Labouring the point – Brexit uncertainty and Employment Law

An essential part of the exit of the United Kingdom from the European Union will be the repeal of the European Communities Act 1972. That Act is the primary legislation that incorporates European Law into the UK’s domestic law. This is very significant for industrial relations as a significant proportion of the UK’s labour law derives from the EU. The Government has already committed to converting all employment legislation into domestic law, so at least in the short-term the effect should be negligible. However, much uncertainty still remains.

Dilution of Rights

A key concern raised by workers’ representatives is that when EU Law is transferred into domestic legislation, it will be implemented by way of Regulations rather than Acts of Parliament. This means that it will bypass the parliamentary debate phase and thus run the risk of being watered down into reduced employee rights or legislation that employers (and their legal advisers) find easier to exploit. Notably, the Trade Union Congress has expressed concerns in this regard, particularly as it perceives a general failure on the part of the Government to keep pace with the changing nature of the economy and preserve the rights of workers on the fringes of the mainstream workplace, such as agency workers or those working in the “gig” economy.

Areas considered particularly right for dilution of rights include those that arise on the transfer of a business or change of service provider and under discrimination law. The Transfer of Undertaking (Protection of Employment) Regulations 2006, which are the Regulations that preserve employment protection on the sale or transfer of a business or change of service provider, are perennially unpopular with businesses. Although these Regulations are unlikely to be repealed, there is a suggestion that harmonisation of terms (something currently very difficult to achieve) may be made much more straightforward, allowing a new employer to impose less favourable terms on its workforce in line with the terms and conditions of its existing workforce. There would be some rationale to such an adjustment as it would bring a sale of business assets in line with a share sale.

Protection from discrimination is far too deeply enshrined (much of the UK legislation predates that of the EU) to be repealed, but there is real concern from worker representatives that a cap on compensation might be applied such as currently exists for unfair dismissal claims. This would of course be advantageous to employers because of the lack of a cost regime in Employment Tribunal claims. In vanilla unfair dismissal claims, compensation is capped at the lower of one year’s pay, or about £80,000. Currently compensation where the dismissal is for a discriminatory reason or for whistleblowing is currently unlimited. The costs of running an even straightforward Employment Tribunal claim for unfair dismissal can be upwards of £50,000 and the general rule in such proceedings is that win or lose both sides bear their own legal costs. It can be seen therefore that for an employee to litigate an unfair dismissal claim alone is seldom cost effective. However, in discrimination claims and whistleblowing claims where compensation can run to seven figures, the landscape is currently very different. Impose a cap on discrimination and whistleblowing compensation and the outlook is dramatically changed.

Holiday and working time rights are equally enshrined, but there are some various anomalies arising under EU law, which are perceived by employers as unattractive. For example, workers on sick leave are able to continue to accrue holiday, so this means a worker who is absent on sick leave for a year can still “take holiday” during which time they are entitled to receive their normal full pay. Understandably this sits awkwardly with many businesses.

Role of the CJEU

Post Brexit the UK will fall outside the direct jurisdiction of the Court of Justice of the European Union (CJEU). This must be absolute as no nation can cede jurisdiction into another nation, as this would entirely contradict the principle of respect and recognition for a sovereign state. The Government’s “Future Partnership Paper” published on 23 August 2017 states that following the withdrawal from the EU, all CJEU decisions that predate Brexit will have the same precedential value as if they were decisions to the UK Supreme Court. This is important as currently the UK Courts must interpret law derived from the EU in accordance with judgments of the CJEU and following established precedents is necessary to preserve legal certainty. However, it does mean that arguments based on the supremacy of the CJEU will no longer be valid. UK Courts will continue to use CJEU decisions for guidance, but they will not be legally binding and the removal of the CJEU as the final arbitrator will remove a layer in the litigation process and UK Supreme Court will become the Court of last resort.

The draft of the European Union Withdrawal Bill 2017 provides that no references can be made to the CJEU after the “Exit Day” and although Courts and Tribunals may have regard to EU case law, in making determinations they are not bound to do so. There is also a power under the Bill to rectify any “failure of retained EU law to operate effectively”. There are certain restrictions on when this power may be exercised (for example in relation to tax and criminal law), but there is currently no fetters regarding removing or amending employment law.

Conclusion

Although in theory following Brexit all employment law could be repealed, it is clear that this will not occur and the EU will continue to exercise a significant influence. The reason for this is twofold. Firstly, the fact that many laws perceived as European actually predated the European legislation and secondly, there is an overwhelming business reason to have an ongoing relationship with the EU, so that the UK is clearly going to have to have “equivalence” with the EU Regulations to maintain access to EU markets.

If you have any further questions regarding this topic or any employment issues, please contact Rachel Harrap – Partner, or any member of the Edwin Coe Employment Team.

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