Few areas of UK law can boast a level of European influence as substantial as employment law. Legislation emanating from the European Union has arguably become the leading source of UK employee protection legislation over the last fifteen to twenty years.
Discrimination and family leave rights, working time regulation, protection for atypical workers, health and safety in the workplace and the rights of employees on the transfer of a business are just a handful of employment laws which are shaped in some way by the laws of the EU.
Whilst EU legislation has by no means been the only driver behind the development of employment laws over recent times, politicians who campaigned for the UK's exit from the EU cited EU-derived laws as intrusive to UK workplace relations and unnecessary red tape for British business. Irrespective of whether this view is justified or not, there is likely to be an impact on employment law on the UK's exit from the EU.
How much change is likely in reality once the UK withdraws from the EU?
It is highly unlikely that any UK government (of any political persuasion) would seek to fully repeal (or even substantially repeal) existing employment laws which implement EU minimum requirements. This is for some or all of the following reasons:
- Much of the employment protection which flows from Europe reflects accepted standards of good employee relations practices. In this respect, they can almost be considered fundamental rights rather than administrative rules which employers have to comply with. The right for employers not to discriminate against staff on the grounds of a protected characteristic (e.g. race, gender and age) is an obvious example of this. To underline this point, one only has to look at non-European countries that embody similar protections to understand that such rights are considered so fundamental to developed societies that the UK government will not, in reality, have a choice about whether to keep existing laws in largely their current form. By way of interesting illustration, the US whose labour laws could, on the whole, be viewed as offering a low level of protection for employees, has had some form of unlawful age discrimination since well before unlawful age discrimination became part of UK law in 2006.
- Some fundamental employment laws of the EU merely supplement rights which were already embodied in UK law before the EU chose to legislate in that particular area. UK equal pay rights and disability discrimination are two such examples. Given this, it is difficult to see why and how any UK government would legislate to substantially alter the current framework on our exit from the EU. As a related point, modern UK employment law is technical and detailed and is already a compliance challenge for employers. In the absence of compelling political pressure, it is doubtful that the UK government would want to increase the burden on employers and create more confusion in the short term by making significant changes to the basic structure of the current legislative framework.
- In some areas, UK employment law goes further than that required by EU legislation. For example, UK statutory minimum holiday entitlement currently sits at 28 days (inclusive of public holidays) per year for a full time employee whilst the EU Working Time Directive 2003/88/EC requires Member States to implement domestic legislation providing for a minimum of only 20 days annual leave. In a similar way, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) goes further than its EU originating legislation, the Acquired Rights Directive 2001/23/EC, by bringing service provision changes expressly within the ambit of the Regulations.
- It is still the case that some UK employment laws are purely domestic in origin. The recently introduced right to shared parental leave and shared parental pay is a good example of this. Whilst it could be argued that such legislation was a product of coalition government and, therefore, possibly ripe for repeal in the short to medium term, the UK's exit from the EU should not have any bearing on this. Of course, it is also worth stating the obvious: that the cornerstone of UK statutory employment protection – the right not to be unfairly dismissed - will be unaffected by the UK's EU status.
- Finally and perhaps most importantly, it is the case that, following our exit from the EU, the UK will still seek and need to maintain strong trading relations with Europe. As with other areas such as data protection, the UK will need to demonstrate that it has minimum employment protections in place in order to make it a viable trading partner for other European Member States. Where employment law is concerned, there is a further specific consideration to take note of in the event that the UK chooses to follow a Norwegian type model post Brexit by becoming a member the EEA. As part of the current rules of the EEA, the UK would remain subject to most of the key aspects of EU employment law in any event, those being TUPE, collective redundancies consultation, working time, and the protection afforded by Directive 2008/104/EC on temporary agency work. In this scenario, the status quo seems inevitable.
Where does all of this leave us?
As a result of all of the above, it is far more likely that the outcome of the UK's exit from the EU will be a desire on the UK government's part to remove or change some aspects of existing UK employment regulation which have proved unpopular with UK business and where the removal of such protection is unlikely to be viewed by the rest of the EU, trade unions, interest and pressure groups as well as the British public, as an erosion of the fundamental rights and freedoms of employees and workers.
Striking this very delicate balance, we have identified the following areas as particularly susceptible to reform:
TUPE only permits a transferee employer to make changes to the terms and conditions of employment of transferring staff if the changes are unconnected to the transfer, or if the proposed changes are connected to the transfer, where, among other things, the employer can point to an economic technical or organisational (ETO) reason entailing changes in the workforce. In the context of harmonising terms and conditions following a TUPE transfer, this is an exceptionally difficult test for employers to make out and acts as a fetter on the ability of employers to harmonise working conditions for a substantial length of time following a transfer. With the aim of making TUPE more business friendly, it is probable that the government would seek to make it easier to harmonise terms and conditions following a TUPE transfer as it would no longer be subject to the constraints of EU law.
Even though workers in the United Kingdom receive a more generous minimum holiday entitlement than required by EU law (see above) various decisions of the Court of Justice of the European Union (CJEU) relating to the operation of annual leave have proved both unpopular with UK business and confusing. The right for holiday to continue to accrue during periods of sick leave is one example. Another is a series of recent decisions of the CJEU which decided that holiday pay should be calculated based on all aspects of remuneration (e.g. commission and certain forms of overtime payments) not just basic pay. As well as increasing the cost of providing paid holiday to workers, the decisions have also left a number of important questions unanswered, such as how holiday pay should be calculated in practice. The UK's exit from the EU could provide the UK government with the perfect platform from which to clarify and soften this area of employment regulation for employers.
The Agency Worker Regulations 2010 provide basic protections for agency workers, the most fundamental of those protections being the right to the same basic working and employment conditions as those direct recruits of the hirer after 12 weeks on assignment. It is fair to say that the Regulations have, on the whole, proved unpopular with British businesses which have felt constrained in plugging short terms gaps in resourcing. In this respect, it is likely that this piece of legislation is the most at risk of substantial reform following exit from the EU.
Immigration has been a key battleground in the referendum debate. Free movement of workers is a central pillar of EU membership, ensuring that EU citizens and their families can live or work in any other Member State without needing immigration permission. But with the level of net migration to the UK recently reaching a record high, those who have campaigned for Brexit want to end the automatic right of EU citizens to travel and work freely in the UK.
Although the UK will now make preparations to leave the EU, the status quo is likely to remain during the complex and lengthy negotiations about the UK's future relationship with the EU. We assume that transitional rules will ensure that any EU citizens already in the UK will continue to have the unrestricted right to live and work in the UK. The same should be true of the two million or more UK citizens currently using the free movement rules to live in other European countries.
Once it is no longer in the EU, the UK could impose new controls for future EU travellers to the UK and other EU countries may do the same for UK citizens. For workers, the UK could require that EU citizens are subject to the same immigration system that already applies for non-EU citizens. This visa regime, which includes a Points Based System, ensures, for example, that Tier 2 work visas are only issued to workers performing a sufficiently skilled role in the UK at a particular minimum salary, to avoid employers undercutting the salaries of UK workers.
There will be challenges for the UK in that scenario. The first will be to ensure that the UK still has access to the talented workers that it needs to fill a substantial skills gap in the local workforce (including in low skilled work which many UK employers rely on EU workers for). Then there is the practical reality of the negotiations with other EU countries. Other countries that are not in the European Union, but that have the benefit of free trade with the EU – Norway is one example – have been expected to agree to free movement of workers as a condition of the trade advantages. Finally, while it of course remains to be seen, if the UK imposes new restrictions on the rights of EU citizens to come to the UK, it stands to reason that other EU countries may seek to impose reciprocal controls on UK nationals travelling to the EU.
A word on pensions
Pensions can represent an important element in the employment relationship and a noticeable proportion of the legislation regulating pensions comes from the EU. However, most of it has been passed into UK law so it would not cease to apply following the UK's exit from the EU. For example, even that most dramatic provision of the Treaty of Rome, that men and women should be paid equally for equal work, which gave rise to all the equalisation issues in pension schemes, is enshrined in UK law, presently under the Equality Act 2010.
On the other hand, those statutes and regulations will no longer be subject to the jurisdiction of the CJEU so, following Brexit, they would be interpreted purely in the UK context, rather than by reference to EU Treaties and Directives. In addition, Parliament will be able to repeal any of those statutes and regulations if it so chooses, but it is unlikely that some of the very significantly EU-influenced areas such as those of discrimination and scheme funding in a pensions context will noticeably change for many of the reasons mentioned above. This is particularly so in the case of scheme funding, where it is largely felt that the current scheme-specific funding measurements in the Pensions Act 2004 (which were introduced in light of the IORPs Directive 2003) have been a distinct improvement on the previous funding regime.
The UK's withdrawal from the EU would not immediately make any changes to the UK pensions regulatory environment; and some of the major challenges the UK pensions industry has been facing are unlikely to be significantly affected.
Like other areas, it is impossible to predict with any degree of certainty how the UK's employment laws may change following our exit from the EU. However, based on an analysis of the history and origin of current employment rights - and the strength of resistance to these from our experience advising and working with employers on a daily basis - it is possible to highlight those areas where a change is more probable than not.