On June 23, 2016, the UK voted in favour of leaving the EU in a Referendum concerning the continuity of the country as a member state of the EU. As a result, the EU must now face the challenge of setting up the new framework for the relations between the EU and the UK.

Although the uncertainty at this stage concerning the duration of the Brexit process and its legal consequences is significant, it is foreseeable that the effects will vary depending on the relationship model the EU and the UK decide on.

Some possible scenarios of relationship models are the following:

  • First Scenario (Norwegian model): The UK leaves the EU and enters the European Economic Area (EEA). This scenario would ensure the closest link between the UK and the EU, as the regulations concerning the European Single market and most of the legislation of the EU would still apply regarding free movement of goods, services, people and capital.
  • Second Scenario (Swiss model): The EU and the UK may decide to sign bilateral agreements to regulate specific areas. Consequently, the UK will only be bound by EU law concerning specific issues rather than by all the EU regulations involved in the European Single Market.
  • Third Scenario (Turkish model): The UK will be a member of the EU Customs Union, but without any other formal link.
  • Fourth Scenario (South Korean and Canadian model): The UK will negotiate a wide agreement of free trade with the EU.
  • Fifth Scenario (World Trade Organization –WTO- model): The UK is treated as a third party. Under these circumstances, the relations between the UK and the EU would be based on existing international commercial regulations such as those of the WTO. This position would entitle the UK to a high degree of political sovereignty, but with the risk of losing most of the benefits of being part of the EU.

Having mentioned various relations that could exist between the UK and the EU in the future, we will now analyse the main implications concerning employment and social security issues that may change as a consequence of Brexit, focusing on the impact for both Spanish citizens in the UK and UK citizens in Spain.

  •  Will the free movement of labour and services between Spain and the UK continue to exist?

Currently, free movement of labour allows Member State nationals to accept offers of employment, move freely, and remain within the territory of Member States for this purpose. In addition, free movement of services prohibits the imposition of restrictions on freedom to provide services within the Union for Member State nationals who are established in another Member State other than that of the person for whom the services are intended. Thus, for example, under the First Scenario (Norwegian model), and to a certain extent the Second Scenario (Swiss model), the free movement of labour and services is unlikely to change significantly. However, except otherwise agreed, the UK’s exit may result in restrictions on free movement of labour and services, especially under the Fifth Scenario (WTO model). Particularly in this scenario, employees from EU Member States may have to apply for work and residence permits in the UK in the future. This is an important issue to consider when temporarily transferring UK employees to Spain and Spanish employees to the UK. This is especially so when considering that the UK is one of the main destinations for Spanish people living and working abroad.

  • Will there be any impact on Social Security contributions and benefits?

To date, Regulations 883/2004 and 987/2009 of the European Parliament and of the European Council on the coordination of Social Security systems guarantee, among others, that:

  1. persons to whom these Regulations apply will enjoy the same benefits and be subject to the same obligations under the legislation of any Member State as the nationals of that State, allowing for, among others, the possibility of aggregation of contribution periods in other Member States for the entitlement to Social Security benefits; and
  2. the possibility of the temporary maintenance of Social Security legislation of the state of origin in the framework of a temporary transfer of employees to another Member State.

In light of Brexit, these regulations will cease to apply (except if agreed otherwise) and the entitlement to Social Security benefits referred may vary in relation to UK nationals who are rendering services in Spain, and Spanish nationals in the UK. Please note that it is expected that the UK and Spain will almost certainly agree on a bilateral Social Security agreement, as agreements on this matter have been subscribed by Spain with countries with whom Spain also has a close relationship, such as the USA and Morocco. However, in the event that there is no bilateral agreement between the UK and Spain, due to Spanish Ministerial Order of January 27, 1982, there may be a risk of a double contribution in the framework of the Spanish employees’ temporary transferred to the UK, because they will have to contribute in Spain and, if required, in the UK.

  • How may minimum working conditions regulations be affected?

Many of the EU labour law regulations may cease to apply in the UK. Some of the most significant could be the following: i) Directive 96/71/CE, which foresees the minimum working conditions applicable to employees who are temporarily transferred to other Member States; ii) the Working Time Directive (2003/88/EC), which sets out rules on certain aspects of the organization of working time; and iii) the Temporary Agency Work Directive (2008/104/EC) which defines a general framework applicable to the working conditions of temporary workers in the European Union.

To conclude, although the effects of Brexit may be reduced significantly with an adequate transitory regime, while the definite effects of Brexit on employment relationships are still unclear, we would recommend analysing the labour implications of transfers of workforce to or from the UK, focusing on their immigration status, social security issues, applicable law and jurisdiction.