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BREXIT: Employment law implications of the UK's vote to leave the EU

FOCUS: Although much of the UK's employment law stems from the EU, we are unlikely to see a 'bonfire of EU regulations' as a result of the recent Brexit vote.26 Jul 2016

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Many of the employment law protections which come from EU law are firmly embedded in the UK's legal and ideological framework - for example, the protection against unlawful discrimination. However, there are some aspects of EU law which are arguably less embedded in the UK than others, and these may be more likely to change once the 'Brexit' process is complete.

Areas of potential change

Some aspects of the Transfer of Undertakings (Protection of Employment) (TUPE) regulations could change after Brexit; although as we saw when the UK consulted on its own changes recently businesses do like those aspects of the regime that provide certainty.

Organisations entering into contracts for services need to be aware that it is possible, albeit quite unlikely, that the TUPE regulations will no longer apply when the contract eventually terminates. This could leave organisations exposed to significant redundancy costs that they have not budgeted for. They may therefore want to negotiate redundancy indemnities, and/or provisions which oblige the parties to accept that TUPE effectively applies on termination, notwithstanding that the regulations may no longer exist at the point of termination. Many TUPE arrangements provide for this already, but this will now be more important than ever before.

We might also see a rash of holiday pay claims, supported by the UK's trade unions, in an attempt to have those claims heard before any change to the Working Time Regulations (WTR) by the UK government.

International organisations with European Works Councils (EWC) will have to consider the possible implications for current EWC arrangements. The extend of any changes will largely depend on the outcome of the UK's Brexit negotiations - for example, nothing is likely to change in the event that the UK joins the European Economic Area (EEA).

Employee relations

Employers need to make it clear to their European workforces that targeting UK or EU nationals because of Brexit will not be tolerated. There have been reports from employers already of bullying and harassment as a result of the Brexit vote. Employers should consider clear communications to employees to the effect that such behaviour will not be tolerated, engaging employee and union representatives to assist if necessary.

Brexit and mobility

Depending on the nature of the UK's future relationship with the rest of the EU, it is possible that organisations will consider changing their operating models. For example, depending on the extent to which financial services 'passports' are retained post-Brexit, employers may wish to move staff from the City of London to one of the financial centres within the eurozone, such as Dublin or Paris. This is likely to result in restructuring or redundancy exercises, or the possible operation of existing mobility clauses.

This can be challenging if these exercises have not been operated in the past. Employers might also consider now including specific 'Brexit mobility' clauses in employment contracts or introducing them with existing employees, providing flexibility to move staff to EU centres in the event that this becomes necessary.

Talent and recruitment

Any restrictions on the free movement of labour that are introduced post-Brexit will have a material impact on the ability of organisations to recruit talent from other EU member states. There may also be implications for existing staff from the EU performing significant roles in the UK.

Organisations should be identifying their existing EU migrant workforce and assessing the extent to which certain parts of the business are reliant on using employees from other EU states to ensure that they have robust workforce and contingency planning in place, particularly around key roles.

French employers have already raised concerns about the future alignment of social security regimes and freedom of movement, which will cause issues for them where there are secondments or expatriation to the UK. French, German and other EU companies are also concerned about the position of UK employees abroad and their right ultimately to remain there, as well as the position of their own nationals in the UK.

International companies may also need to find a solution to data transfer issues. The UK is currently deemed to have an 'adequate level of data protection' enabling smooth data transfer within the EU, but this may change depending on the outcome of the Brexit negotiations.

Contracts

Contracts may have to be reviewed to amend references to the EU or to EU law.

One area where this is particularly relevant is restrictions referring to the EU, which may need to be tweaked to reflect the specific countries covered.

Economic impact

We have already had requests from organisations for their senior executives to be insulated against any decrease in the value of the pound, or any increase in the UK cost of living. The inclusion of currency insulation and cost of living allowance clauses in employment contracts is one solution, but these are often challenging to operate in practice.

European companies may also need to react to the forecasted slowdown of the economy in the UK and potentially across Europe, and to familiarise themselves with the employment law and restructuring regime in the UK. UK-based companies would be wise to do likewise in case of any need to restructure their European operations.

Continued volatility in the market, gilt yields and the value of sterling will have an impact on the health of defined benefit (DB) pension schemes. Employers may need to reassess whether they can still afford to fund these schemes and to meet any guarantees they may have given to the scheme trustees. This may in turn result in UK employers looking at benefit redesign exercises, which have in any event been popular in recent years.

Diane Nicol is an employment law expert at Pinsent Masons, the law firm behind Out-Law.com.

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