The polls remain close with just days to go before Thursday’s referendum on whether the UK should remain in or leave the European Union. EU law applies in many different areas and sectors, either directly or through being implemented in domestic legislation, with the result that many aspects of UK and Scots law and regulation are heavily influenced by EU law (indeed, too many to list other than at great length). So what would the consequences of a Brexit be for EU and domestic law in those areas? The key to answering this question lies in understanding the difference between directly effective and indirectly effective EU law.
Directly effective EU law
This term refers to EU law that automatically applies across all Member States, without any individual Member State having to do anything to implement it. It is therefore generally not restated in domestic legislation unless that is necessary for the purposes of clarity, for example where another legislative measure could otherwise be interpreted as being contrary to it. Member States are generally prohibited from departing from directly effective measures, including by ‘gold-plating’ them – i.e. supplementing them with stricter regulations, requirements or controls. The intention behind directly effective EU law is that the same rules should apply across all Member States.
This category of directly effective law includes the requirements of the EU Treaties, principally the Treaty on European Union and the Treaty on the Functioning of the European Union, which among other things include:
- the free movement rules concerning goods, persons, services and capital;
- the basis for the Common Agricultural and Fisheries Policies;
- the restrictions on the granting of State aid; and
- the competition law prohibitions on anti-competitive agreements and abuses of dominant market positions affecting trade between Member States.
These may look simple when reduced to bullet-point format, but the free movement rules in particular are the basis for much of EU law and are responsible for many of the most significant consequences of EU membership. The free movement of goods provisions prevent the imposition of restrictions on trade between Member States, thus enabling free trade within the EU, but also require all Member States to impose the same tariffs on non-EU countries and so prevent them from entering into separate trade agreements. The free movement of persons rules enable the movement of EU citizens within the Union, and restrict the ability of Member States to either prohibit their entry or treat them differently from their own nationals.
Other directly effective law is produced by the EU institutions, usually in the form of Regulations. For example, Regulations in the environmental field include the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Regulation, and controls on waste shipment and the release of certain products into the atmosphere. In the financial services field, the EU has issued Regulations on capital requirements, short selling and derivatives.
Indirectly effective EU law
The principal difference between directly and indirectly effective EU measures is that the latter have to be implemented by Member States through domestic legislation. These measures are produced by the EU in the form of Directives rather than Regulations.
Directives will stipulate certain requirements that Member States must implement into their own law, but will generally give individual Member States some discretion over how best to do that. They may also give Member States a choice over whether they want to adopt specific rules at all. Member States are also free to supplement the requirements of Directives through ‘gold-plating’, as long as the end-result is not contrary to the Directive’s terms. Directives are therefore used when the EU considers it less important that there be absolute harmonisation of the rules applying in different Member States, and in particular where minimum rather than absolute requirements will suffice.
In the UK, Directives have generally been implemented by way of statutory instruments (SIs), meaning secondary legislation that usually takes the form of regulations (it is important to keep in mind here that UK regulations are a separate concept from EU Regulations – the latter are directly effective EU law, whereas the former are often used to implement indirectly effective EU law). However, some have been implemented via primary legislation such as Acts of Parliament or Acts of the Scottish Parliament – for example, the Companies Act 2006 implemented the EU’s Transparency Obligations and Takeover Directives.
Domestic laws derived from EU Directives include many of the UK’s employment and health and safety rules (some of what we think of as employment law – e.g. annual leave and working time requirements – actually comes from EU health & safety Directives). These areas are particularly good examples of where the UK has gone above and beyond the minimum standards set by the EU, such as for maternity and shared parental leave. In the same vein, the UK oil and gas sector lobbied hard (and successfully) for new EU offshore health and safety rules to be implemented via a Directive rather than a Regulation, out of a concern that a fully harmonised measure could mean the UK having to water down our world-leading offshore safety rules. Adopting a Directive instead meant minimum standards were set on an EU-wide basis while letting the UK’s stricter rules stay in place.
While some EU environmental and financial services rules have been imposed via Regulations as noted above, other issues have been dealt with in Directives, including bio-diversity; environmental information; environmental impact assessments; ‘passporting’ rights for financial services providers; and rules on capital requirements, e-money, and recovery and resolution of banks. Other areas of EU law have a ‘hybrid’ nature, where directly effective rules sit alongside indirectly effective ones, such as in IP protection (for more on which see here).
Why does the difference matter in a Brexit scenario?
Where EU law is directly effective, it applies in a Member State only for as long as that Member State is a member of the EU. Accordingly, if the UK leaves the EU, the provisions of the Treaties and of EU Regulations should automatically cease to apply.
The UK’s membership of the EU, and the applicability of EU law within the UK, is given effect in domestic law by the European Communities Act 1972, principally section 2. The Brexit process would very likely entail Parliament repealing the 1972 Act, which would have the result that EU law would, by default, cease to apply within the UK (for more on the process see here).
A blanket repeal may not be on the cards however, as there are areas currently governed by directly effective EU law (such as the environmental regulations noted above) where Parliament would be unlikely to want to revert to a blank slate. Any trade agreement with the EU may also be conditional on the UK agreeing to continue to implement directly effective EU rules on matters such as State Aid, or continuing to observe some or all of the free movement rules. The UK may in any event want to retain similar or identical rules to the EU in order to make cross-border interaction easier (e.g. implementing the requirements of the new General Data Protection Regulation).
However, because the default position would be that all directly effective EU law would cease to apply in the UK upon the repeal of the 1972 Act, Parliament would have to legislate to save any desirable or necessary aspects of the current law. That legislation could state that certain specified aspects of EU law would continue to be law throughout the UK, or alternatively could expressly restate the relevant rules (perhaps with certain modifications). Either way, Parliament would have to take positive steps if it wanted to prevent the disapplication of directly effective EU law. In the absence of such steps, the existing rules would simply fall away.
The position with indirectly effective legislation is somewhat simpler, particularly where it has been implemented via primary legislation. Such legislation would remain on the statute book and so continue to apply, regardless of the UK’s status within the EU. Parliament (or in some cases the Scottish Parliament and/or other devolved bodies) would gain greater flexibility to amend or repeal the legislation in future if they saw fit, including to depart from what the underlying Directives would have required – though again this would be subject to the terms of any agreement reached with the EU. However, they would be under no obligation to act in advance of or following Brexit.
Where Directives have been implemented through SIs, the position may be slightly more complicated. Most of those will have been made under section 2 of the 1972 Act, and the default rule is that all secondary legislation made under a repealed Act of Parliament is itself repealed unless explicitly retained. If an SI was made under the authority of both the 1972 Act and another Act of Parliament (and some health and safety legislation falls within this category), those parts deriving from the 1972 Act could be repealed under this rule while other parts survived.
Given the sheer volume of secondary legislation made under the 1972 Act, allowing it all to be repealed could be very disruptive. However, it would also be a very demanding task to consider the merits of each SI in the time before Brexit took effect and decide which should be expressly retained. The most likely outcome may therefore be that the repeal of the 1972 Act would be accompanied by a general saving for secondary legislation made under it, with specific SIs identified for repeal or amendment as appropriate. If necessary, a more detailed review, amendment and repeal of SIs made under the 1972 Act could be carried out when time allowed, but it seems more likely that (as with primary legislation) the relevant rules would simply be left in place until or unless there was a need or desire to change them.
If you carry out activities or operate in sectors that are governed or impacted by EU law, and are wondering what effect a ‘Leave’ vote might have, it is important to understand the source of the relevant law. Does it come directly from the Treaties? If not, is it imposed via Regulations or Directives? The answers to those questions will help guide you in considering the future of the relevant rules, including the likelihood of them continuing to apply in a post-Brexit scenario.