Following the decisive vote by Parliament to reject the draft Withdrawal Agreement, the possibility of a Hard/No Deal Brexit in March has increased. If they haven’t already, businesses need to start planning for this very disruptive possibility and take whatever steps they can to mitigate the most pressing risks to their operations.
The following is an outline of some key issues that businesses should be addressing. This list is not exhaustive. Each business will be exposed to Brexit in different ways, and new risks are likely to emerge. We’ve included a link to a more detailed analysis of the most pressing legal risks below.
- Commercial contracts
- Data Protection
- Intellectual property (IP) rights and other rights
How might the loss of access to the EU single market affect your trading?
Consider whether new tariffs/taxes might apply to your business and start talking to your customers/suppliers about mitigation/sharing strategies. Do any existing contracts need to be re-negotiated or varied? Consider which party will bear any increase in tariffs (or taxes, particularly VAT).
Delays – Consider how to deal with expected customs and transport delays if they might affect your business. Consider whether changes to EU-based conformity assessment could cause delays to your supply chain.
Changes to procedures – Familiarise yourself with the rules around importing and exporting outside of the EU
Packaging of goods
Consider the impact on labelling, packaging and other regulatory standards (if applicable).
How might your workforce and the workforces of your suppliers and/or key customers be affected?
Suppliers who rely on EU workers
Consider how best to adapt relevant procedures. Consider advising any eligible EU workers to apply for settled status and consider your mid to longer term strategy by considering the UK Government’s White Paper on “The UK’s future skills-based immigration system”
Seek advice on whether you operate a business exempt from any restriction on freedom of movement.
3. Commercial contracts
Consider auditing high-risk/high-value contracts to determine whether they are vulnerable to the changes, and come up with a plan to engage with your relevant counter-parties. Pay particular attention to:
- Variation of contractual provisions: Make sure that, if you need to vary your contracts, you do so in accordance with any variation clauses, as these have been strictly interpreted recently by the Supreme Court.
- Force majeure: Some of the effects of Brexit may give rise to an event of force majeure
- Other key considerations may include: Material adverse change clauses, whether the contract might be frustrated (made impossible to perform), references to EU Law, changes in law, risk sharing mechanisms, novation and assignment, jurisdiction clauses (and enforceability of court judgments), insolvency provisions and data protections considerations (see below)
- VAT: VAT clauses in every commercial contract will require review, resulting in administrative burden and cost to businesses. If the UK leaves the EU without an agreement, there will be changes to import VAT but many of the existing VAT rules will remain in place. However, for businesses supplying insurance and financial services, if the UK leaves the EU without agreement, the VAT deduction rules for financial services supplied to the EU may be changed
- FX fluctuations: If you do business in Euros consider how you might share the risk of currency fluctuations with your trading partners and/or look to hedge your exposure.
4. Data protection
A Hard/No Deal Brexit would mean that the UK becomes a third country for the purposes of GDPR on Friday 29 March and no longer part of the EU’s regulatory scheme. This will have immediate and wide ranging effects:
Data transfers: If you transfer data to and from the EU, you may need to re-legitimise this by putting in place standard contractual clauses.
Binding corporate rules: If you rely on BCRs blessed in the UK by the ICO, these may no longer be valid for the EU and you may need to have them blessed by a data protection authority of a remaining Member State.
EU representative: UK businesses that have operations processing personal data in the EU after Brexit may need to appoint a representative in the EU that will need to register with a data protection authority in one of the remaining member states.
“One stop shop”: UK companies lose the benefit of the “one stop shop”/“lead supervisory authority” regime in GDPR. Consider whether you will be required to deal with multiple regulators simultaneously in the event of an issue affecting people in more than one country.
5. Intellectual property (IP) rights and other rights
European IP: The government has undertaken that, even on a No Deal Brexit, EU IP rights will continue to be protected in the UK through the provision of equivalent registration in the UK. These undertakings have been given through government guidance and notices. The way in which these schemes will actually operate and the legislation supporting them have yet to be published. Businesses should subscribe to the relevant government updates to stay abreast of developments.
Domain names: Consider transferring .eu domains to an associated company registered in the EU. UK companies will no longer be entitled to hold .eu domains upon exit, and so they could be lost.
Digital Single Market: Consider the impact of leaving the “Digital Single Market” on any software, cloud service and copyright licences or agreements.
Our Commercial and Technology law team can assist you with facing into these uncertain times. We’ve developed strategies, checklists and toolkits to aid our clients to uncover and start to mitigate key risks to their businesses.
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