International Newsletter

United Kingdom—Brexit Delayed: the Uncertainty Drags on

May 24, 2019
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It has been nearly three years since the British public narrowly voted to leave the European Union (EU)—yet agreement on the terms by which the United Kingdom leaves seems as far away as ever. As a result, the EU has agreed to a request by the British Government to delay Brexit from March 29, 2019, to a new target date of October 31, 2019–with Brexit opponents gleefully pointing out the appropriateness of that date being Halloween!

The extension to the original two-year notice period was agreed to avoid a so-called “No Deal Brexit,” which would have seen the United Kingdom “crash out” of the EU without replacement arrangements for the tariffs, business regulations, and thousands of other areas of EU cooperation including policing, fisheries, and medicine.

Although the UK Government reached agreement with the EU on the terms of the “divorce”—the so-called Withdrawal Agreement—it was subject to ratification by the UK Parliament, which has failed to back it. Furthermore, it has failed to identify any alternative way forward.

The impasse is because there are broadly speaking three different camps amongst lawmakers, not one of which is able to command a majority of votes:

  1. Those who want the United Kingdom to remain in the EU trading arrangements such as the EU Customs Union—membership in which is open to non-EU countries that wish to benefit from being part of the EU trading block and accept some EU rules in return (a so called “Soft Brexit”).
  2. Those who want to cut all ties with the EU including those around trade and tariffs (a so called “Hard Brexit”).
  3. Those who feel the public were misled by the alleged benefits of Brexit and want to remain in the EU.

It is difficult to predict which of these options will ultimately prevail.

What Does This Mean for Employers?

The biggest problem for businesses is the uncertainty, which is making investment decisions difficult. There is significant anecdotal evidence that multinational businesses are currently avoiding investing in the United Kingdom and choosing other countries that offer greater certainty. By way of example, a number of major international car manufacturers have scaled back production in UK plants in favor of investment elsewhere, with some at least citing Brexit as a factor.

Another area of uncertainty is around business immigration. It seems likely that the principle of freedom of movement of labour, which allows EU citizens to live and work in any other EU country, will end on Brexit. It was cited as a major reason for voting Brexit by a majority of Brexit voters questioned in a survey. The United Kingdom is half the size of France but has an almost identical population size at 65 million people and many feel the country is at full capacity. It is likely that a system of work permits will eventually be introduced between the United Kingdom and the EU adding bureaucracy and uncertainty to business mobility. In the meantime, businesses can reassure concerned immigrant workers that both the United Kingdom and the EU have said they will not forcibly repatriate anyone already in place on Brexit day. There may however be a need to complete paperwork to remain in place, in relation to which employers will want to assist affected employees.

An area where Brexit will not bring significant change, at least initially, is employment law. This is despite the fact that many UK employment laws derive from EU law. The reason is that the UK Government will “cut and paste” that EU-based law into the UK statute book so there is not expected to be an overnight change in what the law says. However, after Brexit, it is possible UK employment laws will evolve away from EU law. EU laws on agency workers and working time are two laws many employers would like to see revoked or amended. EU law may also evolve in a different way than what may have been if the United Kingdom had remained a member country, with the United Kingdom’s voice no longer at the table when those laws are discussed and created. Many had seen the United Kingdom as a business friendly influence on EU legislation.

Comment

When and how Brexit will eventually be resolved remains uncertain—but eventually, surely, that time must come. Employers with EU workforces should keep informed on the subject and understand the impact the eventual outcome will have. In the meantime, providing reassurance to employees and planning for a tighter work permit environment is sensible.

Written by Roger James of Ogletree Deakins

© 2019 Ogletree, Deakins, Nash, Smoak and Stewart, P.C.