What does Brexit mean for UK employment law?

On 17 January 2017, the Prime Minister Theresa May gave a major speech on the Government’s objectives for exiting the EU, but it is still far from clear what new relationship we will eventually have with the EU and how this will impact on employment regulation in the UK.

A significant proportion of our current employment law comes from Brussels. Once out of the EU, the Government could in theory repeal discrimination laws, collective consultation obligations, transfer of undertakings regulations, family leave, working time rules and duties to agency workers among other laws. But would this really happen?

Many EU employment protections, such as equal pay, race and disability discrimination laws and the right to return from maternity leave existed in some form in the UK before being imposed by Europe. It seems unlikely that a UK government would rescind rights that predate European laws.

Another reason that the Government might be reluctant to repeal employment law protection is that much of it is regarded, by employers, employees and even by politicians, as a good thing. Employment rights such as family leave, discrimination law and the right to paid holiday are now widely accepted; indeed, family leave rights in this country go further than required by EU directives.

David Davis, the Minister for Exiting the EU, has made clear that he is not in favour of cutting back on employment rights. And the Prime Minister, in her speech on 17 January 2017, promised not only that workers’ rights would be “fully protected and maintained” through the Brexit process, but that “we will build on them” to “make sure legal protection for workers keeps pace with the changing labour market”.

Process and timescale for Brexit

It will inevitably take some time for the UK to extricate itself from the EU. The Prime Minister has indicated that the Government will give the EU formal notification of the UK’s withdrawal by March 2017. There is, however, a legal challenge which might delay matters, aimed at forcing the Government to get Parliament’s agreement before notice is given. The judgment of the Supreme Court in this case is imminent.

Once notice has been given, there will be a two-year period during which the parties will negotiate the terms of departure and possibly put in place new trading arrangements. Some commentators believe it will take considerably longer than that to agree exit terms but, unless both the UK and the European Council agree to extend negotiations, the UK will simply cease to be a member of the EU at this point (i.e. circa March 2019).

The Government’s aim will be agree a new future trading relationship with the EU. It seems highly unlikely that full agreement on a permanent, long-term trade deal could be achieved within the two-year negotiating period mentioned above, but it is possible that a transitional arrangement could be put in place. The Prime Minister has said that she envisages a “phased process of implementation” for any new trading partnership with the EU.

It is possible that a new trade agreement between the UK and the EU – whether temporary or permanent – could require adherence to a certain amount of EU employment law. This is the case for the arrangements that Switzerland and countries in the European Economic Area, such as Norway, have with the EU. While the Prime Minister has made clear that she envisages the UK leaving the EU in such a way that it is no longer a member of the Single Market, this would not seem to rule out a Norway or Swiss-style arrangement on a transitional basis.

Untangling the web

Even after the exit process has ultimately been completed and the UK has left the EU (and assuming no other restrictions imposed by another free trade agreement), European law will continue to apply in one way or another. This is because the process of disentangling it from UK law will take some time. Some EU-derived laws are contained in secondary legislation made under powers given by the European Communities Act 1972 (“ECA”), the law that implements EU law in the UK. Other EU laws are implemented through primary legislation, such as the Equality Act 2010 (“EqA”).  

The ECA will have to be repealed in order for the UK to remove the influence of EU law but, if it is repealed without anything to replace it, the secondary legislation made under it would just fall away leaving unwanted gaps in the law. To get around this problem, the Prime Minister has said she will implement “The Great Repeal Bill” which will both repeal the ECA and at the same time preserve all EU law that has not been fully implemented into UK law and would otherwise disappear.

This will enable a gradual, piece-by-piece approach with legislation being repealed – or merely modified – over time. Despite the Prime Minister’s promise to preserve and protect workers’ rights (mentioned above) it is likely that the Government, freed from European constraints, would be tempted to tinker with certain aspects of current employment regulation. Which areas would the Government be most likely to change?

Agency workers

The most likely contender for complete revocation is the Agency Workers Regulations 2010. These are unwieldy, unpopular with business and not noticeably popular with workers either.

Discrimination and family leave

For the reasons already mentioned, any wholesale repeal of equality protection or family leave seems improbable. Although the Government could repeal the EqA after exiting the EU, it would be a controversial move. It is difficult to imagine many employers arguing that they should be free to discriminate and any change to the existing regime of direct discrimination, indirect discrimination and harassment seems unlikely. There may, however, be some small modifications. It is possible that, following a Brexit, a cap could be imposed on compensation for unlawful discrimination. Another possibility is that the Government could change the law to allow positive discrimination in favour of under-represented groups in a way that is currently impermissible under EU law.

Rights to parental and family leave in the UK are a mixture of rights deriving from the EU and rights originating in the UK. UK maternity leave and pay preceded the EU rights and are more generous in some respects. The new right to shared parental leave and the right to request flexible working are both purely domestic in origin. Accordingly, although some critics consider these rights to be a burden on business, there seems little political appetite for their repeal or even for watering them down.

Transfer of undertakings

TUPE can attract a bad press, but the principle that employees should transfer when a business changes hands or is contracted out is often useful for business and is incorporated and priced into many commercial outsourcing agreements. For this reason, although there may be some businesses that would like to get rid of TUPE, it seems more likely that the Government would make some small changes to make it more business friendly, such as permitting the harmonisation of terms following a TUPE transfer. Read our further thoughts on the implications of Brexit for TUPE here.

Holidays and working time

The right to statutory paid holiday under the Working Time Regulations 1998 (“WTR”) is also now broadly accepted. However, there are aspects of this right, and of other rights under the WTR, that the Government might want to amend if not prevented from doing so by membership of the EU. Various European Court of Justice (ECJ) decisions on holiday pay are unpopular with UK businesses - for example, the right to keep accruing holiday while on sick leave and the fact that holiday pay should be based on all aspects of remuneration, not just basic pay. The Government might choose to tweak these laws to make them more commercially acceptable, such as by retaining a right to paid holiday based on basic pay whilst limiting rights to accrue and carry over holiday pay. The UK may also wish to remove the cap on weekly working hours under the WTR. It is less clear that there is a demand to limit the WTR rights to other rest breaks or the protections for night workers.

Collective redundancy consultation

Collective redundancy consultation obligations were reduced by the last government. The requirement is now not particularly onerous and it is not clear what might happen to it following Brexit. Trade unions are likely to fight against any proposal to remove it altogether but employees arguably do not feel strongly about this right (and many do not know about it). On the other hand, it is not obvious that businesses regard it as a burden that should be removed. Similarly, other collective consultation rights such as national and transnational works councils are possible candidates for repeal but the obligations imposed by them on UK businesses are relatively light.

Legal precedent

If we retain some EU law following Brexit, the UK courts are likely to continue to regard judgments of the ECJ on those laws as persuasive, even if not binding. In any event, pre-Brexit UK court decisions incorporating ECJ reasoning would remain binding on lower courts and tribunals. It is not clear how far UK courts would be able to treat exit from the EU as a material circumstance that would allow them to depart from precedent. They might do so, but could feel obliged to follow precedent in order to preserve legal certainty.

Conclusion

In conclusion, it seems unlikely that UK employment law will be transformed in significant ways as a result of Brexit, at least in the short term. In the medium term the Government may start to tweak it to make it more “business friendly” and there may be one or two laws that are repealed altogether. It is difficult to envisage, however, a wholesale “bonfire of regulations”, at least without a radical cultural and political shift. In the longer term, however, if the UK is outside the Single Market, there will inevitably be a growing divergence between UK and EU employment law.