SUMMARY: On 23 June 2016, the UK voted to leave the European Union.

Given the activism of the EU in the area of employment law over the last 30 years, Brexit will have a potentially significant impact on the legal framework that surrounds the relationship between an employer and its workforce.

European employment legislation is widely perceived to increase the regulatory burdens on business. Legislation such as the Working Time Directive and the Agency Workers Directive has been criticised as undermining the flexibility of the UK's labour market and increasing the costs to business of hiring staff. In a number of areas there will almost certainly be pressure to repeal UK implementing legislation or amend it substantially if we get to the point of exit.

However, the extent to which this is in fact possible will depend on the form that Brexit takes. If the UK remains within the EEA, there will be very little, if any, scope for amending the existing employment law framework.

INTRODUCTION

Employment legislation is an area in which the EU has been particularly active over the last 30 years, giving rise to complaints from business that these laws impose unnecessary regulatory burdens and undermine the flexibility of the UK labour market. Business organisations have argued strongly that legislation should be enacted at national rather than European level as a general rule in the areas of social and employment policy.

However, changes to employment law following the referendum are unlikely in the short term. The extent of future changes will depend on the form that the UK's post-Brexit relationship with the EU takes. In the meantime, the key concern for most employers will be freedom of movement and the impact of Brexit on EU nationals working in the UK and British nationals working in the EU.

WHAT SHOULD EMPLOYERS BE DOING NOW?

Although employers are unlikely to be taking fundamental business decisions until the likely form of exit becomes clearer, there are steps that they can take in the coming months to prepare for Brexit.

In the short term the focus for many employers, particularly those with significant numbers of staff (either here or in the EU) who may be affected by changes to the freedom of movement principle, will be to communicate with and reassure staff that there are no immediate changes to their status. On-going communication will be needed as the situation becomes clearer and employers may want to give guidance to staff on steps they can take to protect their position, for example by applying for permanent residence if they are eligible to do so.

Managers will also need to be alive to the need not to discriminate against employees or potential employees in recruitment or promotion decisions for example because of the potential for future changes to the right to live and work in the UK. The next stage will be a due diligence process to identify the likely implications of Brexit for the business. Human resource implications will obviously form one part of that assessment. Relevant issues include:

  • What would the impact of restrictions on free movement of labour be?
  • Are your key staff likely to be affected by possible immigration changes?
  • Which key staff are likely to require individual assistance in response to any changes? How can/ will that be provided?
  • Are any of your suppliers likely to be significantly impacted by restrictions on free movement of labour post-Brexit?

Once the due diligence exercise has taken place, forward planning to address the issues revealed may include structural changes to the way in which the business is operated or the relocation of some staff or roles to other jurisdictions. It will be important for employers to remember that such planning could give rise to formal information and consultation obligations, potentially at both local and European level.

WHAT CHANGES MIGHT WE SEE IN THE LONGER TERM?

Complaints about the regulatory burden imposed by the Working Time Directive and the Agency Workers Directive are common. Businesses dislike the recordkeeping obligations imposed by both pieces of legislation and are concerned about periodic attempts to remove the working time "opt-out" from the Working Time Directive. Recent research by BIS suggested that removal of the opt-out would be harmful both to businesses and to workers that currently choose to opt-out from the 48 hour maximum average working week. It is likely that there will be strong pressure from businesses to repeal the Working Time Regulations (at least in part) and the Agency Workers Regulations were the UK no longer to be bound by the underlying European Directives.

Additional areas of concern

Other areas where the extent of the protection available to workers could be reduced include:

  • Protection for workers in the event of business transfers. At the moment employers have to take on existing staff of the transferor on their existing terms and conditions following a business transfer. Even if the "automatic transfer" principle were to be retained, which businesses may prefer in the interests of certainty, it is likely that it will become easier to change terms and conditions of employment after a transfer. TUPE was reformed in 2006 and again in 2014 and it was recognised on both occasions that it would be helpful to allow more flexibility around post-transfer harmonisation of terms and conditions, but that this was very difficult to achieve in light of existing ECJ case law.
  • The obligation to inform and consult in a collective redundancy situation could be relaxed or repealed. In particular, the current requirement to inform and consult in the context of changes to terms and conditions of employment could be excluded from the consultation obligation.
  • Protection against discrimination on a number of different grounds is a cornerstone of EU law. However, in some cases national legislation prohibiting discrimination was in force before the UK was required to implement such legislation as a result of EU Directives. Given changes in social attitudes, it seems unlikely to be politically attractive to carry out a significant roll-back of anti-discrimination law see, for example the controversy surrounding Nigel Farage's suggestion last year that race discrimination legislation could be repealed. In the area of goods and services discrimination, the Equality Act already goes further than required by European law. This suggests that it is very unlikely that the Equality Act 2010 will be repealed on a wholesale basis, although it is certainly possible that a cap on compensation for discrimination could be introduced.
  • Family-friendly rights such as the protections enjoyed by new and expectant mothers are often criticised as examples of business-unfriendly European legislation. In practice however the current rights to maternity, paternity and parental leave and pay go significantly beyond what is required as a matter of EU law. Again it seems unlikely that a post-exit government would be keen to scale back such rights in any meaningful way or that large employers would abandon their existing family friendly policies in any event, given their significance as a recruitment and retention tool.
  • "Atypical" workers such as part-time workers and fixed-term employees are entitled not to be treated less favourably than comparable full time or permanent staff. Although this is a requirement of EU law, in practice the rules (which have now been in force for nearly 15 years) have not given rise to significant practical difficulties for most employers, so it remains to be seen whether removing these rights would be a significant political priority.

RETURNING CONTROL OF EMPLOYMENT LAW TO THE UK

Overall, returning control of employment law to the UK is seen as one of the advantages to business of an exit. As such it does not present particular challenges for most employers.

However, a key point for employers is that if a "halfway house" approach to any exit is adopted, with the UK opting to join the EEA for example, employment policy will in fact have to remain unchanged. If the UK joins the EEA it will be obliged to continue to comply with EU social and employment laws, in circumstances where the UK has lost its right to negotiate and influence the development of such laws. This could for example result in a situation in which the UK continues to be bound by the Working Time Directive, and the EU decides to remove the working time optout. In this situation the UK would remain bound by the employment laws that it finds particularly burdensome, without having the ability to influence the outcome of the European legislative process.

The area of immigration is going to be a key concern for multi-national employers, with workforces spread across Europe. Freedom of movement will continue to apply until the UK leaves the EU, so there are no immediate changes to the status of EU nationals working in the UK, or indeed to British nationals working in the EU. In the longer term, the impact of the vote for Brexit will depend on whether workers continue to have the right to work freely across the EU and if not on what immigration rules will apply in future.

It is far from clear at this stage whether the freedom of movement principle will apply following an exit; this will be a key point in the negotiations that will shape the UK's future relationship with the EU.