UK decides Brexit is the way to go - what next?

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

Once the dust settles, one question to be decided is whether a British Parliament will scrap EU employment laws entirely and put in place its own version? Will it keep some parts and amend or repeal others? Moreover, how quickly will any changes be made?

Since a considerable amount of UK employment law is derived from EU law, the potential impact for employment laws and employers may be significant. As the UK has voted to leave it may decide not to be constrained by EU directives and treaties.

The EU has been widely seen as a means of protecting workers' rights. Many reports indicate that British workers may pay the price.

Legislative reform will take time and we do not expect Parliament to introduce any significant changes quickly – the process of leaving the EU will commence when the Government invokes Article 50 of the Lisbon Treaty. This is not likely to be immediate and the Prime Minister has indicated that this should not happen until a new Prime Minister is appointed in October 2016.

Once Article 50 has been invoked, this will give the UK two years to negotiate its withdrawal so it will be at least two years before Britain actually leaves the EU. During that time, existing EU-based legislation will remain in place whilst Britain negotiates the terms of its future relationship with the EU. The Government may start to review EU-derived laws, identifying what it wants to keep or change.

Parliament will not want to create a legislative vacuum or huge uncertainty, and it is unlikely that they would want to repeal current EU employment legislation, much of which is commonly accepted across most western jurisdictions. While the Government may start to review EU-derived laws, we expect that the vast majority of EU laws will simply be “grandfathered” so that they continue to apply, unless specifically changed by the UK Parliament. The only substantive change would be that the final decision-making court would be the UK’s Supreme Court, as opposed to the European Court of Justice. It will also be politically sensitive to the impact of any changes it makes on people and businesses in the UK who are used to working within the confines of existing employment legislation. However, any changes which are implemented could lead to increased costs and administration for businesses.

Some EU law has helped clarify issues and it has created more legal certainty. However, other EU laws have been contentious and there may be pressure on Parliament to repeal those in part or in full (for example, the decisions on holiday pay, the Working Time Directive and the Agency Worker Regulations and Transfer of Undertaking Regulations).

Data protection laws could also be impacted, for example, the forthcoming General Data Protection Regulation may not take effect in the UK for long, if at all.

What it means for investment

Currently markets are displaying extreme volatility on the back of the outcome of the Referendum. How Brexit may affect the appetite of international businesses to set up or continuing to operate in Britain, or to leave, is unclear. Fewer EU regulations and less red tape may create a jobs boom but, on the flip side, being outside the EU might make it more expensive and less appealing to do business in the UK, causing further financial uncertainty and perhaps encouraging businesses to leave, creating redundancies.

Will EU nationals be able to remain on your staff?

One of the central tenets of the EU is the free movement of people and this gives employers in the UK flexibility in their human resourcing; enabling them to easily recruit from the EU and to move their UK workers around the EU to best suit their needs.

In reality, laws relating to immigration are unlikely to change overnight – however, it seems that the same free movement that currently exists will not be politically acceptable given the public’s vote. When the UK leaves the EU, citizens of other Member States would no longer enjoy an automatic right to travel to and work in the UK, which will result in a significant administrative change. Therefore, the UK and EU may negotiate terms for ongoing freedom of movement. However, it is possible that these negotiations may fail and Brexit may trigger restrictions on the movement of workers and new immigration controls could be introduced. For instance, British staff based overseas may become subject to restrictions on accessing local healthcare and other public services. Meanwhile, EU nationals may become subject to a work permit system in the UK which limits their entry to skilled workers in short supply. EU nationals already working in the UK may need to apply for a visa to remain. That said, in the course of negotiations, existing arrangements may be protected.

Uncertainty

There will no doubt be a period of uncertainty and adjustment for businesses following this result until the consequences are known and the current turbulence in the financial markets has settled. It will also take time for the UK to establish a new relationship with the EU and the rest of the world. The impact of a Brexit will largely depend on the nature of our continued relationship with the EU (which would need to be negotiated) and the changes Parliament decides to make to our legislation, none of which we can predict with any certainty at this stage.

Will the UK go it alone completely? Will the UK have access to the single market through treaties without membership of the EU or EEA, or will it be like Norway, Iceland and Liechtenstein? As non-EU members in the EEA they still have to follow EU rules and regulations without the advantage of having a say when the rules are made. Interesting times lie ahead.

The one certainty is that the UK will remain a member of the EU and subject to EU laws until at least late 2018.

So what can your business do right now?

1. Don't panic but be prepared for when changes occur and react accordingly;
2. Consider the immediate impact on your business and/or sector and how it could be affected in the short to medium term and start preparing a contingency plan;
3. Identify the extent to which your organisation relies on EU nationals (or UK nationals elsewhere in the EU);
4. Consider how dependent your business is on being able to move your employees around within the EU; and
5. Consider whether you need to review ex-pat assignments.