The Brexit Conundrum: What would an ‘out’ scenario mean for UK employment law?

United Kingdom

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

As the UK Government’s much debated referendum on Britain’s membership of the European Union draws closer, British employers and employees should consider the potential employment law implications if the British people vote for a Brexit.

What could a Brexit look like?

Even if the British people do vote for a Brexit, the UK Government could find a creative way in which to remain in partnership with the EU, such as:

  • Following Norway and joining the European Economic Area (EEA).  As part of this arrangement, Norway currently pays about as much to the EU per head as the UK and is heavily influenced by European laws, but has no vote or say in making these laws. 
  • Negotiating bilateral agreements with the EU directly, as the Swiss have done, although this doesn’t offer much more comfort to Eurosceptics as the Swiss have in excess of 120 agreements with the EU, many incorporating EU legal principles, and Swiss law often follows EU law even in areas not covered by these agreements.
  • Drawing up a different arrangement with the EU post-Brexit, though the EU is unlikely to allow the UK to remain part of the single market without complying with its rules and whilst undercutting EU states with less onerous employment legislation for employers and lower employment standards for employees. This means British employers and employees are still likely to find themselves being ruled by European laws in some form or another unless there is an ‘all out’ Brexit. 

How would a Brexit impact on UK employment law?

As European employment law is incorporated into UK law in a number of ways, a Brexit would technically affect various laws in different ways. For example, European laws that have been incorporated in the UK via “primary legislation” via Acts of Parliament from the UK Government, such as the Equality Act 2010 which outlaws discrimination, are freestanding UK laws, so they would remain in force following a Brexit, unless the Government specifically removed them.

Other European laws, such as the Working Time Directive which gives employees rights to paid holiday and rest breaks, have been incorporated into UK law through “secondary legislation”. These regulations are introduced by Government ministers who have specific powers to do so, granted by the European Communities Act 1972.  If the Government removes the European Communities Act, it would take away this framework within which European and UK laws integrate and may mean that regulations passed under it also fall away.

However, as many UK laws are made in this way, such sweeping changes would create significant uncertainty, so it is more likely that the UK Government would seek to maintain the status quo at the beginning and address laws individually over time, deciding whether to remove them entirely or to amend them to address particular concerns.

A Brexit may also impact on UK courts’ decisions as they are currently required to interpret EU derived laws in accordance with the rulings of the Court of Justice of the European Union. For example, the UK courts have recently read additional wording into the Working Time Regulations 1998 to give effect to decisions of the European court. Without this constraint, judges of the higher UK courts are likely to have more free rein to make decisions.

Planning for a Brexit

The consequences for UK employment law in the event of a Brexit are unlikely to be significant in the short term, given the complexities involved and the likely uncertainty it would bring.

For British employers and employees, it seems inevitable that some things won’t change. For example, anti-discrimination legislation is so fundamentally engrained in British culture that any significant amendments to it (other than to extend its reach) would almost certainly be met with resistance from the general public and voters. In addition, employee-friendly laws such as the right to maternity pay and leave and holiday pay are unlikely to be altered dramatically in the future given the social policy behind their introduction.

However, the UK is currently obliged to follow European law in some instances where British employers may argue the protection of workers goes too far. For example, businesses may lobby for the removal of the right for employees on sick leave to carry over untaken annual leave into subsequent holiday years, to allow employers to harmonise employees’ terms and conditions following a transfer of a business or change in service provider and to abolish the requirement for agency workers to receive comparable pay after 12 weeks.

For now, there’s very little planning that employers or employees can do to seek to mitigate the risks associated with the referendum and a possible Brexit, albeit prudent employers entering into lengthy commercial agreements or otherwise assuming European derived laws will apply in the distant future should consider whether that is likely to be the case.