The impact of Brexit on UK employment law - Summer 2016

Summer 2016 The impact of Brexit on UK employment law CMS_LawTax_CMYK_28-100.eps 3 Keep calm and carry on There may be trouble ahead… The UK will leave the EU either on the date of entry into force of an agreement setting out the exit terms or on the date two years after Article 50 is triggered. Until then the UK will remain subject to EU law and the UK will continue to participate in EU business. This will include the implementation of EU law and being bound by decisions of the European Court of Justice (“ECJ”). However, it will not participate in internal EU discussions or decisions on its own withdrawal. However, it’s important to note that many UK employment laws are purely domestic and will not be affected by the UK leaving the EU, regardless of the arrangements that are put in place for the future. What happens with UK laws will at least in part depend on the nature of any trade agreement that is struck with the EU and the extent to which the UK will be obliged to retain existing EU derived laws as part of that agreement. UK employment laws derived from the EU have been implemented into UK law either by primary legislation (namely an Act of Parliament) or secondary legislation (in the form of regulations). It seems unlikely that Parliament would undertake a wholesale repeal of the many EU derived laws relating to workers’ rights which are embedded in UK law. It is more likely that the status quo will be maintained but changes will be made on a piecemeal basis in the future. No changes Some UK employment laws that will not change regardless on the basis these are entirely domestic provisions include: — Unfair dismissal rights — Gender Pay Gap reporting requirements — Apprenticeship levy to be introduced via the Finance Bill 2016 — National Minimum Wage and National Living Wage — Modern Slavery Act 2015 At the time of publication, when Article 50 will be invoked remains uncertain although the Prime Minister Theresa May has indicated that it will not be before 2017 and until a UK-wide approach is decided. Alternatively the UK Government could unilaterally withdraw from the EU by repealing the European Communities Act 1972 (“ECA”) (which provides for the supremacy of EU law) without first invoking Article 50, but such a step would seem unlikely and would stand to prejudice the UK’s chances of getting a good deal with the EU. Possible changes Other laws are either derived from or have been influenced by EU law. These include: — Equality Act 2010 — Employment Rights Act 1996 — Equal Pay Act 1970 — Data Protection Act 1998 As primary legislation these Acts would not automatically be repealed when the UK leaves the EU but the Government could take the decision to modify them at some point in the future. For example, the Equality Act 2010 could be amended to introduce a cap on compensation for discrimination claims, as contemplated by the Government-commissioned Beecroft report in 2011. In addition, anticipated reforms to UK employment law such as the extension of shared parental leave to grandparents may be delayed as a result of the pressure on Civil Service resources as a result of the UK leaving the EU. The British public voted in the referendum to leave the EU. The UK’s departure needs to be initiated by the UK Government invoking Article 50 of the Lisbon Treaty 2007 which will start the formal negotiations for the terms of the UK’s exit. With the exit process complete, the UK Parliament will need to repeal or modify the ECA, which is the legislation that originally brought the UK into the EEC and which gives primacy to EU law. At the same time the UK Parliament will need to determine which of the UK enactments which derive from EU law will be retained. This may require the UK Parliament to review approximately 80,000 pages of EU derived laws. 2 | The impact of Brexit on UK employment law Likely to change The UK laws which are most likely to change are those which derive directly from EU law and have not been implemented as primary legislation in the UK but by Regulations. These include: — Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’) – In particular, the restrictions on harmonising terms and conditions of employment post-TUPE transfer may be modified or repealed. — Working Time Regulations 1998 – The following provisions may be modified: 48 hour working week (although the UK negotiated a mechanism for employees to opt out of this limit), the calculation of holiday pay – which is currently the subject of considerable uncertainty among employers – and the requirement to pay holiday pay where it is accrued over a period of sickness absence. — Agency Workers Regulations 2010 – They are complex and generally unpopular with businesses and may well be repealed altogether. They were introduced by the then Labour government and the Conservatives objected to the wide scope of the regulations when they came into force. European Works Councils The European Works Council Directive requires a Community-scale undertaking or group of undertakings whose workforce in the European Economic Area (“EEA”) exceeds certain thresholds to establish an EWC or a procedure for the purposes of informing and consulting employees about transnational issues. The Transnational Information and Consultation of Employees (TICE) Regulations in the UK govern the application of the EWC Directive in the UK. Employers with an EWC should check whether the employee threshold would still be met if UK workers were not included in the total number of employees. An EWC set up under the UK’s TICE Regulations may need to move to another EEA jurisdiction after the UK leaves the EU. In addition, employers with an EWC should check the terms of the EWC agreement to assess the impact and in particular establish whether any duty to inform and consult employees has been triggered by the outcome of the referendum. This legislation could immediately fall away if the ECA is repealed. However, it seems likely that Parliament (at least for the immediate future after the UK leaves the EU) would keep these laws in place, but in the longer term would modify them, perhaps prioritising those which have always been unpopular with the Government. ECJ decisions Once the UK leaves the EU, our courts will no longer be bound to follow future decisions of the ECJ. However, once again the accuracy of this statement turns on future arrangements – Norway is bound by ECJ decisions in many areas including employment. The extent to which UK courts would wish to vary case law rather than retain the legal certainty of existing decisions is unknown and UK courts may in any event decide to continue to have regard to future decisions of the ECJ as persuasive. It is also possible that, as the date of exiting the EU approaches, UK courts may become more flexible in their approach to ECJ case law where they are not bound to follow it. Governing law The English and Scottish courts currently apply the Rome I Regulations to determine the law governing a contract (in respect of contracts concluded after 17 December 2009). Rome I gives effect to the parties’ choice of law (subject to certain exceptions) where expressly stated, or provides rules to ascertain the governing law where this has not been agreed. In the absence of agreement, the law that will ordinarily apply will be the law of the country in which the damage has occurred, although special rules apply to employment contracts. It is possible that when the UK leaves the EU it may decide to continue to apply the Rome I rules, in which case very little (if anything) would change. It is worth noting that the courts of EU Member States will continue to apply Rome I, even if the parties to the dispute, or the governing law, are not EU members. The UK could also decide to revert to the rules that were in place before Rome I came into effect. This will be the Contracts (Applicable Law) Act 1990, which respects parties’ choice of law. 4 | The impact of Brexit on UK employment law 5 7 What’s the position for immigration? Free movement allows citizens of EU countries, and certain other European countries to move freely to other European countries, whether on a short-term or a permanent basis. Until the UK leaves the EU, free movement will continue. The Cabinet Office has stated that it expects that the legal status of EU nationals living in the UK, and that of UK nationals in EU Member States, will be properly protected. The Confederation of British Industry (CBI) is among those who have pressed for official reassurances in relation to the former category. Nonetheless, the position after the UK leaves the EU is far from clear and depends on the relationship agreed with the remaining EU Member States. Importantly, there is no precedent for a European country to have an agreement with the EU which affords access to the single market, but not be subject to free movement. There are several possible structures for the future UK-EU relationship, each of which would have a different impact upon the current free movement arrangement. EEA The preferred option for many ‘Remain’ campaigners would be that the UK applies to be a member of the EEA and so retains access to the single market. Our relationship with the EU bloc would then be akin to that of countries such as Norway, Liechtenstein and Iceland. Unless the current rules change to accommodate UK membership (which seems unlikely), a consequence would be that free movement would continue. Bilateral agreement An alternative would be for the EU and the UK to reach a bilateral agreement, in a similar way to that held with Switzerland. Switzerland, however, is also subject to and benefits from the free movement principle under the Schengen Agreement. Free trade agreements A further option would be for a more limited relationship between the UK and the EU, primarily based on trade agreements, as is the case for the US, Canada and Japan. The terms of this relationship would need to be negotiated and would be unlikely to be as economically attractive for the UK. It is noteworthy that the EU-Canada trade agreement has taken seven years to negotiate and it has not yet been implemented, so this would be a resource and time intensive option. It would however allow the UK to implement its own immigration system. So what could this look like? The 'Leave' campaign indicated that, once free movement has gone, its preference would be to introduce a Points Based System (PBS) for current EU citizens. A PBS already exists in the UK for non-EEA migrants (primarily those seeking work in the UK), with applicants scoring points for categories such as salary and English language skills. The Government has been heavily criticised for its unfulfilled promise to cut migration and tightening the existing PBS has failed to deliver. A PBS for EU citizens would therefore need to be sufficiently restrictive in scope in order to have any significant effect. We assume that a single consolidated PBS for both EU and non-EU migrants would be the ultimate aim. Immigration was said to be, for many ‘Leave’ voters, the central issue in the EU referendum. Our membership of the EU automatically subscribes the UK to the free movement of persons within the EU, meaning uncapped immigration to the UK. 6 | The impact of Brexit on UK employment law 8 | The impact of Brexit on UK employment law 9 Pensions It will therefore continue to apply even after the UK leaves the EU unless and until the UK Parliament decides to amend or repeal it. Pensions auto-enrolment, which is an entirely domestic UK law creation, will remain unchanged. In the area of scheme funding or discrimination it is expected that there will be little appetite from the UK Government for fundamental change. However, once the exit process has concluded there are aspects of UK pensions law derived from EU legislation that could be reviewed. For example, there would be scope to increase the flexibility of age discrimination legislation which may permit further exemptions in relation to pension schemes. In addition there is increased scope for the UK to avoid having to comply with the second Pensions Directive (IORP II). While it is possible that IORP II will become law while the UK remains an EU member, the Directive contains an 18 month period for implementation which may be after the UK exits the EU. Finally, funding of pension schemes may become an issue in light of the recent fall in markets and investment values. Much of the EU law relating to pensions – including key areas such as scheme funding, investment and discrimination – is written into UK legislation. Agreeing an arrangement under which the UK does not have to allow free movement would almost inevitably have a reciprocal effect on UK citizens wishing to live or work in any of the remaining EU Member States. EU migrants already in the UK The position in relation to the 3 million EU migrants already in the UK remains unclear. It is widely anticipated that transitional arrangements will be implemented, allowing individuals to stay in the UK after the UK leaves the EU. However this could be limited to those already in the UK for a certain period of time. It is also likely that the next two years could result in a significant increase in EU migrants arriving in the UK, before any potential immigration restrictions are implemented. A significant increase in migrants coming to the UK during such a period could have an impact upon the rates and limits imposed in any subsequent PBS. Scotland Following the strong Remain vote in Scotland, the SNP has mooted the prospect of holding a further independence referendum. If Scotland leaves the UK, it might become an EU Member State in its own right. Consequently, it would remain subject to the obligations and benefits of free movement (possibly including additional Schengen obligations) and might see an influx of EU migrants as a consequence. An alternative would be the ‘Reverse Greenland’ option, whereby most of the UK would leave the EU but Scotland would remain in the EU. This may require internal borders between the EU and non-EU parts of the UK; this could be followed by a further Scottish independence referendum. It is also worth noting that the SNP’s White Paper on independence (released prior to the 2014 referendum) highlighted that Scotland’s immigration needs are significantly different to the rest of the UK. If Scotland remains part of the United Kingdom and is part of a PBS immigration system for European migrant workers, it is quite possible that the Scottish Government may push for a number of amendments to the operation of such a system in Scotland. What should employers do if they employ EU nationals? Employers will understandably have concerns regarding the employment of EU citizens following the vote to leave. It is clear that there is no immediate threat posed by Brexit, as free movement will continue until the UK is no longer a Member State. Until the UK’s future relationship with the EU becomes clearer, there are limited steps that employers can take to safeguard the immigration position of their EU workers. Needless to say, employers should be careful that any action taken does not give scope for discrimination claims by such workers on the basis of their nationality, or ethnic or national origins. One step that employers may wish to consider is to encourage their EU workers who either do not have a Registration Certificate, Permanent Residence Card or are not British citizens – but currently meet the relevant criteria – to apply for one of these in order to seek to protect their future position in the UK workforce. This would not guarantee such workers’ position after the UK leaves the EU. However, having a formal status confirming that the worker is in the UK exercising their right to freedom of movement from a particular date could be of assistance. UK employees within the EU For employers who have employees working elsewhere within the EU, the position is also unclear and it is likely that any deal reached with the EU on UK workers in the EU will mirror that for EU workers in the UK. Data protection The GDPR includes various changes relevant to employment, including in relation to employee consent, notification of data breaches, and data subject access requests. As the GDPR will come into force automatically in 2018 regardless of arrangements for the UK leaving the EU, employers should continue to prepare for the changes it will bring. On leaving the EU, the UK will need to consider whether to replace the GDPR. Whether the UK remains within the single market or not, the Information Commissioner’s Office (ICO) has indicated that the UK will need to implement replacement legislation that is identical or equivalent to the GDPR to ensure the UK is a country with an “adequate level of protection” for the purposes of EU to UK data transfers. If, at the least, equivalence is not in place after the UK leaves the EU, organisations transferring personal data from the EU to the UK would need to consider alternative transfer mechanisms in order to ensure compliance with the GDPR. The UK’s data protection regime is underpinned by the Data Protection Act 1998, which implements the EU Data Protection Directive. The EU’s General Data Protection Regulation (GDPR) is due to come into effect on 25 May 2018, which is likely to be before the UK leaves the EU. The GDPR will have direct effect and so will automatically become part of UK law. 10 | The impact of Brexit on UK employment law 11 12 | The impact of Brexit on UK employment law What can employers do now? As discussed above, it is not expected that any changes to the legal landscape will be made in the immediate short term, and probably not until the UK Government’s approach to the UK leaving the EU is clearer. Immigration It is advisable that employers take steps to understand their workforce, including assessing their location and immigration status so that when the time comes they are in a position to assess the impact that Brexit will have and what life after Brexit will entail. In addition, employers may wish to check employees’ terms and conditions as these may be relevant to (i) whether there are provisions requiring them to have immigration permission, (ii) where employees can be required to work and (iii) whether the company might have committed itself to terms which it may have difficulties complying with. Employers may wish to discuss the position with their EU workers in the UK, and where those workers either do not have a Registration Certificate, Permanent Residence Card or are not British citizens, encourage them to apply for one of these in order to seek to protect their future position in the UK (where the employees meet the relevant criteria). European Works Councils Employers with an EWC should check whether any terms of the EWC agreement will be (or have been) triggered by the referendum result. Harassment and bullying There have been a number of widely publicised incidences of racist behavior by members of the public. Employers should be aware of the possibility of incidents of bullying and harassment within workplaces, whether towards foreign workers or indeed towards staff who voted ‘Leave’ or ‘Remain’. The Equality and Human Rights Commission (EHRC) has written to employers offering practical advice – including being clear about the standards of behaviour expected – and emphasising the role of line managers in dealing with difficult situations. 13 Sector focus Industry sectors that are particularly dependent on either sourcing workers from the EU or access to the single market are potentially going to be most impacted by the UK’s departure from the EU. Potential issues for particular industry sectors include: Energy Further risk to investment in North Sea, particularly in light of potential second Scottish independence referendum. Employment, environmental and health & safety law subject to change post Brexit. Oil and Gas UK pushing for collaborative approach from stakeholders to make transition to Brexit as smooth as possible. Construction/ Real Estate Reliance on foreign skilled and unskilled labour. Cost of importing building materials from countries including Germany, Italy, China and Sweden. Generally lower investment in UK property market by overseas investors. Hotels & Leisure Reliance on foreign labour. Increase in tourists to the UK due to weaker pound. Financial Services Global banks moving European headquarters out of UK and related job losses. London no longer major centre for clearing and settling trades involving EU securities. Relocation of European Banking Authority, currently based in London. Higher Education Risk to £1.2 billion funding currently received from EU. Risk to research projects and ‘brain drain’ as academics leave UK and fewer students come to study in the UK. Technology, Media & Communications Reliance on skilled labour from EU. Loss of investment into tech start-ups from overseas investors. Risk for funding into technology research. Uncertainty on data transfers. 14 | The impact of Brexit on UK employment law 15 Contacts Anthony Fincham Partner T +44 20 7367 2783 E anthony.fincham@cms-cmck.com Graham Paul Partner T +44 20 7367 2458 E graham.paul@cms-cmck.com Finlay McKay Partner T +44 131 200 7632 E finlay.mckay@cms-cmck.com Gillian MacLellan Partner T +44 141 304 6114 E gillian.maclellan@cms-cmck.com Alison Woods Partner T +44 1224 26 7176 E alison.woods@cms-cmck.com Sarah Ozanne Of Counsel T +44 20 7367 2650 E sarah.ozanne@cms-cmck.com 34 countries > 850 partners 391 Number of M&A transactions in 2015 Chambers & Legal 500 2015 Rankings 165 Band 1 282 Band 2 > 3,200 lawyers > 5,800 staff 19 practice and sector groups 54 cities 6th largest law firm 60 offices 32 new partners in 2015 About us Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran Bristol Dubai Amsterdam Brussels Utrecht London Edinburgh Aberdeen Luxembourg Antwerp Paris Leipzig Lyon Strasbourg Madrid Barcelona Lisbon Seville Casablanca Algiers Rome Milan Zurich Ljubljana Vienna Bratislava Budapest Zagreb Sarajevo Tirana Belgrade Sofia Bucharest Prague Warsaw Kyiv Moscow Shanghai Beijing Munich Geneva Berlin Hamburg Duesseldorf Cologne Frankfurt Stuttgart Rio de Janeiro Istanbul Mexico City Glasgow Muscat Podgorica Tehran CMS Cameron McKenna LLP Cannon Place 78 Cannon Street London EC4N 6AF T +44 (0)20 7367 3000 F +44 (0)20 7367 2000 The information held in this publication is for general purposes and guidance only and does not purport to constitute legal or professional advice. 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