The UK voted for Brexit in June 2016, but nothing concrete has happened. There are constitutional issues to be resolved, for example, whether Parliament needs to be consulted. And there are employer uncertainties. A September 2016 survey by Willis Towers Watson reports that 50% of employers see Brexit as a threat and only 15% as an opportunity. HR believes that 66% of UK businesses will be significantly affected. It is reported that 55% of business elsewhere in Europe will be affected.
In this article, Taylor Wessing lawyers from around the EU analyse which issues are important and try to identify how HR may handle the various activities which may be needed. We start with “flash point” issues and what can be done to give reassurance to colleagues.
A consequence of the UK’s vote is that there will be increased enforcement of existing legislation, and continuing domestic political activity whatever occurs with Brexit. We discuss the increased regulatory and compliance obligations which will fall on HR, as well as customer relevant factors.
How big is the problem?
Others can assess trade impact, but we need to focus on people. The most obvious and immediate impact of the UK’s vote has been on EU citizens who are currently living and working in the UK. The data varies, but ranges from between 2.2 million to over 3 million workers, which would make up c. 7%-9% of the workforce. The UK operates a points-based system for non-EU overseas workers to obtain visas. The more points you have (by criteria such as language, salary and skills) the more you are to be able to live and work in the UK. The University of Oxford’s Migration Observatory has reported that some 75% of EU citizens would not satisfy visa requirements. Some 94% of workers in retail and hospitality trades would be negatively affected. Even some 66% of banking and financial sector staff could fail to meet the criteria.
HR as UN
Poles make up the largest number of EU nationals in the UK, some 800,000. There have been a number of reports of violence towards them including serious physical attacks in towns only 30 miles from London, a “world city”. Some employers could face immediate workplace issues, such as flare up of personal disputes which take the form of racist or divisive comments.
They are likely to be liable for the discriminatory acts of colleagues around the workplace, whether in working time or outside it. Businesses generally need to be careful to ensure they are hearing what is happening among the workforce, and able to reduce flash points.
Values and brand – can you terminate for views?
Can a business with an EU customer base and a diverse workforce fairly terminate a Brexit voter’s employment? The issue can differ depending on the identity of the employer but as a general guide, in 2013 a case said it was unfair for a bus driver to be dismissed as a supporter of a (far right) political party (Redfearn v UK).
Employees could have additional protection if dismissal is considered to be on the grounds of religion or philosophical belief. In genuinely held, it could be that a material and considered belief (whether for or against) EU participation, free movement, etc. may benefit from additional protection. So care needs to be taken.
But it is still possible to enforce the peace. There is a difference between the views a person holds, and the manner and time of their expression. If a philosophical belief finds its expression in ways which are themselves unlawful – for example in a racially discriminatory way, it is likely the employer can justify dismissal.
The dangers of overreacting
Some may be tempted to reduce workforce diversity. Employers must remember that for as long as the UK is bound by EU laws, they have the obligation to treat applicants and colleagues from the EU on an equal basis with UK workers. There is a strong crackdown on unlawful employment in the UK. Employers need to ensure that their recruitment and screening staff are trained in their rights and obligations, and that includes the fair conduct of “right to work” checks.
Professional services firms and manufacturers may consider themselves to be most affected by the vote. At Taylor Wessing, within a week of the vote we had established a team and method to help reassure and inform employees about their position. A regular Brexit briefing was established, gathering practical and theoretical developments. This method can be used not just to fight fires but to establish a flexible medium term mindset.
Auditing your current workforce, assuring employee loyalty
We found that nearly a fifth of the Taylor Wessing workforce in London was from the EU or outside. Where businesses have maintained accurate right to work checks, it is easy to establish contact with EU nationals. They may never have had to consider their immigration rights in contract to the non-EU migrants.
One reason that EU migrants will not have been familiar with existing immigration laws is that they have had to do nothing to enforce their right to live and work in the UK; no need to obtain a residence permit, register with a police station, etc.
The UK does have a Permanent Resident card, which can be used to demonstrate status, but only some 27,000 of these were issued in 2015. Employers may wish to make their workers aware of their right to obtain Permanent Residence once they have achieved five years in the UK exercising their rights. If they have this, they should not be affected by any future departure of the UK from the EU. Family members can also apply. The fee is £65 per person.
Until now, the method of processing has been postal, which takes around six months, but a new online service was introduced on 1 October. In addition to the online service, some boroughs are also offering a new passport check and return service
Obtaining Permanent Residence entails no further obligation in terms of taxation, etc, and no requirement to progress to British citizenship. But it is a stepping stone and can provide reassurance, especially while it is uncertain how and when the UK and EU will bring down the “guillotine” on rights to be and remain in the UK. Moreover, it is a good idea to ensure that data about non-EU visa holders is updated.
Years ago, the then Prime Minister promised to reduce net migration into tens of thousands. Whatever happens with Brexit, UK governments are likely to focus on inbound migration, even if it risks skills shortages. Businesses operating in the UK need to keep aware of frequent changes in rules which do not require parliamentary votes.
UK immigration policy and increased enforcement
A major example of new legislation is the Immigration Act 2016. More details on its contents can be found here. Sanctions include potential imprisonment for individuals personally involved in illegal employment, and the power to close premises if officials are reasonably satisfied that illegal working offences are committed: meaning high profile raids on hotels, restaurants or upmarket retail stores.
Penalties for illegal working include a fine of £15,000 per worker, which can be increased. And details of employers who have been subject to civil penalties are published by the UK Home Office, the enforcement agency responsible.
HR as brand guardians
Years ago, the then Prime Minister promised to reduce net migration into tens of thousands. Whatever happens with Brexit, UK governments are likely to focus on inbound migration, even if it risks skills shortages.
The authorities are aware of the potential to influence commercial behaviour, not just through strict legal sanctions, but through interventions which are designed to attract publicity and affect public opinion. A high profile example of brand issues relates to a “sting”, as it was reported, on staff thought to be illegally working for the restaurant chain, Byron.
Many are watching closely the affairs of businesses like Sports Direct: they are increasingly aware of adverse press, consumer and investor reaction to perceived breaches of governance.
There is a balance to be struck, and HR professionals have experience of handling the nuances of social media and morale.
HR teams will focus on the compliance aspects of managing an international workforce especially in hospitality, retail, engineering and construction. Financial services will be assessing flight risk, and investing time in other options to secure their migrant workers e.g. investigating ancestry or routes to EU citizenship (for example Irish).
How HR might be ready – what to consider
|Benefits||Pension funding may be affected. Consider acceptable schemes.|
|Contracting and customer terms||Ability to pass on costs if business is a service provider, break clauses, choice of law.|
|Data privacy||How employee data is managed and stored: what is legal outside the EU?|
|Employment contracts||Update to match legal developments.|
|Engagement||Communications and legal impact of how colleagues are treated.|
|Equity rights||Can share plans be delivered? EU legislation may not allow it.|
|Legal developments||Liaise with legal team to ensure right law is chosen. Review comparable worker protections. Is there advantage in higher or lower protection countries?|
|Mobility||Impact on postings and short-term travel. Timeframes will likely increase.|
|Pay||Impact on retention. Cost of wages/impact on customer pricing?|
|Recruiting||Could there be a skill drought? Review plans for hiring those with specialist skills. Conversely, assess need for UK nationals to be in UK or elsewhere.|
|Skills and training||Review cultural awareness, technical capability and manager skills.|
HR teams will need to be aware of international developments around Brexit in prioritising their plans. The UK has laws on modern slavery and gender pay reporting which need work in the next 12 months.
To get access to data on recruitment, the professional staffing association, APSCo publishes surveys. At the end of August 2016, it reported increases in UK financial services recruitment but decreases in engineering. Businesses may use more agency or temporary solutions while the uncertainties of Brexit exist. But international rules on the use of temporary/agency work differ. In Austria any professional commercial activity requires an appropriate trade licence and there are strict regulations with regards to temporary agency work. Entrepreneurs with a seat within the EU (and an appropriate trade licence in their country of origin) can conduct commercial activities in Austria on a temporary and occasional basis like Austrian entrepreneurs. However, this preferential treatment does not apply to third country entrepreneurs (with a seat outside the EU). As a result of Brexit (and based on the assumption that no bilateral agreements or respective agreements between the EU and the UK are concluded), UK entrepreneurs will be third country entrepreneurs and therefore will not enjoy this preferential treatment – a regular Austrian trade licence would have to be obtained if business activities in Austria are envisaged.
For employment contracts, are there included:
- right to work checks: can the business insist employees produce documentation showing they can work?
- post-termination restrictions: especially if an employee may need to relocate, are existing restrictions valid and enforceable in the country where they will be working?
Anything could happen, but big reform to UK laws is unlikely. The Prime Minister, Theresa May, has said that existing workers rights will be guaranteed as long as she is in charge.
“… all businesses in the UK must comply with EU regulation, even if they export nothing to the EU. This impacts on our global competitiveness. Instead, we should look to match regulation for companies to their primary export markets.
To be clear, I am not talking here about employment regulation. All the empirical studies show that it is not employment regulation that stultifies economic growth, but all the other market related regulations, many of them wholly unnecessary. Britain has a relatively flexible workforce, and so long as the employment law environment stays reasonably stable it should not be a problem …
The great British industrial working classes voted overwhelming for Brexit, I am not at all attracted by the idea of rewarding them by cutting their rights. This is in any event unnecessary, and we can significantly improve our growth rate by stopping the flood of unnecessary market and product regulation.”
However, it is possible that in due course the UK could take advantage of “offshore” status and amend some laws e.g. on temporary workers, agency workers, and working time. A test of attitudes will be the approach towards the Business Transfers Directive and the UK’s domestic TUPE provisions. See here.
The ability to locate and employ workers is fundamental to investment decisions. For those involved with start ups, new technology investments and so on, HR should have an important influence on where to place the bets. Factors include “hard” rules such as freedom of movement, cost of legislation and tax. And they include insight into the cultural suitability of a new location – comparative relocation expertise may be in demand. For example in the Netherlands, UK citizens will be third country nationals after Brexit. Compared to many EU countries, the Dutch immigration system contains more incentives that stimulate immigration of foreign employees and foreign investments in to the Netherlands. Although specific permits need to be obtained by third country nationals in order to work in the Netherlands, these permits can be obtained relatively easy in the Netherlands. In the long run, the Netherlands might turn out to be an attractive working country for UK citizens and other third country nationals located in the UK. But relocation experts showed uniform competitive development.
Seconded or mobile employees: Brexit consequences are important for employees moving between EU countries and the UK. The situation for seconded employees will have to be reviewed in order to determine the applicable law and social security system, as the EU regulations may no longer apply.
New contractual documents will also have to be introduced. Moreover, the rights relating to unemployment, health and retirement of employees moving in or from the UK will have to be checked, as the rules on social security coordination within the EU may no longer apply (including the principle of equal treatment, the payment of contributions in only one country and credit for insurance periods in other EU countries). HR departments of international groups have to follow these developments in order to handle the social protection of their expatriates.
European and domestic works councils: Employee representation in Germany, France and elsewhere will be challenged. Business groups will have to anticipate the exit of UK employee representatives of the European Works Council, and even the possible disappearance of the European Works Council where the mother company is British. Procedures in case of collective economic redundancy will be affected, as some measures depend on the number of employees in the Group.
If restructuring, consider when to trigger collective consultation. Be sensitive to evidence that may be used in litigation, where workers claim that co-determination rights are infringed.
Educate managers who might make decisions about the impact on EU legal obligations. And, mentioning works councils, it may be necessary to amend the composition of the EWC or relocate it. Awareness of EU legal systems is key.
Data protection: some relocations may be triggered by terms with customers, e.g. where it is agreed data is processed “within the EU”. As Britain exits, business will need to consider whether it is able to honour duties to counterparties with obligations to employees.
HR sans frontières
As new UK rules develop, HR will need to keep on top of more variety, as well as more strict levels of enforcement. Regulation is to become more joined up, for example between tax and migration databases. With technological change, there will be great ability – and political need – for governments to ensure that minimum labour standards are observed.
HR needs to ensure it can gather, understand and adapt these needs. It can exploit this to show its use in the wider business. The skills from dealing with employees can be scaled up, and used to bring insight to customer and commercial relationships, if HR works with other specialisms. Ironically, Brexit may help bring people in business together.
This is an adapted and extended article from a version which first appeared in the September 2016 edition of Germany’s Labor Law magazine.