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Implications of Brexit trade deal for UK Employment Law

22nd January, 2021

After intensive negotiations, on 24 December 2020 the UK and EU finally reached an agreement on the terms of their future cooperation.

In this article, Steve Davies, Associate Solicitor, considers what the implications of this historic deal might be for UK employment law.

Where does UK Employment law come from?

Employment law in England & Wales comes from 3 main sources:

  • Common law – this is the law which has been developed over many years by our own judges here in the UK.
  • Domestic legislation – this is the law which is made by the UK Parliament, usually in the form of statutes, such as the Employment Rights Act 1996.
  • European law –a significant proportion of our employment law comes from the EU. Particularly in areas such as: discrimination; collective consultation; transfer of undertakings (also known as Tupe); and many of the so-called “family-friendly” rights. These are known as EU-derived rights.

The UK’s departure from the EU may have implications for some of these EU-derived rights.

Withdrawal from the EU

The European Union (Withdrawal) Act 2018 became law in June 2018. One of its most important provisions was to convert EU law into UK law almost exactly as it stood at the moment the UK left the EU. In other words, it created a snapshot of retained EU law which essentially means that EU derived employment law remains applicable in the UK. Well, at least for the time being.

Future UK-EU relationship

In general, it would appear that retained EU law must be interpreted by Employment Tribunals in England & Wales in accordance with retained EU case law and retained general principles of EU law. However, there is an important exception to this:

  • The higher courts in the UK (where appeals are made from the lower courts and tribunals) are not bound by retained EU case law. These courts are permitted to depart from EU case law “where it appears right to do so”.

This is a significant development, and some argue represents a departure from the so-called “Supremacy of EU law”.

Moreover, and unlike for retained EU law, an Employment Tribunal is not bound by EU case law made after 31 December 2021 (“Transition Period”).

That said, Employment Tribunals are permitted “to have regard to” any new EU case law “so far as it is relevant to any matter before the Employment Tribunal”. This means that both employers and employees can still seek to rely on new EU case law. It will be interesting to see whether Employment Tribunals in the UK continue to apply EU case law in the future.

The Trade and Cooperation Agreement (“Trade Agreement”)

This was the trade agreement agreed by the UK and the EU on 24 December 2020.

In return for a tariff and quota free trade deal, the UK (and EU) agreed not to reduce employment law rights below the standards that exist as at the end of the Transition Period, to the extent that such a reduction would affect trade or investment. This is often referred to as the “non-regression” clause, or the “level playing field”.

Whilst the Trade Agreement doesn’t absolutely prevent the UK from reducing employment rights i.e., only when such a reduction affects trade or investment, it does raise a couple of important (and as yet untested) questions: (1) what level of reduction of employment rights might be considered to affect trade or investment; and (2) what the EU can actually do about it.

Reduction of employment law rights

My own view is that minor changes by the UK to employment rights that doesn’t give the UK a competitive advantage will probably be permissible. However, more significant changes – such as an overhaul of working time regulations, or agency worker rights – are very likely to affect trade and investment, as a reduction of these rights may give the UK a competitive advantage – it is argued that more employers would want to be based in the UK, as opposed to the EU, if they could subject workers to longer hours, obtain greater flexibility, and thus increase profits.

Potential consequences

All of this could give rise to significant disputes between the UK and EU in the future. Should the UK diverge from the EU in relation to employment rights in a way that materially impacts trade or investment, the EU has reserved the right to take “rebalancing measures”, which could involve the EU imposing tariffs on certain UK imports.

Brexit – the reality

Although much of our employment law derives from the EU, my view is that, at least in the short term, Brexit will have limited implication for employment law in England & Wales. However, there is clearly some scope for the UK to amend its laws, and ongoing uncertainty about the future of EU case law.

Indeed, the Financial Times reported in January 2021 that employee protections enshrined in EU law could be “torn up” under plans being drawn up by the UK government. However, Business Secretary Kwasi Kwarteng has more recently confirmed that the UK government has begun a post-Brexit review of UK employment law but had no plans to reduce workers’ rights.

This is something we will all need to keep a keen eye on in the future.

Steven Davies

Employment Law Associate
Email: [email protected]
Tel: 01244 405 504

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