By Alessandro Galtieri, Legal director, Corporate Law and Data Protection of Colt Technology Services Group Ltd
As the world continues to reflect on the surprising news that the United Kingdom voted to leave the European Union, in-house counsel are left scratching their heads; wondering how this decision may impact their practice. Questions likely keeping in-house counsel up at night include: Will Brexit affect in-house counsels’ multinational companies and clients? How will legal services between the United Kingdom and the European Union change? And should companies start preparing now for Brexit, in the event it is in fact implemented? Below, Alessandro Galtieri delves into these concerns, attempting to answer these questions, and summarize how Brexit might affect your organisation and practice.
1. Don’t panic.
The first and most important point relates to timing: nothing will happen overnight. The process of leaving the EU will would not be simple for the UK and could take years. Article 50 of the Lisbon Treaty, which outlines the process for a member state to leave the EU, is vague and gives little guidance, and there are no precedents.
It is highly doubtful whether the UK will be able to negotiate a new deal in the two-year window given in Article 50. Some commentators suggest it could take up to 10 years to make all the necessary adjustments. The comparison has been made to the time usually scheduled taken for a merger or an acquisition, which may take much longer than planned. A more humorous analogy is that of a divorce where two parties do not have a clear idea of what they want to achieve from the uncoupling.
2. OK, panic.
Not really. But a working group or project team should be assembled quickly and all areas of the business should be represented. There is not much that is known at the moment, but scenarios can already be developed, and the group will be in place to evaluate development when they emerge. The exact composition will, of course depend, from your organisation and its interests and activities in the United Kingdom and the European Union. But at the very least the following functions should be represented: finance (and tax), legal (commercial and corporate), regulatory, human resources, and communications.
3. Consider your customers.
You should evaluate your exposure to the potential financial health and investment appetite of your counterparties. Your customer base is unlikely to be materially affected, but a number of investment decisions could be delayed or cancelled, which would impact their spend profile — and pipeline — with you.
4. Consider your organisational setup.
If you have operations in both the European Union and the United Kingdom, consider how that may be impacted. Most organisations in the European Union have a matrix model to operate the business. This presupposes, to a certain extent, the ability to transfer talent from one EU country to another, including the United Kingdom, for shorter or longer periods. It is not yet clear how much that ability would be impaired by Brexit.
5. Consider your employees’ rights.
Many employment rights in the United Kingdom come from the European Union and have been transposed directly into UK law. While there is potential for a more employer-friendly approach in the future by the next UK government — if only to try to attract foreign investment — changes to existing contracts could be difficult in areas like Transfer of Undertaking Protection of Employees (TUPE). This also could be problematic for employees, who have become accustomed to the level of protection they now enjoy.
6. Consider your finance.
The impact of Brexit on the value of collateral or security you may be required to provide could be considered. Markets have proved very volatile in the wake of the referendum and may continue to be so for some time.
You could also review you financial covenants, material adverse change clauses, credit rating triggers and other break, termination or ratchet clauses in its loan agreements, leases, banking arrangements, and other contracts.
7. Consider your contracts.
You could consider whether new contracts with counterparties should contain Brexit triggers or termination clauses, or, conversely, whether you should exclude Brexit from material adverse change or force majeure clauses. It could prove difficult to negotiate suitable clauses.
Some agreements may contain territorial definitions (e.g. to the European Union), which may have to be amended. This might include, for example, intellectual property licences, distribution and franchise agreements or insurance policies, as well as non-compete clauses. Choice of law clauses and dispute resolution mechanisms may need to be reviewed.
8. Consider your regulation.
Your organisation may be heavily dependent on sector-specific regulation. Healthcare, telecommunications, and financial services are just some examples. The impact on your activities will depend whiter your operating model is based on local operations having local licenses/authorisations to operate in each country, or whether one company trades across the United Kingdom and the European Union.
9. Consider your relationship with the European Union.
Consider whether any company of your group may be benefiting from EU grants or other EU funding or aid, such as in the form of support to research activities, regional support to less developed areas that in turn means reduced local taxes to one of your offices etc. Also consider whether you do any business with EU or UK public tender and how that would be affected.
10. Consider your Data Protection setup.
Whilst there may be changes to the Data Protection regime in the United Kingdom, if the European Union is an important market for your organisation, the EU's data protection requirements — including the newly approved EU General Data Protection Regulation (GDPR) — will continue relevant for you and you should plan for compliance with them in any event.
Continue the discussion with fellow in-house counsel and register for the ACC Webcast “The Roads to Brexit and What In-house Counsel Should Do Before Getting There” on July 19.