InsightsInsight - Commercial Law - POSTED: July 1 2016
Brexit: What do we know already about the impact on business?
Since the UK voted to leave the European Union after 43 years, organisations up and down the country have been looking for clear answers about the implications of Brexit for their business.
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Here we provide a summary of key legal questions that our clients have been asking us since the outcome of the referendum was announced. If you would like any further advice on how Brexit might affect your business, please contact James Bullock, Head of Corporate and Commercial or Catherine Daw, Head of Employment.
Q: Could Brexit void an existing commercial contract?
A: Many existing agreements between UK and European businesses will include a clause specifying that it is to be governed by ‘English Law.’ However, post-Brexit it is clear that the foundations of English law have shifted dramatically. Nonetheless, businesses should be reassured that in the majority of cases existing commercial contracts will not become void and will continue to operate in the same way. This is because the parties remain bound by their contractual obligations and responsibilities as defined in the agreement.
Suggestions have arisen that for some commercial agreements, Brexit will significantly change the basic nature of the agreement and some may even become impossible to enforce. A party may seek to terminate an existing commercial contract, relying on the grounds of material adverse change or on a force majeure clause. Whether this would be accepted is unclear and it therefore may be beneficial for parties to carefully review their agreements.
Q: Can I still contract with businesses in the EU?
A: As the UK begins negotiations with the EU about our withdrawal and what form our future relationship will take, we all face an uncertain period. However, as private organisations, UK businesses will be free to contract with businesses across Europe and enter into new commercial agreements. What will change however is the foundation and boundaries of these agreements, as it remains unclear what trade barriers or tariffs may be imposed. Until these details are confirmed UK businesses are unfortunately placed in uncertain waters.
Q: Can UK businesses now disregard current EU competition laws?
A: Despite withdrawal from the EU, UK businesses that contract with European businesses will still need to continue to adhere to the European standards and rules. UK businesses may in fact be placed in a situation in which they have to comply with both EU competition laws and domestic competition laws, arguably making them more vulnerable to non-compliance and potential penalties. Therefore whilst the UK will no longer be automatically bound by EU competition laws when it leaves the EU, and will have no input as to their future content, it is likely that businesses will continue to be subject to their requirements if they continue to trade and contract with EU businesses.
Q: How will Data Protection Laws be affected by Brexit?
A: Following the Brexit result, the Information Commissioner’s Office (ICO) has issued a statement clarifying that the General Data Protection Regulation (GDPR) will not directly apply in the UK when the UK leaves the EU. The GDPR was due to be implemented in May 2018 and aimed to create a single legal framework for data protection across the EU member states. However, the ICO has also stated that if Britain wants to continue to trade with the Single Market it would need to prove “adequacy.”
It again remains unclear what “adequacy” would require but arguably it would be best practice for UK businesses to adopt very similar practices and requirements as specified in the General Data Protection Regulation. This would mean they can continue to trade with European businesses and would instil a number of internal protective data protection measures.
Q: What are the alternatives to EU membership?
A: Despite the vote to exit the EU, it is desirable across a number of business sectors for the UK and the EU to maintain a good trading relationship that is mutually economically beneficial for both sides. There are a number of potential models that could be adopted and these include:
- The UK could exit the EU but become a member of the European Economic Area (EEA) and the European Free Trade Association (EFTA). This would mean that we could continue to have access to the Single Market. This model is often described as the “Norwegian model.”
- The UK could join the EFTA but not the EEA, meaning that the UK could benefit from the free trade agreements of this organization. The current members of the EFTA include Iceland, Liechtenstein, Norway and Switzerland. The UK could then negotiate a series of bilateral agreements to gain limited access to the Single Market. This model is labelled as the “Swiss model.”
- The UK could exit entirely from the EU and the Single Market and trade with the EU under the global World Trade Organisation (WTO) rules.
- The UK could exit entirely from the EU and Single Market and then attempt to negotiate a completely new special deal for a free trade agreement. This would likely involve long and detailed negotiations between the UK and the EU.
Which model will be implemented is currently uncertain and is likely to remain so for some time.
Q: Will Britain’s exit from the EU have an impact on UK employment law?
A: Much of the UK’s employment legislation is derived from and influenced by European law, so in the long term there is bound to be an impact on UK employment law following our exit from the EU. How these changes take effect will depend upon a number of factors, but the government is unlikely to want to cause disruption to businesses in the short-term by making any radical overhaul to employment laws.
Q: When will any changes to UK employment law take effect?
A: The exact details of any exit from the EU are yet to be decided, and there will be no immediate change to any employment laws in the UK as a result of the vote. The UK will have two years to negotiate an exit from the EU, and changes to employment laws are unlikely to be a priority for the Government during this time.
Q: Can employers continue to employ EU citizens?
A: Yes. There is no immediate change to the UK’s relationship with the EU in respect of current visa and immigration rules. EU citizens who are currently working in the UK lawfully will continue to be able to do so unless and until their immigration status changes.
Q: Which employment laws are likely to be affected by Brexit?
A: This will depend largely upon the nature of any deal reached with the EU and many EU employment provisions will likely continue to apply. The Government are unlikely to want to cause further disruption and uncertainty to business by revoking all EU derived laws, and most of our current employment laws reflect standards of good employee relations. We are likely to see a reversal of some of the more unpopular EU case law decisions, for example, the recent holiday pay decisions which held that a weeks’ pay should include commission and overtime.
Q: Are worker’s rights at risk following Brexit?
A: EU law shapes a number of worker’s rights in the UK, including discrimination, family friendly rights, working time regulations, health and safety at work and rights following the transfer of a business. A number of these rights existed in the UK before we joined the EU and in many areas, the UK has chosen to go further than required by the EU, for example, we have “gold plated” the EU 4 weeks’ paid annual leave with 5.6 weeks in the UK. Many of our family friendly rights also go further than required by the EU. It is unlikely that we would see any major changes in these areas, which have come to be viewed as fundamental rights.
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