The response of the markets and the political parties is currently being played out. In the short term, the Prime Minister has indicated that he will resign and the Conservative Party will appoint a new leader by October. He has indicated that it will be a matter for his successor to set in motion the formal processes to leave the EU. Beyond that, there is speculation on the exact route which will be followed to implement the referendum decision and how long this will take.
In terms of legal implications, the message at the moment is: "business as usual - until told otherwise". But what are the medium and long term implications of Brexit for employers and employees in the UK?
The legal effect of the referendum decision
The referendum decision itself has no immediate legal impact; the "eject" button has not yet been pressed. The UK will need to negotiate its exit from the EU, which will take some time. The most likely method of exit would be to invoke Article 50 of the Lisbon Treaty.
Although the EU institutions appear keen for this to happen sooner rather than later, it is not clear exactly when this process will start.
Article 50 itself envisages a 2 year negotiation period (capable of extension if all other states agree). The UK will continue to remain bound by EU treaties and regulations during this period, whatever method of exit is used.
After the end of the negotiation period, the treaties cease to apply to the departing member state and instead any new agreed departure terms would apply.
What will the UK's new relationship with the EU be?
The short answer is that, at present, nobody knows. This is not a process that has ever taken place before.
The government will now have to negotiate the basis of a new trade agreement with the EU, to allow UK businesses to sell goods and services to the remaining members of the EU without being penalised by excessive tariffs.
The trade model that the UK negotiates is likely to determine which of the EU laws that we may have to remain bound by. The UK might be required to comply with EU employment law and either total or partial free movement of people as part of a new trade deal. This is the price paid by Norway for a free trade agreement with the EU. Switzerland is in a similar position. The EU is unlikely to approve a deal which might result in a scenario whereby UK businesses are perceived to be at an unfair competitive advantage to businesses in EU member states. If, as with Norway, the UK wants to be a member of the EEA, then as part of the current rules of the EEA, the UK would remain subject to most of the key aspects of EU employment law, namely: TUPE, collective redundancy consultation, working time and the Agency Workers Directive.
Which particular employment laws might be impacted?
There is a sizeable body of UK employment law which has derived from EU legislation. However, UK governments have in many cases actually increased the protection of UK workers beyond that required by EU law.
It seems unlikely, for instance, that there would be any appetite to remove protections from workers so as to allow discrimination on any of the nine protected grounds (age, sex, race, disability, pregnancy or maternity leave, sexual orientation, religion and belief, marital or civil partnership status, gender reassignment).
TUPE was enhanced by the UK government in 2006 when it was extended to cover service provision changes. As such, it is unlikely that TUPE will be revoked. However, there has been some suggestion that changes could be made to make it easier for businesses to introduce changes to harmonise terms and conditions after a TUPE transfer.
Particular areas of employment law where EU law has had an impact are as follows.
- Discrimination law.
- Protection of workers' rights on the transfer of an undertaking.
- Rights relating to working time (for example, the entitlement to rest breaks and paid annual leave).
- Protection of pregnant workers and the right to maternity and parental leave.
- Protection of part time and fixed term workers.
- Protection of agency workers.
- Collective information and consultation obligations such as in relation to large-scale redundancies.
- Health and safety at work obligations.
- Data protection.
Note that not all of UK employment law stems from EU law. The law relating to unfair dismissal, for instance, is entirely a UK concept and so is unlikely to be changed by Brexit.
Freedom of movement of workers
The freedom of movement of workers between EU member states is currently an automatic right. There are many UK nationals living and working in other EU countries; likewise, there are many nationals of other EU member states living and working in the UK.
Immigration was a polarising issue during the run up to the referendum and it seems that it impacted significantly on the decision of many 'leave' voters. The objective of Brexit campaigners appeared to be the introduction of something similar to the points-based immigration regime currently applied to non-EU nationals. The current system entails:
- minimum salary requirements and a resident labour market test
- anyone recruiting or relying on foreign (i.e. currently non-EU) workers to have a sponsorship licence
- a proposed immigration skills charge of £1,000 per annum per sponsored employee in 2017
- fines of £20,000 per illegal worker.
Whilst the reality of what will be imposed is still entirely unclear, if EU migration is restricted and regulated, employers can expect greater bureaucracy and visa applications in recruitment. It is possible that accepting some, or all, free movement of people will be part of the 'cost' of access to the single market. Whichever path is followed, the new arrangements are likely to apply only to new workers as opposed to the existing workforce. Indeed, free movement of people should continue up to the point of Britain's actual exit from the EU. If anything, this is more likely to encourage the migration of EU nationals to take up posts in the UK leading up to the point of Brexit, particularly in sectors (such as the NHS) where recruitment into some roles is difficult.
European case law
At the moment, the future status of existing ECJ case law is unclear. Currently, there is a body of case law from the European Court of Justice (ECJ) which has provided guidance on how we should interpret laws which are derived from the EU. For example, the ECJ's recent decision on commission being included in holiday pay. On leaving the EU, guidance from the ECJ will no longer be sought, and decisions of the ECJ will no longer be directly binding on UK courts and tribunals.
There is an argument that leaving the EU amounts to a substantial change, which courts might argue authorises departure from precedent. Alternatively, it may be that courts see the established body of case law as preserving legal certainty and continue to follow those decisions – and, possibly, future decisions of the ECJ may be seen as persuasive, if not binding; and decisions of the ECJ may continue to be relevant if the trade model involves membership of the EEA and EFTA (the European Free Trade Association).
- No change to the employment law landscape in the immediate future.
- Legislation which is domestic in origin will be unaffected - for example, whistleblowing and unfair dismissal legislation.
- It is likely that key EU derived legislation will remain in place, such as TUPE and the Working Time Regulations.
- Legislation which 'gold-plates' EU derived law, such as pregnancy and maternity legislation is also likely to remain.
- In the longer-term and post-exit, it is possible that the government will seek to cut back some aspects of EU derived law – for example, the post-transfer harmonisation aspects of TUPE and the Agency Workers Regulations may be repealed or watered down (depending on what is agreed under new EU trade arrangements).
- It is too early to determine the precise role of the ECJ and its decisions in relation to UK employment law.
For more information on this or any other Employment law issue, please get in touch with Sarah Lamont, Julian Hoskins, Jodie Sinclair, Alastair Currie, Ashley Norman or James Gutteridge.