships (which is unlikely),   UK employment tribunals would not be able to immediately completely ignore pre-existing ECJ case law.   ECJ judgments subsequently become incorporated into UK law, either by legislation being amended to take an ECJ ruling into account or through the a UK court following the ECJ’s stance in its own case law, as it is currently obliged to do.     The UK system of precedent means that past decisions remain binding on the lower courts and, even if there is a full exit from the EU, it will be largely impossible for an employment tribunal to depart from existing case law.   This will only change gradually over time, if and when the higher courts (EAT, Court of Appeal or Supreme Court) reconsider and change the established position on any particular aspect of employment law as a result of no longer being required to apply ECJ judgments. Further,   as referred to above, rather than the UK making a wholesale move away from its existing employment law regime post-Brexit, it is more likely to tinker with existing laws which will, therefore, mean that many aspects of our regulation would remain based on EU directives.   In these circumstances, the UK courts are likely to continue to view judgments of the ECJ as being persuasive in authority, albeit not binding.

If the ultimate outcome is that the UK becomes a member of the EEA, we would continue to be bound by both the Acquired Rights Directive and the Agency Workers Directive.   As such, the scope for changing the UK’s rules in these areas would be extremely limited although the Government may make moves to change those aspects of the UK implementing regulations which, arguably, “gold plate” the strict requirements of the relevant EU directives.Assuming a full EU exit, no EEA membership and no trade agreements,   technically the UK Government would be free to amend or repeal the TUPE and Agency Workers regimes in their entirety.   In reality, however, this is an unlikely outcome.   A large number of existing commercial agreements, particularly outsourcing arrangements, are based on the understanding that TUPE will apply to transfer staff in the event of a business change.   Removing this regime or changing it significantly would risk causing chaos and creating uncertainty for the business community and, as such, would not be a welcome measure.   Although the Agency Workers legislation is arguably less popular with employers,   entirely removing the protections for this category of workers, which have started to become embedded in the UK’s employment law landscape, would be politically difficult and would be likely to face strong resistance from the Trades Unions.   Watering down, rather than removing, agency worker rights is therefore a more likely outcome.

The UK’s legal system has become tightly enmeshed with that of the EU, and the unravelling process in the event of Brexit is likely to be long, complex and expensive. If the UK does vote to leave on 23 June, it is likely to be a long time before the full implications of Brexit become clear.