Should we stay or should we go?
This article was previously published in the Employment Law Journal - June 2016.
On 23 June 2016 we will have an answer to the question: "Should the United Kingdom remain a member of the European Union or leave the European Union?" After weeks of escalating rhetoric it will be the people who have the last word, not the politicians.
In vetoing the United Kingdom's entry into the European Economic Community in 1963 General De Gaulle remarked: “England in effect is insular, she is maritime, she is linked through her exchanges, her markets, her and commercial activities, and only slight agricultural ones. She has in all her doings very marked and very original habits and traditions.” This referendum will, in many ways, be a public expression of whether or not De Gaulle was right all along.
Employment law has been one of the pivotal issues in the debate. Jeremy Corbyn centred the Labour Party's "remain" position on a prominent warning that a Conservative government would take the opportunity of Brexit to slash protection for workers, in a “bonfire of rights”. This is echoed in messages from trade union leaders with, for example, UNITE's campaign leaflets stating that "hundreds of thousands of our members’ jobs directly depend on our membership of the EU and crucial employment rights would be lost if we left."
The "leave" campaigners suggest that there would be a rise in job opportunities as employers are freed from EU regulations and red tape. This presumably includes labour market regulation. The open question that follows is what employment law might change in the event of a vote to leave the European Union?
A brief history
UK wide referendums are rare. To date there have only been two; one in 2011 on the issue of an alternative voting system and an earlier one in 1975 on continued membership of the European Economic Community (EEC). It was the Conservative Prime Minister, Edward Heath who took the UK into Europe in 1973 and it was the Labour Prime Minister, Harold Wilson, who called for the referendum in 1975. Both the Labour and the Conservative parties were then, as now, in favour of continued EEC membership. More than 17,000,000 The UK electorate, representing 67.2% of the votes cast, voted yes to stay in Europe.
The 1980s saw a divide develop between the UK and Brussels with the latter inching closer towards a more federal Europe. It was the Maastricht Treaty, which aside from formally renaming the EEC as the European Union (EU), introduced closer integration across Europe in employment and social issues, including health and safety, workplace conditions, equal pay and the consultation of employees. The matters were included in an addendum to the Treaty called the “Social Chapter”. John Major, the Prime Minister at the time, afraid of too much interference from Europe in workplace regulation, successfully negotiated an opt-out of the Social Chapter for the UK in 1992. However, in 1997, this opt-out was revoked by the incoming Labour Government led by Tony Blair and the UK signed up to EU employment and social protections.
The Social Chapter was the source of much of our current employment law today which now includes protections ranging from working time, discrimination and maternity rights to consultation rights and protection for pregnant workers, fixed term and part time employees and agency workers.
European and UK employment laws
Much but by no means all of our domestic employment legislation is determined by the EU. For example:
- Pregnant Workers Directive and Parental Leave Directive – govern family rights including maternity, paternity, adoption and parental leave and pay and enshrined in various UK legislation;
- European Collective Redundancies Directive – governs collective consultation as set out in the Trade Union and Labour Relations (Consolidation) Act 1992;
- Working Time Directive – sets minimum standards about working hours, rest periods, holiday entitlement and pay under the Working Time Regulations 1998;
- Acquired Rights Directive – safeguards and protects the rights of employees in the event of a business transfer as set out in the Transfer of Undertakings (Protection of Employment) Regulations 2006;
- Equal Treatment Directive – protects against discrimination as enshrined in the Equality Act 2010; and
- Temporary Agency Workers Directive – protects agency workers as set out in the Agency Workers Regulations 2010.
A potential Brexit
The exit provisions from the EU are set out in Article 50 of the Treaty on European Union which states at Article 50(1) that "Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements." Article 50(2) provides for the Union "… to negotiate and conclude an agreement with the State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union." Article 50(3) provides that the EU Treaties would cease to apply from the date of entry into force of the exit agreement or otherwise two years after notice is given of the intention to leave unless the European Council unanimously agrees an extension with the relevant State.
No other country has exited the EU before (although Greenland voted to leave the EU's predecessor, the European Economic Community (EEC), in 1985). The process to exit is not only "untested" but in the Government’s own words would: "begin a period of uncertainty, of unknown length and an unpredictable outcome." Leaving the European Union would tip the UK into a year-long recession and lower Britain's economic growth by 3.6%, according to Treasury analysis.
No-one can yet say with any certainty what the outcome will be. At best, we can only speculate. David Cameron's former strategy advisor, Steve Hilton writing in the Daily Mail on 23 May 2016 commented that if the UK votes to remain the EU would be "…. unleashed, freed from the constraints of having to placate the pesky British with their endless complaining and threats to leave. Once they know we will never leave, all our leverage will be gone. Look how they treated a British Prime Minister armed with the threat of Brexit. Can you imagine how they would treat a future PM without such a powerful card to play?" That may well be right but imagine how they would treat a future Prime Minister representing a country that had voted to leave. It seems naïve to assume that the divorce would be anything other than acrimonious.
It also seems naïve to assume that David Cameron would remain in office. The biggest task for the Prime Minister in the aftermath of a vote to leave will be the negotiation and conclusion of the exit agreement. It is difficult to imagine the electorate tolerating the man who led the remain campaign negotiating the exit agreement, even if David Cameron resigned to trigger a "back me" leadership election within the Conservative Party as John Major did in 1995. Indeed it is difficult to imagine any pro-remain politician leading the UK's exit negotiations. It is more likely, we suggest, that the leave campaigners would come to prominence in the Government and with them an even more deregulating agenda than under the Governments led by David Cameron.
The minimum service requirement for claiming unfair dismissal is a useful barometer of the regulating and deregulating, left and right, ping and pong that has characterised the Labour and Conservative approach to employment law over the last four decades. This basic protection against arbitrary dismissal is domestic in origin, not European, but it suggests a pattern which could be repeated for all employment legislation, freed of membership of the EU albeit subject to the terms of the exit negotiations.
Unfair Dismissal – minimum service requirement
|Qualifying period||In force||Political party||Additional notes|
|Two years||April 6, 2012 to date (SI 2012/989)||Conversative led Coalition|
|One year||June 1, 1999 to April 5, 2012 (SI 1999/1436)||Labour|
|Two years||August 22, 1996 to May 31, 1999 (Employment Rights Act s92(3))||Conservative|
|Two years||June 1, 1985 to 1996 (SI 1985/782)||Conservative|
|One year*||October 1, 1979 to 1985 (SI 1979/959)||Conservative||*Two years for employees in firms with fewer than 21 employees in 1980 under the Employment Act 1980|
|Six months||November 1, 1978 to October 1, 1979 (Employment Protection (Consolidation) Act 1978 s.64)||Labour|
|Six months||1975 to 1978 (Trade Union and Labour Relations Act 1974 sch1, para 10*)||Labour|
|One year||1974 to 1975 (Trade Union and Labour Relations Act 1974 sch1, para 10*)||Labour (minority government) from March 1974, Labour (majority government) from October 1974||*In force September 16, 1974|
|Two years (not less than 104 weeks)||1972 to 1974 (Industrial Relations Act 1971 s28*)||Conservative||*Royal Assent 5 August 1971 but s.28 brought into force 1972|
The extent of any changes will depend on the type of economic and trade relationship negotiated with the EU for any continuing EU/UK relationship post-Brexit. The possible options include:
The Norwegian Model – Leave the EU but become part of the European Economic Area (EEA) and the European Free Trade Association (EFTA). The UK would have a free trade agreement with the EU, however, in return it would be required to comply with EU employment legislation given that the EEA Agreement incorporates many EU Directives including the Acquired Rights Directive, the Working Time Directive, the Agency Workers Directive and the Equal Treatment Directive. The UK would therefore still end up bound by such directives, but it would lose any right to have a say in the decision-making processes on such EU legislation.
The Swiss model – Leave the EU, remain in EFTA only and have negotiated bilateral trade agreements with the EU. It is likely the UK would, in return, be required to comply with certain EU employment legislation.
A bespoke UK model – Negotiate a bespoke "UK model" separately with the EU. This could provide for a continued relationship with the EU with, as a minimum, some form of free trade agreement. However, the EU could still require the UK to retain EU employment laws in return for such an agreement.
A WTO-only model – If the UK left the EU without an agreement in place to govern a new relationship with the EU, its trade relations would be governed by World Trade Organisation rules.
Employment law post Brexit
Brexit would be a move towards greater freedom of contract. The abolition of all laws that flow from Europe is theoretically a possible outcome. However, the uncertainty created and the fact that many EU laws, such as TUPE and certain strands of discrimination, are now fully embedded in the UK make universal abolition practically and politically difficult. The CBI has commented that businesses recognise the value of a framework of basic rights for employees (e.g. the national minimum wage) given that such regulations help the UK’s labour market function effectively. However, let us not forget that the CBI initially opposed the introduction of the national minimum wage, which weakens their argument that there is a framework of basic employment rights somehow set in stone. What is likely to happen is a gradual chipping away at certain employment rights once the Government has decided what to keep and what to discard.
The mechanism for repeal would suggest a prolonged period to consultation and transition. Those European laws that have been implemented in the UK by primary legislation (e.g. the Equality Act 2010) would need to be specifically repealed by the Government. Other European laws have been implemented in the UK by way of Regulations passed under the European Communities Act 1972 (e.g. the Working Time Regulations and TUPE). In the event the Government repealed the Communities Act 1972, it is uncertain whether any such Regulations made under it would automatically fall away or not.
Working time is an area where we could expect some big changes. The Working Time Directive imposes a maximum working week and minimum paid statutory holidays. Without such legislation, employers could, in theory, impose longer working weeks with more limited rest breaks and no paid holiday and there would be no fall-back legal protections for employees. Limited changes are more likely such as a removal of the right to carry over annual leave when on sick leave and a return to the calculation of holiday pay on the basis of basic pay only (i.e. without including overtime or commission payments). It is also likely that the largely toothless maximum 48-hour week would be removed.
The Government has already consulted on a proposal to repeal the service provision change test under TUPE in 2014. However, it decided that doing so would create uncertainty for business and no changes were made. A major objection was that a transferee, having received a workforce at the start of a service contract may have budgeted on the basis of being able to pass on employees at a replacement supplier through TUPE at the end of that contract. That transferee could be left with unbudgeted redundancies on the abolition of TUPE or of the service provision test in TUPE. This problem could however, be mitigated with a gradual repeal of TUPE on a long transition period lasting several years. Alternatively, the Government may make changes to make the TUPE Regulations more business friendly, for instance, making it easier for employers to harmonise terms and conditions or to dismiss following a transfer. TUPE is an area of employment law where amendments could be made with little electoral risk for the Government.
The Agency Worker Regulations currently provide the minimum protection to agency workers required under EU law and have received little support from businesses. The legislation is viewed by many on the right as unnecessary red tape creating a burden on business. There may therefore be little resistance to amendments to the legislation and it is highly likely effort will be made to reduce the impact of this legislation, including a complete repeal if possible or removing the requirement for pay parity after 12 weeks.
Domestic protections against sex, race and disability discrimination developed largely outside of EU intervention. It is almost inconceivable that the current Government would repeal the Equality Act in the event of a vote to leave. Anti-discrimination laws are therefore almost certainly here to stay. Uncapped discrimination awards may be vulnerable to change. The compensation cap originally contained within s.65 of Sex Discrimination Act 1975 was repealed by the Sex Discrimination and Equal Pay (Remedies) Regulations 1993/2798 which came into force on November 22, 1993. These Regulations, which were made under section 2(2) of the European Communities Act 1972, were made for the purpose of ensuring that the remedies available under domestic legislation relating to sex discrimination and to equal pay for men and women complied with the requirements of Council Directives 1975/117/EEC(1) and 1976/207/EEC(2) (following the judgment of the European Court of Justice in Case No C271/91-Marshall v Southampton and South-West Hampshire Area Health Authority (No.2)). Removal of the equivalent cap in the Race Relations Act 1976 followed shortly behind. Brexit could present an opportunity to reintroduce a maximum cap, as already exists for unfair dismissal awards.
Many of the rights in the UK that protect women during pregnancy and maternity leave emanate from Europe. Interestingly, the right to statutory maternity pay in the UK exceeds the minimum required by the Equal Treatment Directive, with the EU minimum being 14 weeks’ paid leave. It is unlikely that any Government would want to be seen to be removing existing equality rights but it is possible that these rights could be vulnerable in the face of a Government in favour of deregulation, for instance by repealing the right of first refusal in a redundancy situation or the right to accrue annual leave whilst on maternity leave.
Often viewed as a burden on business, amendments to the collective consultation obligations could be seen as an easy win for the Government in the event of Brexit. There could be a further reduction in the consultation period but this is likely to be faced by resistance from the trade unions.
ECJ decisions have shaped the decisions of the UK courts and it is not known what would happen to any ECJ decisions handed down before or during any transitional period following Brexit. In particular, would they still be binding on the UK courts? Would UK cases have to go all the way to the Supreme Court to make new law? Would previous UK cases that relied on ECJ decisions no longer be good law? It is likely that the UK courts would continue to see ECJ decisions as persuasive rather than binding authority.
Given that there is a two year notice period to exit the EU, there are unlikely to be immediate changes to EU derived UK employment law in the event of a vote to leave. Much will depend on the negotiations over the future relationship between the UK and the EU. That is not to say that an emboldened, right of centre Conservative Government led by leave campaigners impatient to deliver deregulation, would not seek to make further dramatic changes to domestic UK employment law, for example, reversing the living wage and further reducing the cap on unfair dismissal compensation. We have already seen dramatic effects on access to justice through the introduction of Employment Tribunal fees with no sign of any change of policy. There is no reason to suspect that the appetite for deregulation has been sated or that further amendments to domestic legislation would be delayed in the event of Brexit negotiations. Longer term, freed or at least freer of EU influence UK employment law could start to look dramatically different. But in the much quoted and probably apocryphal words of Zhou Enlai "it is too early to tell".