Brexit and European Works Councils - a status update and what you need to do next

As Donald Rumsfeld might say, there are few “known knowns” at this stage, but we now have relative clarity on the “known unknowns”.

“Known knowns”

The article 50 notice of the UK’s intention to withdraw from the EU

The people of the UK voted to leave the European Union on 23 June 2016 and the UK Government gave notice of the UK’s intention to withdraw from the EU on 29 March 2017. This followed the UK’s Supreme Court’s decision in Miller and the subsequent passage of the European Union (Notification of Withdrawal) Act 2017. Together with the European Union (Withdrawal) Act 2018, this has set the default position to a “no-deal” Brexit at 11pm (UK time) on 29 March 2019. However, the European Court of Justice (“ECJ”) confirmed in Wightman that the UK is free unilaterally to revoke its notice if it so chooses.

The position on EWCs under EU law in the event of a no-deal Brexit

The European Commission published a “Notice to Stakeholders” on 28 March 2018 on EWCs in the event of a no-deal Brexit. It confirmed that the EWC Directive will “no longer apply to the UK” to the effect that: (i) some businesses may fall outside of its scope once UK employees are excluded from its headcount test; and (ii) another representative agent in a remaining member state will need to “take over the responsibilities” for EWC matters if central management or its representative agent is currently located in the UK.

Bofrost, Kühne & Nagel and ADS Anker, the only cases the ECJ has ever decided on EWCs, indicate that existing EWC obligations and employees’ rights will not simply fall away upon a no-deal Brexit. This is important as it means that businesses with UK law-governed EWCs should take proactive steps to maintain transnational information and consultation or possibly risk criminal penalties.

“Known unknowns”

The withdrawal agreement

The UK and the EU entered into a withdrawal agreement on 25 November 2018 that is subject to ratification by both parties. If ratified, the UK will continue to be treated as in scope for the EWC Directive until 31 December 2020, 31 December 2021 or 31 December 2022.

After the end of such a “transition period”, the UK’s status for the purposes of the EWC Directive will be governed by: (i) any agreement entered into pursuant to the political declaration also agreed between the UK and the EU on 25 November 2018, which must ensure “open and fair competition” in respect of “social and employment standards”; or (ii) in default of such an agreement, the “backstop” contained in the withdrawal agreement that provides for no regression in “information and consultation rights at company level” in the UK.

If the withdrawal agreement is ratified, then businesses have another 22 months before needing to act. However, the UK’s Parliament emphatically rejected the agreement on 15 January 2019. This makes “no deal” a real possibility for which businesses imminently need to plan.

The UK Government’s position on EWCs in the event of a no-deal Brexit

The Government’s position on EWCs in the event of a no-deal Brexit is a “known unknown”. On the one hand, the prime minister told Parliament on 21 February 2018 that “I have been clear since I became Prime Minister that this Government will not only protect workers’ rights, but enhance them”. The Secretary of State with responsibility for employment law also told Parliament on 7 November 2016 that the Government would “entrench all existing workers’ rights in British law, whatever future relationship the UK has with the EU” and “[i]t is a helpful feature of this debate that we are able to say, clearly and unambiguously, that all the rights derived from membership of the EU will be imported into UK law”.

On the other hand, on 14 January 2019 the Government laid the Employment Rights (Amendment) (EU Exit) Regulations 2019 (“the Regulations”) before Parliament. This draft legislation clearly and unambiguously contradicts the Government’s earlier statements to Parliament by dismantling workers’ rights with immediate effect upon Brexit.

In particular, the Regulations repeal the right for UK employees to request: (i) information on whether their employer falls within the scope of the EWC Directive; and (ii) their employer to establish a EWC. However, the Regulations remain subject to scrutiny and the opposition Labour Party has previously been alive to Brexit threatening rights in the politically sensitive area of employment law. We must therefore await certainty on the final form of the Regulations that will become law.

Even more significantly, the Regulations purport to continue the existence of EWCs already operating under UK law yet, through what appears to be poor drafting, repeal the provision that makes the UK’s law on EWCs apply to businesses located in the UK. They also fail to take into account statutory rules of interpretation that mean that there can simply never be a “representative agent” in the UK of non-EU-based companies such as American ones.

Most significantly, the Regulations fail to take into account that, adopting Judge Stacey’s metaphor in the EWC case of Manpower, EU law will, unlike Cinderella’s carriage, retain its shape as a suitable vehicle for transnational information and consultation and not become a useless pumpkin upon a no-deal Brexit.

This means that, subject to how a UK court might interpret contradictory intentions in the Regulations: (i) businesses with EWC arrangements governed by UK law on 29 March 2019 may need to operate one EWC in line with the law of a remaining member state and another operating under UK law; and (ii) UK EWCs may be wholly irrelevant as employees in remaining member states will have no enforceable local law rights in respect of them, and possibly also no interest to attend as the UK will have become a third country with status vis-à-vis the EU equal to Venezuela or Nauru.

How to relocate your EWC arrangements

The UK currently appears set to leave under a no-deal Brexit and the Regulations are likely to be passed as drafted as Parliament has in excess of 600 laws to scrutinise in fewer than 60 days. In such circumstances, our general advice is to relocate existing EWC arrangements from the UK so as to extricate your business from the legal mess that appears imminent. Ireland is likely to be the destination of choice for most businesses with its common law legal system, use of the English language and business-friendly environment.

The exact mechanism by which your business can relocate from the UK will depend on your existing arrangements, including whether: (i) you have no body established, a special negotiating body or a EWC; and (ii) if you have one, your EWC operates under an “Article 13” agreement outside the framework of the EWC Directive, an “Article 6” agreement entered into within that framework or pursuant to the UK’s “subsidiary requirements”.

Irrespective of your circumstances, however, we advise that you do not act immediately. This is because this firm is currently acting before the UK courts in HPE (EWC/19/2018), a case on how a business may move its EWC arrangements from the UK. The decision is expected imminently to confirm how best to avoid successful legal challenges to relocation which, as stated above, could have criminal consequences for businesses if not done properly.

Suggested next steps for your business

Our team of UK and Irish qualified EWC specialists will regularly be updating this note before Brexit, including as soon as the decision in HPE is available or the final form of the Regulations become law. We suggest that you immediately start considering your business’s position to ensure that you are ready to act as soon as the decision in HPE is released, and we would be pleased to assist with how to tailor your planning to your business’s particular needs.