Brexit – what are the legal implications?

Overview

Your legal rights and obligations are unchanged following the Referendum and the UK’s vote to leave the European Union (EU). The UK currently remains a member of the EU and EU law still applies as it did before the vote.

Article 50 of the Treaty on European Union sets out the process for a member state to withdraw from the EU. Until this process is concluded, the UK remains an EU member with all the rights and obligations attached to EU citizens, businesses and the member states themselves.

The Article 50 process is triggered by a state formally notifying the European Council of its intention to withdraw. Negotiations for the terms of withdrawal then begin. The government’s current position seems to suggest that triggering the Article 50 process is unlikely to take place until later this year, at the earliest.

Article 50 foresees a two year period for the withdrawal process to occur. The purpose of the withdrawal negotiation is to ensure that EU membership rights and obligations conclude in an orderly manner. In certain circumstances, the two year period can be extended. Once the process concludes, the UK would leave the EU and EU membership rights and obligations would cease to apply.

Currently though, it seems likely that there will be no change until late 2018. Rradar will be keeping a very watchful eye on how the Brexit negotiations develop and the effect that this will have upon domestic legislation and regulation.

As negotiations and their potential effects develop, we will be available to advise our clients on the implications for their businesses on a proactive basis.

Employment Law

In our view – and once negotiations are complete – it is unlikely that there will be substantial changes to UK employment law. In the first instance, and contrary to some of the misleading statements made during the course of the Referendum campaign, much of our UK employment law does not emanate from Europe. For example, the right to claim unfair dismissal, to be protected from detriment when making a protected disclosure (whistle-blowing), to claim a redundancy payment and not to suffer unlawful deductions from wages are all protected by the Employment Rights Act 1996 – an entirely British statute.

Of the legislation that has its roots in Europe, such as the anti-discrimination legislation and the right to paid holidays, it is highly unlikely that this legislation will be repealed post-Brexit. In the first instance, the UK implemented European Commission (EC) directives on anti-discrimination laws long before it was required to do so by the EC. These laws are now relatively long-standing when one thinks that the Race Relations and the Sex Discrimination Acts were both established in UK law in the mid-1970s. In the case of holiday pay, the EC Working Time Directive provides for 20 days’ paid holiday per year. However, UK law supplements this to the extent that the minimum holiday entitlement enjoyed by British workers is 28 days. Had the Government wanted to reduce workers’ entitlements to paid holiday then it could have done so lawfully long before Brexit.

Perhaps more importantly, it is our view that any government would see it as politically unacceptable to repeal such fundamental protections as the anti-discrimination laws now codified in the Equality Act 2010 or the right to paid holidays.

Our view, therefore, is that whilst there may be relatively minor changes to employment laws in the future (which might include amendments to TUPE (the Transfer of Undertakings (Protection of Employment) Regulations) and amendments to the rules on working time and agency workers) the fundamental employment protections that UK workers currently have will remain intact post-Brexit.

Contracts and trading relationships

Many commercial contracts are likely to remain unaffected by the UK’s exit from the EU. This is because contracts are primarily based on the commercial bargaining position of the parties and are less heavily regulated than other areas of law.

EU legislation (contained in the Rome I and Rome II Regulations (Regulations)) currently preserves the rights of contracting parties to choose the governing law of their contractual relationships. If the Regulations are kept in place, nothing would change in the immediate term. However, it is possible that the interpretation of the Regulations could ultimately start to differ between the UK and remaining EU member states.

If the Regulations no longer apply following the UK’s exit, the English courts are likely to revert to applying the rules (including common law) in force before their implementation. Those rules, such as the Rome Convention, are similar to those currently in force, notably in relation to the parties’ choice of law. We would not, therefore, expect the position on the law governing contractual obligations to change materially.

In any event, when the UK eventually leaves the EU, the courts of EU member states will continue to respect the parties’ choice of governing law on the same basis as they did before applying the Regulations. This means that a choice of English law would still be respected.

The operation of existing, particularly longer-term, contracts may be affected in a way not envisaged by the parties at the time of contracting. This means that contracts could be frustrated or force majeure provisions triggered. We would therefore recommend that you review your existing contracts and undertake proactive commercial due diligence. Analysis of clauses dealing with law, compliance with law, changes to the law and payment terms will be crucial. Rradar will be on hand to guide you through this process.

Shorter term contracts are less likely to be affected by the UK exiting the EU. The two-year negotiation period once Article 50 has been triggered will give contracting parties time to consider how the terms of Brexit might affect their longer term contractual arrangements and to seek to renegotiate where necessary.

In view of the current uncertainty, it is advisable when negotiating the terms of any new contracts to consider how they might be affected by the UK’s eventual departure from the EU.

Ideally, you should seek to provide accordingly in any new contracts to the greatest extent possible. You may, for example, expressly include or exclude the exit in or from any force majeure provisions.

Contracts and Dispute Resolution

As a member of the EU, the UK benefits from well-established practices and procedures relating to the determination of the national law that is applicable to commercial parties’ contractual relationships. Similarly, there are conventions and regulations that impose a degree of certainty and consistency about the country or forum for resolution of contract disputes between parties based in different European countries; about how court proceedings should be initiated and served, so as to fix the respondent party with notice and an obligation to participate in the proceedings; and for a streamlined process of the recognition and enforcement of judgments in commercial disputes throughout the EU.

Although, at this stage, we do not anticipate that they will substantially alter, whether – and the extent to which – the existing practices and procedures will remain in place will be affected by the Brexit negotiations and the arrangements agreed for the future relationship between the EU and the UK.

For example, there may be differences in the procedure for the recognition and enforcement of judgments of English Courts across the rest of the EU, depending upon whether the UK seeks a continuing relationship based upon participation in the European Economic Area or entertains a clean break and approaches trade with Europe as it would with any independent country. Without the largely procedural mechanism by which an English Court’s judgment may be enforced across the EU at present – and following a clear break – the ability to enforce the same judgment in any of the EU countries could become subject to a more complicated and less certain procedure involving direct applications to the Courts of each recipient country for permission to enforce the judgment. A landscape of more expensive and less certain means of enforcing contractual obligations would be likely to have a bearing on the terms and circumstances for trade with and across Europe.

We will continue to monitor and provide updates in relation to any significant developments in this area.

Data Protection

Leading up to Brexit, the UK was gearing up to implement the recently finalised General Data Protection Regulation (GDPR). This was to represent the most significant change to the rules relating to data protection since the Data Protection Act itself. The regulation was adopted as recently as 27th April this year and was due to be implemented on 25th May 2018. Its aim was, amongst other things, to facilitate trade by unifying the regulations surrounding data handling throughout the EU.

However, post-Brexit, it is not clear what is to become of the GDPR.

Whilst the Information Commissioner’s Office (ICO) has confirmed that the GDPR remains important for the UK, Baroness Neville-Rolfe, until July the UK minister responsible for data protection, has acknowledged that the position will not become clear until the terms of the UK’s exit from the EU have taken shape.

Clearly, continued trade with the EU will depend upon UK companies processing EU data although the continued ability to do this in the future will depend upon the UK being able to show that it is able to protect personal data adequately.

One method of doing this in a convincing way would be for the UK to continue to adopt a regime in line with GDPR. Indeed it seems that the ICO is steadfastly about to issue guidance upon the GDPR, initially setting out what the changes will mean for businesses.

However, Baroness Neville-Rolfe commented that post-Brexit “we do not know how closely the U.K. will be involved with the EU system in the future … On the one hand, if the U.K. remains within the single market, EU rules on data might continue to apply fully in the U.K. On other scenarios, we will need to replace all EU rules with national ones…”

Other methods of illustrating the ‘adequacy’ of our measures in this area would be to become part of the European Free Trade Association (EFTA) thus keeping the UK in the European Economic Area (EEA) and thereby ensuring the free movement of personal data given the parity between its data protection regime with that of the EU.

A period of uncertainty, however, appears to be all that it is certain. For the time being, the GDPR will be taking direct effect unless UK-specific change is implemented. In the circumstances, it seems sensible for businesses to begin a process of alignment with the GDPR’s requirements as the future regime, whatever it may be, is likely as a matter of necessity to take on board many of its central provisions.

Business Crime and Regulatory

The implications of Brexit are uncertain at this time and will not be fully known for many months.

Whilst UK domestic law provides the legal framework for UK businesses, Europe plays an important role in areas as diverse as competition law, pollution regulation and food safety.

As noted, until the UK formally leaves the EU it will be ‘business as usual’ for UK regulators such as the Health and Safety Executive, the Environment Agency and Local Authorities.

Rradar’s Business Crime and Regulatory team will be monitoring developments closely. We follow updates from all UK regulators and will be on hand to advise our clients of changes to current UK legislation, whether they are interim changes prior to EU withdrawal or any major changes brought about by the decision to leave the EU.

Conclusion

Despite the current uncertainty surrounding Brexit and the terms of the UK’s future relationship with the EU, it is unlikely that there will be any significant changes over the next couple of years whilst the terms of the UK’s exit are negotiated. We will continue to monitor the negotiations and any significant developments and will prepare further updates and guidance as and when the basis of the future trading relationship with the EU becomes clearer.

For further information, please contact Emma Dann in our corporate and commercial team in the first instance. Emma’s contact details are:

Email: emma.dann@rradar.com

Telephone (DDI): 01482 755275