EU law is the source of many UK employment rights. At times it has become a controversial and politicised issue, reflecting criticism from some UK employers and politicians that Brussels is too quick to legislate and pays insufficient attention to objections raised by Member States.

Given this background and depending on which political party is in power, a vote to leave the EU (‘Brexit’) could precipitate workplace change with the possibility of some EU employment laws being rolled back. However, in our view the likelihood of major employment law change in the event of a Brexit is small, at least in the short to medium term. Instead, delay and uncertainty followed by piecemeal change, which would depend on the terms of the UK’s relationship with the EU after it leaves, is more likely. Of much greater concern to many employers is the impact Brexit may have on the free movement of workers.

Given the significant uncertainty raised by the EU referendum and to assist HR with contingency planning, we have put together the following questions and answers which focus on employment law and some key concerns relating to the free movement of people.

When is the EU referendum taking place?

A referendum must take place before the end of 2017 and recent media reports suggest it be held this summer. Legislation paving the way for the referendum contemplates a minimum ten week campaigning period before the date of the referendum – leaving little time for employers who have not as yet undertaken contingency planning.

What employment law changes are being sought in the renegotiation?

No specific employment law proposals have been published during the renegotiations although Mr Cameron has previously suggested that reform of the Working Time Directive is an objective. The stated aim is to finalise the renegotiations in February 2016 and details might emerge at that time.

How long would the UK’s exit take after any vote to leave in the referendum?

Two years is the likely minimum period before the UK would actually leave the EU and the complex issues involved suggest that a longer period may be necessary. The EU treaty sets out a mechanism for a Member State to withdraw from the EU - under this, the UK would give notice to leave followed by a period of negotiation to agree the terms of the withdrawal. Exit would occur at the earliest on signing the withdrawal agreement or two years after notice is given. The UK government will determine when the notice is served, thus starting the two year period (which can be extended by agreement).

What type of relationship might the UK have with the EU if it left?

The bottom line is that no-one knows, resulting in significant uncertainty. Given that there is no comparable precedent to provide guidance, most commentators agree that a bespoke arrangement would be negotiated to provide for the terms of the UK’s continuing relationship with the EU upon leaving. As a minimum, this might include a free trade agreement providing for the free movement of goods between the UK and the EU, but all would depend on what the EU would require in return as part of the negotiation. The media has presented the Swiss and Norwegian EU arrangements as possible model examples for a future UK/EU relationship. However, neither are attractive – the UK Government has indicated that the Norwegian model is not favoured, and the EU seems unlikely to offer the Swiss model given its complex and cumbersome nature. At worst, if no agreement was reached with the EU, the UK might need to seek individual trading agreements with each Member State.

How would a vote to leave change UK employment law?

Changes to employment law policy

A vote to leave the EU would be unlikely to precipitate immediate and major employment law policy change in the UK and many EU laws would be retained. This is because:

  • the withdrawal negotiation would take many months, and more likely years, with the status quo broadly expected to continue during that period;
  • depending on the UK’s relationship with the EU as agreed following a Brexit vote, the government may be required to retain EU employment law as part of any new deal. Alternatively the UK may come under retaliatory EU trade pressure to maintain employment rights if we were seen to be unfairly undercutting them for a competitive advantage;
  • many UK laws which originate from the EU have become workplace norms, such that it would be politically unattractive for a government to initiate a wholesale removal.  An example would be in relation to part-time and fixed term workers’ rights, some equality laws and business transfers (or TUPE). However, some adjustments might be sought, for example, the CBI has previously argued for a cap on discrimination compensation (this would depend on the political orientation of the party in power at the time); and
  • some UK employment law exceeds minimum EU requirements (for example, family leave rights), or falls outside EU competence (such as unfair dismissal rights). Employment rights stemming from British, not EU, action are unlikely to change just because of a Brexit.

Changes to UK employment case law

Legal uncertainty would prevail over how those EU rights retained after a UK exit from the EU would be interpreted by domestic courts in the absence any requirement to follow the rulings of the Court of Justice of the European Union. Were there to be any material divergence in the interpretation of EU based laws by UK national courts and tribunals from the interpretation of similar laws in EU jurisdictions, this might cause difficulties, particularly for pan-European employers.

How would the free movement of people change if the UK left the EU?

Of great significance to many employers is the current right of EU citizens to freely live and work across the EU, thereby supporting employee mobility, labour supply and flexible recruitment practices. In theory, if the UK were to leave the EU then citizens of other Member States would no longer enjoy an automatic right to travel to and work in the UK (and by the same token UK citizens would no longer enjoy EU citizenship rights of freedom of movement in the EU). In reality, it would form part of the negotiations for a new relationship with the EU, following a vote to leave, with the EU expected to demand some form of free movement of people in return for the UK enjoying free movement of goods.

A UK government will also be aware of the potential adverse impact on trade competitiveness and the availability of labour caused by severely restricting the free movement of people between the UK and the EU. However, it is possible that UK/EU negotiations might fail following a Brexit vote and the free movement of people might end, possibly to be replaced by the points-based type system currently applied to non-EU nationals but simplified for EU citizens and/or a patchwork of separate border controls agreed with different countries.  Whatever the UK were to do, EU countries would, in the absence of an agreement to allow free movement, be free to impose their own restrictions on UK citizens.

Would EU nationals already working in the UK have to return home following a Brexit?

Transitional arrangements would no doubt form part of any negotiation and some EU nationals may have acquired rights under UK legislation but it would seem likely that EU nationals already working in the UK would be permitted to stay in return for similar arrangements for UK citizens working in other EU countries.

Conclusion

Despite the difficulty of forecasting the impact of Brexit, some themes do emerge. On the one hand, the complexity and lack of precedent bring significant legal, financial, commercial uncertainties. On the other, a vote to leave would not result in overnight change. Instead, a negotiation of the UK’s relationship outside the EU would commence, possibly lasting years. During that negotiation, the more the UK pushed for continuing access to the EU’s Single Market, the more the EU would require, in return, for the UK to abide by EU regulation, the free movement of people and so on.

Meanwhile, it is clear that some sectors, such as financial services, and some regions, such as those in receipt of EU funds, would be differently affected by a vote to leave. While a small number of UK focused employers may chose to ignore the referendum, those employers reliant on EU labour, funding and the Single Market, or operating from locations across Europe, are ill-advised to do so.