The result of the referendum on whether or not the UK should remain in the European Union is in and the British public have voted to leave.
We don't yet know exactly what form the "Brexit" will take, and any changes which do result from the outcome of the referendum are likely to take a number of years. We have set out below some of the key ramifications of the referendum result in employment, pensions and immigration law, all of which have formed a significant part of the debate on both sides.
- Although many rights enjoyed by employees in the UK stem from or are enshrined in EU Directives, a move towards greater freedom of contract is more likely than a bonfire of rights. It would be practically difficult to remove all employment rights which derive from the EU given the number of separate pieces of domestic legislation which would need to be repealed. In any event, many of the protections have become deeply embedded in the working culture of the UK. It would be a brave Government which would seek to remove the protections against discrimination enshrined in the Equal Treatment Directive and domestically legislated in the Equality Act 2010. Indeed, some of these, such as sex discrimination, were implemented in the UK before they became EU law.
- There are, however, particular areas of employment law which have traditionally been unpopular with employers which are more likely to be watered down or removed altogether. The 48 hour limit on a working week and complex rules around holiday pay imposed by the Working Time Directive and developed in case law, for example, are ripe for reform and the extra protection provided to agency workers under the Agency Workers Regulations 2010 could also be subject to repeal.
- Similarly, the very restrictive provisions of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") which currently go above and beyond what is required under the Acquired Rights Directive could be watered down to make them more business friendly – perhaps by making it easier to harmonise employment terms or dismiss employees after a transfer.
- A significant impact will be felt in the area of governing law and jurisdiction clauses in employment contracts – particularly in cross-border disputes. The current legislation regarding jurisdiction and reciprocal enforcement of judgments is set out in the Brussels Regulation which will no longer apply to the UK after we leave the EU. It is likely that we would seek to reach an agreement with the EU in similar terms, but there is no guarantee that this would be possible and the position is likely to be uncertain even in relation to existing contracts.
- The European General Data Protection Regulation, which harmonises data protection laws across the EU and introduces a stricter regime with tougher penalties for breach, is due to come into full effect in May 2018. From that date will have direct effect in all member states with no requirement for domestic implementing legislation. This is almost certainly earlier than our departure from the EU will be finalised. Depending on what form our departure finally takes, it is likely that the UK would, in any event, have to put in place a similar regime in order to do business with other EU member states. Employers should continue to prepare for the introduction of the new regime.
- Any impact on pensions law is likely to be felt over the medium and longer term rather than immediately and will be dictated by the terms of any exit and for example whether we join EFTA or the EEA (where there may be obligations to comply with much of EU law in any event).
- Many key aspects of pensions law driven by EU law are already incorporated in domestic legislation (for example pension provisions on a TUPE transfer, also the equal treatment obligations now in the Equality Act 2010 and the Pensions Act 2004 contains pension scheme funding requirements which were based on the 2003 IORP Directive). As such, the domestic legislation must continue to be complied with until such time as any amending legislation is introduced and we expect the UK Government would be reluctant to amend where much of the legislation offers protection to employees/members of pension funds.
- Trustees of defined benefit pension funds should take action to assess the impact of Brexit on the financial covenant of their sponsoring employers and assess whether or not any weakening of the covenant as a result of Brexit requires them to revisit the funding valuation and funding plans and any increase in security arrangements to support the pension fund and indeed whether any security is triggered by any downgrading of the employer covenant.
- Employers need to be ready to respond to trustees who will be carrying out this further assessment and as such the employers may want to have a risk assessment updated to address the impact of Brexit on their business.
- Employers and Trustees of pension funds should be prepared to review their investment strategy with a view to assessing whether pension funds are exposed to too much risk post Brexit.
- Immigration has been one of the most controversial aspects of the referendum campaign. In order to reach a deal on movement of people, it is likely that the UK will have to enter into negotiations with the EU as a whole and, therefore, will not be able to treat French nationals, say, more favourably in terms of UK immigration rights than those from newly acceded states, such as Romania and Bulgaria.
- Alternatively, the UK Government could choose to enter into bilateral agreements with each of the remaining 27 Member States. This would be hugely complex from a legislative perspective and there is no certainty that all Member States would engage with the UK at all.
- Considering that immigration control is one of the primary motivations behind Brexit, there is likely to be substantial political pressure on the Government to keep its promise to reduce overall inward immigration. In the event of a complete Brexit with no free movement arrangement, the three million EU migrants currently in the UK by virtue of exercising their "Treaty rights" would become subject to UK domestic immigration law. The Government could consider creating a new EU/EEA/EFTA-centric tier specifically to deal with such applications and could use that tier to treat such applications more favourably than those from non-EU/EEA/EFTA members but with more restrictions than is currently the case (especially where it concerns access to state benefits). This would create a monumental administrative burden for the Home Office and Border Control, who are already under considerable strain.
- Conversely, Brits who have settled in the EU will be subject to the varying domestic immigration rules of the countries in which they now work and reside. It is unclear how receptive other remaining Member States would be to applications from those expats given the inevitable political tensions that will arise following the Leave vote.
- Given the numerous economic incentives on the UK to negotiate favourable withdrawal terms with the EU and the disruption that would be caused by imposing domestic immigration law on all EU citizens, it has been widely speculated by academics and practitioners that there may, in fact, be little change to immigration for the post-Brexit UK; at least for the immediate future.