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What Brexit Means for Multinational Employers

O n June 23, 2016, Britain stunned the world when a majority of voters chose to leave the European Union (EU) in a hotly contested referendum commonly dubbed “Brexit” (short for “British exit”). Global market reaction was immediate: in the 24 hours following the vote, markets in Britain, France, Japan, Asia, and the United States tumbled, losing as much as $2 trillion, by some accounts. The British pound slid from $1.50 against the US dollar to close at $1.368 at day’s end. Standard & Poor's downgraded Britain’s credit rating from a perfect AAA to AA. British Prime Minister David Cameron resigned along with more than 30 members of parliament. The upheaval continued with calls for Britain’s opposition leader, Jeremy Corbyn, to step down amidst a petition for a new referendum.

Short-term impact

Notwithstanding the markets’ reactions to Brexit, there will be no immediate change in Britain’s legal standing as an EU member. Britain’s referendum to exit the European Union is not legally binding and must be followed by legislative action in compliance with the Treaty on European Union Article 50. It allows the parties to negotiate the specifics of a member state’s withdrawal over a two-year negotiation period. During negotiations, EU laws would still apply to the United Kingdom. After this, a number of existing models could shape Britain’s new relationship with the European Union:

Brexit - Pros and Cons

So what now for employers with employees in the UK?

JP Morgan, Airbus, Toyota, and Ford are among multinationals that have indicated they are examining their investments in Britain in the wake of the referendum. Fears abound that this may mean profit warnings and job cuts in Britain as companies relocate to other EU countries under more competitive trade arrangements.

For companies with operations in the United Kingdom, as the details of Brexit negotiations progress, the implications on employer-related legislation will also emerge, but it will take some time before the full implications of the referendum are understood. As British laws morph, the government will propose changes and request consultation, which will, in turn, provide employers notice and time to adjust to any new revisions to existing laws.

Areas employers should watch closely

  1. Data privacy. The European Union regulates the transfer of employee data out from its borders. In April 2016, the European Union adopted the General Data Protection Regulation (GDPR) (Regulation (EU) 2016/679), which takes effect in May 2018. The GDPR is intended to replace the 1995 data protection directive (Directive 95/46/EC), strengthen data protection for individuals within the European Union, and regulate the export of personal data outside the European Union. Once it became effective, the GDPR applied directly in each member state without need for further implementation. It is likely that negotiations between the United Kingdom and the European Union will not be concluded before May 2018, the date the GDPR becomes effective. Thus, the United Kingdom will most likely still have to prepare for the direct applicability of the GDPR.
  2. Employee mobility. A critical bargaining point between Britain and the European Union is likely to be the ability of workers in EU member states to travel to and work in the United Kingdom. EU employees who have lived in Britain for more than five years may be eligible to apply for Britain citizenship. In general, however, it is unclear how Brexit will impact EU employees living in Britain, and how easy it will be for employers to recruit EU employees to work in Britain after the Brexit dust settles. Employers should watch closely for indications of changes in immigration laws over the next two years. One ambition of the leave campaign has been the introduction of some form of a points-based immigration system. However, it is likely that existing EU workers will be allowed to remain in the United Kingdom. Thereafter, employers can expect some changes to the pool of workers entering the country, and are likely to face greater bureaucracy and visa applications in recruitment. The leave campaign wanted to introduce an Asylum and Immigration Control Bill to end the automatic right of all EU citizens to enter the United Kingdom as soon as possible. This would, however, place the United Kingdom in breach of its international obligations. As for UK employment law, whilst, in principle, the vote to leave the European Union could precipitate workplace change and the rolling back of some EU employment laws, the likelihood of major change is small. 
  3. Employment litigation. Britain has its own discrimination laws, but some EU laws, enforced by the European Court of Justice, have influenced Britain laws in various areas including working hours, discrimination, and removing caps on compensation claims. It is likely that most of these changes will be considered crucial by the future UK government. 
  4. TUPE laws. The EU Business Transfers Directive is incorporated into Britain Transfer of Undertaking (Protection of Employment) Regulations of 2006 (TUPE); a critical, albeit complex component of British labor law. TUPE protects employees whose business is being transferred, and while its complexity may make it a tempting target for change, it is unlikely that wholesale revisions will be made. On the other hand, few expected the Brexit referendum to pass so let’s stay on our toes.

So what’s the bottom line?

Grab the sides of your rocking boat; more change will come. In the short term, expect to see the impact of ongoing uncertainty in the global markets and much ado from the business sector and EU citizens both in Britain and the Eurozone. After this period of uncertainty, a more reformist and deregulation-focused leadership may well look to curb some of the more restrictive practices associated with laws originating from the European Union, such as introducing new immigration laws or resolving the issue of holiday pay, which has taken up so much court time in recent years. Employers can expect a reasonable run up to any such changes in any event and, quite possibly, an opportunity to have their say through a consultation process. Outgoing British Prime Minister David Cameron has said there will be no second referendum. Over the next two years, employment laws are likely to change little but employers with employees in the United Kingdom should use this time to keep ears to the ground and prepare as early as possible for potential changes that impact EU and Britain-based employees.

Side Bar References

About the Authors

Spiwe Pierce

Spiwe L.A. Pierce is deputy general counsel of John Crane, HR & Employment columnist, and a member of the ACC intellectual property, information governance, and law department management committees.

Dr. Alexander Niethammer

Dr. Alexander Niethammer is a partner at Eversheds Deutschland LLP in Munich, Germany, and the 2016 winner of the ILO Client Choice Award.

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