Employment law implications of Brexit: top five issues


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In the wake of the UK’s vote to leave the European Union there has been blanket coverage of the political fallout and discussion about the legal process for our exit, which is expected to drag on for many years. BLP’s analysis of Brexit and what happens next can be read here.

In this climate of massive uncertainty, and with much UK employment law intrinsically linked to the EU, we consider below the five key areas where the Brexit vote will have the most significant impact on HR and employment law. In some cases, action is needed already. In others, laying the groundwork now will place you in a stronger position when UK law changes and may enable you to help shape the new regulatory environment.

1 – Restructuring

We are already hearing of companies planning to relocate all or part of their businesses outside the UK, particularly in the financial services sector. Others are considering their existing structures and may need to make changes, for example creating UK registered subsidiaries. These corporate decisions have employment ramifications if employees will need to be moved to new employers. Currently, the TUPE regulations apply even in relation to internal reorganisations and consultation obligations will be triggered. In other scenarios, staff may need to be offered new contracts with the new employing entity. With large workforces, these issues require significant planning and take up a great deal of HR time and resource.

2 - Recruitment

With immigration at the heart of the “Leave” campaign, this is an area where considerable change has been anticipated. In reality, these changes are not likely to take effect until the exit negotiations are concluded. Further, free movement of workers may well be difficult for the UK to negotiate out of, if it wishes to retain similar trading arrangements to those currently enjoyed. However, if you have a European workforce, you should start thinking about staffing and immigration issues now. It may be difficult to recruit highly skilled individuals from EU states while their long-term right to remain in the UK is uncertain and you should identify key employees who may be a retention risk, either because their right to work in the UK may change or because they may decide to return to their home countries. The rules governing agency workers may also change in the long term, giving increased flexibility in this area.

3 – Contractual review

Reviewing existing and forthcoming contractual arrangements is a key step at this stage in all legal areas, not just employment law. This is particularly the case for contractual arrangements which will extend for longer than two years, as such contracts are likely to straddle the current arrangement and the revised legal landscape post-exit. In an employment law context, key issues include:

  • Outsourcing arrangements to which TUPE applies. There is no current proposal for the repeal of TUPE but it could be watered down, for example to make the harmonisation of terms easier.
  • Tax. It is possible that there could be changes to the VAT system. Contracts such as consultancy agreements where VAT is payable may need to be amended to reflect this.
  • Jurisdiction. The rules which govern the jurisdiction of contracts and related issues such as service of documents and enforcement may change. If you have internationally mobile employees or are considering relocating employees outside of the UK as a result of the referendum result, you should consider this issue further.

4 – Data Protection

The General Data Protection Regulation (GDPR) is due to come into force in May 2018, before any exit arrangements take effect. It has a significant impact on the management of HR and employment-related data protection issues. Even though the GDPR will cease to be part of UK law on exit from the EU, it will still apply across the EU and its very broad territorial scope means it will catch many UK businesses. Further, it seems likely that the UK will want to put in place a broadly comparable data protection regime. As a result, you should think carefully before stopping work on GDPR implementation.

5 – Holiday pay

EU law has been central to the Lock v British Gas and Bear Scotland line of cases on the calculation of holiday pay. For now, the Working Time Directive continues to apply to UK employers and decisions of the ECJ are still binding. This position is unlikely to change for some time and we do not yet know what the status of ECJ decisions and UK decisions derived from them will be after Brexit is achieved. If you have been considering making pro-active changes to your holiday pay calculations, you may now decide that this further uncertainty tips the balance in favour of continuing to exclude voluntary overtime and other payments from holiday pay. Certainly, you should think carefully before making contractual changes which may create entitlements for staff which prove to be more generous than UK law ultimately requires.

Helping you shape the agenda and keeping you informed

BLP’s Employment Group is actively monitoring developments and will keep you informed of Brexit-related employment and HR issues. Over the coming months we will also be hosting sector-specific roundtables to help clients both manage these evolving issues and feed into the new UK legislative frameworks that are introduced.

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