The government has confirmed it will not be invoking Article 50 at this stageWith last month’s EU Referendum results, there’s probably been more debate and confusion over what the results actually mean and how they will impact businesses than there was in the run-up to the vote.
Looking ahead at both the short-term and long-term impact of ‘Brexit’, here’s what we can be sure on at this moment in time:
First things first: technically, the referendum is merely advisory, however, it is clear that the government intends to be bound by it (for now at least).
- There will be no immediate changes in relation to the current legal, constitutional or regulatory framework; EU law will continue to apply to and within the UK until the UK formally leaves the EU. In the meantime, this means:
1. EU regulations which have ‘direct effect’ must be followed within the UK;
2. New EU directives will need to be included within UK legislation (provided that they are due within the ‘exit’ timeframe);
3. The UK Courts will continue to interpret the law in accordance with decisions of EU Courts – so all those ECJ-driven holiday pay decisions which have been causing HR professionals such headaches aren’t going to vanish any time soon!
- However, the ‘New Settlement for the UK within the EU’ as agreed between the European Council and David Cameron in February, was subject to the outcome of the referendum and, therefore, will no longer take effect.
- Behind the scenes, there will be big decisions on what will happen to existing legislation after ‘exit point’. UK and EU legislation, and UK and ECJ court decisions, are intertwined: unpicking the legislation, and revisiting previous Court decisions in a ‘post-EU World’, won’t be an easy, or a quick job.
- You’ve probably heard talk in the media about the ‘four freedoms’. One of the aims of the EU’s single market was to ensure that there would be free movement of goods, capital, services and people within the Member States (and beyond, as explained in the point below). This is an important EU principle, and isn’t something which the remaining Member States are likely to easily give up on or allow to be watered down.
- The four freedoms also apply with the European Economic Area (EEA). The countries that fall within the EEA include the EU Member States and three of the four members of the European Free Trade Association (EFTA), namely Iceland, Liechtenstein and Norway (The fourth member of EFTA, Switzerland, has its own bilateral agreements.) If the UK wished to remain in the EEA, we may have to accept and agree to the four freedoms in order to do so.
- At the national level, the UK must find common ground with EU Member States in order to reach a trade deal with them. Even, if this doesn’t require some ‘national’ agreement to be bound by EU law, at a company level EU Member State companies will continue to be bound by EU law. UK companies wishing to trade with these companies, may therefore find that they have to comply with certain EU legislation (e.g. on product standards).
- Of course, an exit from the EU will have far reaching consequences for the UK as a whole but also for specific industries or sectors:
Recruitment:
- It is possible that free movement of people will end at ‘exit point’. If that were the case, a decision would need to be made about what immigration process would be used (and whether it would be a new process for all immigration or whether it would just
apply to the EU). - One result could be that EU workers would have to apply for visas to work in the UK (and vice versa for UK workers, working in the EU). The eligibility requirements for work visas will need to be determined (a points system has been suggested but we are far from a decision about whether this is what will be adopted). If any new immigration assessments were too rigorous, the UK might find itself with a shortfall of low-skilled workers (and resulting wage inflation), and of course there are entire industries, such as retail and leisure that rely heavily on their access to this workforce.
- It is not yet clear that our exit from the EU would mean that free movement of people would cease. This will depend largely on what deal is reached as to our ongoing future relationships, e.g. if the UK wished to remain part of the European Economic Area (EEA) it’s probable that free movement would be a pre-requisite for this and would therefore continue.
- EU-driven legislation, like the Agency Workers Regulations 2010 and the Working Time Regulations, may also be revisited and revised. It is likely that EU law that has been well received by employers and employees wouldn’t be fundamentally affected but certain areas of law considered less workable may be re-looked at once the exit point has been passed. The changing market conditions will, of course, feed into such decisions.
Commercial, small business:
- Small businesses may have already felt the pinch. Confidence even within the UK has dipped with some ‘deals’ being taken off the negotiating table.
- Companies which rely on EU Member States for trade, will be most dependent on the conclusions of any decisions on trade and will feel the negative impacts of doubt and uncertainty until this point. We’ve already seen significant volatility with the value of the pound which will impact on those buying or selling internationally.
Automotive:
- Many of the world’s largest car groups have manufacturing bases in the UK and will be keen to ensure their business remains competitive.
- The UK Government will be under pressure to reach a deal which safeguards jobs and protects UK automotive interests.
What now?
- The government has confirmed it will not be invoking Article 50 at this stage. This Article sets out the procedure to be followed if a member state decides to leave the EU and would have started the clock on the two-year withdrawal period. The Government currently intends to proceed with the formal exit process under Article 50 at some point following David Cameron’s departure from office in (or before!) October 2016, which indicates that there is no urgency. However, current noises from the EU powers indicate that they’d like to see the ball start rolling sooner, rather than later.
- Currently, there are, of course, question marks over the who, what, when and how of Brexit with a long process of negotiation before implementing the UK’s exit to help shape what the future will actually hold. We predict lots of horse-trading, on both sides of the table as this decision will see changes spread across not only the UK and its constituent nations, but also the EU as a whole.
- The team at HRC Law, will be reviewing developments and providing updates on an ongoing basis.
Initially published on 30 June 2016: This Bulletin contains general overview information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.
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