Leaving the European Union: implications for UK employment law

The aim of this article is threefold:

• to analyse the legislative framework and how withdrawal might directly impact that legislation;
• to clarify the mechanics of extraction; and
• to review (inevitably speculatively) potential outcomes if the UK leaves.

The legislative framework

European legislation can be divided into primary legislation (ie the EU treaties, namely the consolidated Treaty on European Union (2009) and the consolidated Treaty on the Functioning of the European Union (2009)) and secondary legislation (ie legislation brought into effect by EU institutions under the authority of the EU treaties).

The TEU and TFEU contain a number of articles that are relevant to UK employment law.

Some of the key provisions include the following:

• Article 8 TFEU: promotion of equality between men and women;
• Article 10 TFEU: EU is to aim to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation;
• Article 20 TFEU: nationals of a member state are citizens of the EU and shall enjoy the right to reside and move freely within the EU;
• Articles 45-48 TFEU: freedom of movement of workers within the EU; and
• Article 157 TFEU: requirement that member states ensure and maintain the principle of equal pay for equal work between men and women.

The importance of the EU treaties is twofold: first, the Court of Justice of the European Union will assess the purpose of relevant treaty articles when interpreting either the articles or any EU secondary legislation implemented to achieve the requirements of the relevant article; and, second, articles can be relied upon by individuals in proceedings before national courts.

Provisions of EU treaties have ‘direct effect’, in some cases against the state (known as vertical direct effect) and in others against the state and against other private citizens (known as horizontal direct effect). For example, Defrenne confirmed that the principle of equal pay for equal work (now Article 157 TFEU) had direct effect. The application of rights and obligations under EU treaties is expressly incorporated into UK law by s.2(1) ECA.

Secondary legislation introduced under Article 288 TFEU includes regulations, directives, decisions, recommendations and opinions. Regulations are directly applicable in all member states and can be relied upon without domestic legislation. The power is relied on relatively rarely, although the forthcoming reforms to EU data protection legislation will be implemented by this means from spring 2018.

Directives are the preferred means of legislation for the EU and are addressed to member states, rather than individuals. Member states are required under Article 288 TFEU to ensure that the result required by a directive is achieved, although how the member state does so is left to its discretion.There are more than 35 EU Directives that have resulted in a raft of UK employment legislation, much in the form of statutory instruments under the authority of the ECA (ie TUPE, the Working Time Regulations and the Agency Worker Regulations). However, there are a number of significant aspects of EU legislation implemented through primary domestic legislation, including redundancy consultation requirements and the equal pay and equal treatment requirements in the Equality Act 2010.

Decisions, recommendations and opinions are rarely used by the EU in the employment context and, of these, only decisions are binding (but only upon those to whom they are addressed). If the UK were to leave the EU, it would precipitate complex questions concerning the effectiveness of EU legislation and the various domestic laws that implement it. Assuming that the UK would cease to be a party to the various EU treaties (as appears to be the effect of Article 50 TFEU), s.2(1) of the ECA and other relevant provisions of that act that stipulate that the provisions of such treaties are binding upon the UK would need to be expressly repealed.

Whether the ECA as a whole would immediately be repealed in such circumstances, however, is unclear. The answer will depend on the extent to which the government: (i) wishes to repeal or reform the extensive secondary legislation created under the authority of the ECA (to implement directives and other EU legislation, not only in the field of employment law, but also in the wider context); or (ii) is able to do so, based on the outcome of exit negotiations with the remaining EU member states.

The mechanism for departure

Article 50 TFEU sets out the ground rules but does not do so in a manner that is entirely clear. First the departing member state gives notice of its intention to leave. There is no requirement for this notice to be backed by a plebiscite or referendum. Second, the European Council (having received recommendations from the Commission (Article 218(3) TEC)) then conducts negotiations with the departing state, relieving the leaver from an obligation to negotiate separately with each member state. Article 50 appears to place a fairly clear obligation on the Council to try to reach agreement (‘the Union shall negotiate and conclude an agreement …’, emphasis added). That apparent obligation is, however, qualified by a third requirement, which is the need for approval to be given by the European Parliament and then by the Council acting by a qualified majority. The negotiations are to be carried out according to guidelines provided by the Council.

The timing of the notice is entirely a matter for the leaving state. Politics not law will dictate how long after a vote to leave that will occur, although David Cameron has declared he will give notice the day after a ‘leave’ vote in the referendum. There might be many reasons why a UK government might want time to prepare before that happens. There is a potential deadline in Article 50 because two years after notice is given all treaties cease to apply to the departing state unless that deadline is extended mutually with the European Council, this time, acting on a unanimous basis. Many have predicted that more than two years may be necessary. While all lawyers know that if there is a will on both sides agreements can be concluded remarkably quickly, again this will turn on the politics. The extension of time can be for any agreed period. The departing state may not take part in any of the deliberations of the European Council in relation to exit negotiations but Article 50 says nothing about the European Parliament.

Any concluded agreement would then be placed before the UK Parliament for ratification. This in theory raises the possibility that either House might refuse to ratify the agreement. That thought pushes speculation into the realms of Mystic Meg, where perhaps it should remain.

Possible outcomes following departure

The political argument has largely focused on what the UK’s relationship with its former EU partners might look like following departure. Assuming that the continuation of favourable trading arrangements with the EU is the desired outcome, the options appear to range from continuing membership of the European Economic Area (ie Norway), bilateral trade agreements with the EU (ie Switzerland) or a bespoke UK solution (as yet unknown). However, the price of a free trade agreement with the EU may include the continued application of EU social and employment legislation in the UK (as is the case for both Norway and Switzerland).

Many have also attempted to predict which laws would survive, be amended or be removed. Subject to whatever deal is done and the current Government being in place, the received wisdom (with absolutely no guarantee of accuracy) appears to be that Working Time and Agency Workers regulations will go, together with the Capital Requirements Directive IV.

Candidates for amendment are compensation limits in discrimination; compensation for injured feelings; the burden of proof rules in discrimination cases; aspects of TUPE, for example, informing/consulting rules and the ability to harmonise; collective redundancy rules; and part-time worker and immigration rules. No change is generally anticipated for family friendly rules; most of the Equality Act; trade union laws; and most of TUPE (except as set out above).

Future issues

Our view is that it is likely that it will take at least two years following notification before the UK’s departure. During the intervening period, the UK will remain a member of the EU and subject to its obligations. There are a number of potential reforms that the EU institutions are currently working on, including: a directive that would extend the principle of equal treatment outside the labour market; a directive that aims at improving the gender balance on boards of listed companies; and a new posted workers directive relating to pay equality.

The European Commission has also recently undertaken an impact assessment of the Working Time Directive and has consulted on the possible consolidation of three directives relating to collective consultation (specifically, the consultation requirements relating to collective redundancies consultation and transfers of undertakings and general consultation obligations under the Information and Consultation of Employees Directive (Council Directive 2002/14/EC)).

There are no definitive timetables for the introduction of any new law on the back of these initiatives and any changes to the legislation are likely to be in the form of directives, with member states being given time to implement domestic legislation. Therefore, it is possible that the UK would not be obliged to comply with any new legislation in these areas before leaving.

One change that is likely to come into force before departure, however, is the General Data Protection Regulation, which is likely to be applicable in the spring of 2018. The regulation will introduce common standards across the EU relating to the protection of individuals with regard to the processing of their personal data and the movement of such data. The proposed standards are more onerous than those currently applicable in the UK under the Data Protection Act 1998 and their application is likely to be a topic for negotiation between the UK and its EU partners relating to any exit arrangements.

Finally, a thought on case law. At present we have a situation where many cases have turned on interpretations of decisions of the CJEU and even judges of employment tribunals have the temerity to redraft Acts of Parliament to comply with European laws. Following departure, many lawyers may be seeking to distinguish these decisions if the laws on which they were based have been set aside. It seems highly likely that an agreement to depart will foster much legal inventiveness. We do not, of course, recommend that any votes be cast on that basis.

This article was written by Stephen Levinson of Keystone Law and Mark Hunt of BNY Mellon and was first published by the ELA Briefing.